New Ways to Maximize Dealership Profitability

Adapting to Market Changes: New Strategies for Automotive Dealerships

The automotive retail landscape has undergone significant transformations in recent years, particularly evident in the shift from new to used vehicle sales. In 2021, franchised car dealerships saw an increase in used vehicle sales from 33% to 36.7%, while new vehicle sales dropped slightly. This trend underscores a broader shift towards used vehicles, driven by factors like affordability and the availability of quality options​ (Mordor Intel)​. Additionally, in mid-2022, franchised light-vehicle dealers sold 6.8 million light-duty vehicles, showing a recovery in sales volume​ (Research & Markets)​.

The U.S. automotive dealership market is expected to reach USD 257.3 billion by 2028, with a growth rate of above 4% over the next five years​ (Research & Markets)​. This growth is supported by the continued recovery of the market post-COVID-19, technological advancements, and the increasing consumer preference for a hassle-free buying experience.

Innovative Revenue Streams

These insights are indicative of a rebounding market with ongoing adjustments to consumer behaviors, technological integrations, as well as being reactionary to inflation and recession fears that continuously loom over the US economy. As the front and backend gross profits continue to evolve, dealerships must explore innovative revenue streams beyond traditional finance office operations. These include subscription maintenance services, biweekly payment plans, and parts lifetime warranties which are emerging as profitable avenues. These offerings not only enhance revenue but also provide an opportunity to improve customer loyalty and satisfaction by providing added real value.

Training Remains Essential to Profitability

Moreover, the importance of effective training, and cross-training, for sales and finance teams cannot be overstated. Today's market conditions demand that dealership personnel not just sell, but act as advisors who guide customers through the buying and F&I process. Implementing a robust onboarding process for new sales professionals and F&I managers is crucial. Essential training elements should include a professional handoff from sales to finance, a strong value statement before any sales presentation in the finance office, and a thorough customer needs analysis to ensure the right vehicle match from the start (CDK 2024 Insights).

Revenue Streams Beyond the Finance Office

Traditionally, automotive dealerships have aptly relied on their finance offices to drive profitability through financing options and insurance products. However, as market dynamics shift, there is a growing importance to continue to diversify revenue streams. Diversification helps stabilize income as consumer preferences evolve and economic conditions change.

Dealerships are increasingly considering service-based models that provide consistent revenue over time. These models cater to changing consumer expectations, who now seek more comprehensive and hassle-free ownership experiences.

Product Ideas to Enhance Revenue

1. Subscription Maintenance Services: This model allows customers to pay a recurring fee to cover routine maintenance for their vehicles. It simplifies budgeting for customers and ensures regular service drive visits, increasing customer retention. Subscription models are particularly appealing in an era where consumers are accustomed to subscription-based services in other areas of their lives.
2. Post-Sale Marketing of Vehicle Service Contracts: We know that automotive protection contracts offering extended warranties can be a significant revenue source. These plans provide customers with peace of mind against unforeseen repairs beyond the standard warranty period. They can be tailored and white labeled to cover critical components like the powertrain, electrical systems, and even routine wear and tear. You can market these plans to customers who did not buy at the time of purchase.
3. Biweekly Payment Plans: These plans can help customers manage their finances better by aligning car payments with their payroll deposits. This can reduce the financial burden on the customer while reducing the loan term, accelerating equity and interest paid, making it a win-win for both the customer and the dealership.
4. Parts Lifetime Warranties: Offering lifetime warranties on parts for services that customers pay for out-of-pocket can differentiate a dealership from its competitors. This not only enhances customer trust and satisfaction but also encourages customers to return for future service drive needs, thereby increasing long-term service revenue. While providing another reinsurable profit center for ownership.

Dealers choosing to implement these types of innovative products not only diversify their revenue stream, but also enhance the overall customer experience, potentially attracting new customers through word-of-mouth and positive reviews. Such strategies are crucial in a market where consumers increasingly value convenience, transparency, and added value in protecting their purchasing decisions.

Embracing new business models and training strategies will be vital for dealers aiming to thrive in a rapidly changing market. By focusing on innovative solutions and comprehensive training, dealers can enhance their service offerings and sustain profitability in the face of shifting market dynamics.

All this leads back to partnering with the right income development company which is pivotal. These partnerships can furnish dealerships with the tools and strategies needed to adapt to market changes and consumer behaviors, which have notably shifted towards online purchases and away from traditional showroom experiences​ (Mordor Intel)​​ (Research & Markets)​.

If you’re evaluating your next move or potential partnerships, reach out to Brandon Bell by email at bbell@ezvds.com or on LinkedIn to start the conversation.