Traditionally in my January blog, I stick my neck out and try to forecast some macro trends that I believe will affect the automotive sector in the coming year. Here are my three predictions for 2022.
1. The looming reduction in service hours
As I mentioned last month, following two years of reduced cars sales due to COVID and production problems, franchise dealers will face significant pressure on their service hours. Assuming the ‘natural’ state for new car sales in the UK is around 2.1 million vehicles, the reduction in new vehicles over the last two years is around 1.2 million.
Franchise dealers get the bulk of their service work from vehicles that are between one to three years old. The fall in vehicles over 2020 and 2021 represents approximately a 20% drop in what would have been expected in the workshop versus what will come through. Come mid-year, dealers’ workshops will start to feel this drop.
The way to combat this challenge is to actively conquest overage vehicles with special service plans fit for the older market. This can be made up with a combination of spreading payments, price matching, and emphasising the importance of a dealers stamp in the service book.
2. Automotive consumers will get shyer
‘Digital dealer’ is the current buzz phrase in automotive retail. Convince the city you’re ‘digital’ and you’ll get a ridiculous valuation for your company.
Stripped back, digital means that consumers are more reserved and prefer to interact in ways that mean they don’t have to see you face-to-face. Covid-19 has sped this up.
The right application of technology allows dealers to take some of the boring processes out of their interactions and give a consistent level of service.
However, the need to provide excellent human interaction is still essential.
It’s easy to try and digitalise all interactions, but customers still want to talk to dealers and get an instant response.
Despite the various lockdowns, we’ve seen call volumes expand to above pre-Covid levels. Winning dealers are those that create the best mix between using technology for process improvement, while being on top of their core communications channels (telephone, live chat, email, etc).
Don’t follow the digital herd if it means replacing human interactions with automated messaging. When your customers contact you (even if it’s not as often as you’d like) they want to talk to a person.
Being phone fit, responding quickly, and giving rock star customer service will single your dealership out from the crowd.
3. The used market will continue to be strong for the whole year
Despite the potential for the economy to contract when we start to pay for Covid-19 with increased taxes, the fundamental supply balance for used cars has shifted significantly. Even if demand slows with the lack of new cars, there’s a significant reduction in suitable vehicles.
The following graph comparing Autotrader stock for sub one year, 1-2 year, and 2-3 year stock in 2019, 2020, and 2021 shows this reduction:
The overall market for one to three year stock has contracted by 46% since 2019. This represents circa 93,000 fewer vehicles for sale.
Assuming automotive dealers can get hold of suitable stock, the ability to make excellent profits will remain. If the new market does pick up with supplies easing, this will not cause a sudden decline in prices because of the scale of the shortfall in one to three year stock.
Headline Autotrader figures
- 2021 stock, MoM 8.7% increase, YoY 47.3% decrease
- 2020 stock MoM 8.3% increase, YoY 39.9% decrease
- Total market MoM 3.4% increase, YoY 11.8% decrease
Top 5 brands by market share of 2021 stock
- VW 12.7%
- BMW 10.5%
- Audi 10.4%
- Mercedes 6.2%
- Volvo 5.8%
Wishing you all a prosperous 2022. I look forward to seeing new and old friends this year. Looking back at the last two years, I feel proud and humbled to be part of a sector that never ceases to amaze me with its resilience – regardless of what’s thrown at it. Roll on 2022 – there’s a lot to do!