Navigating Affordability Trends in this Automotive Market | vAuto
Helping Dealers Navigate Today’s Vehicle Affordability Challenge
Few dealers would argue that it’s more difficult than it’s ever been to make new or used vehicle deals with customers due to affordability challenges.
With an average price of a new vehicle at nearly $48,000 in 2024, auto loan interest rates at their highest levels in decades and greater competition for a limited supply of older, more affordable used vehicles, it’s difficult for many customers to purchase the new or used vehicle of their choice.
Cox Automotive chief economist Jonathan Smoke says the current state of vehicle affordability has been a primary factor holding back the pace of new and used vehicle sales through much of the year. Vehicle affordability is also a contributor in two key findings of Cox Automotive’s Dealer Sentiment Index for the third quarter of 2024:
- The economy ranks as the No. 1 concern for dealers. They understand that broader economic conditions—including concerns about inflation, the job market and uncertainty—affect the desire and interest of vehicle buyers to make a vehicle purchase.
- Interest rates rank as the No. 2 concern for dealers. There’s no question that an average new vehicle interest rate of more than 9 percent, and the average used vehicle interest rate of nearly 14 percent, make putting together a finance deal for many customers impossible (particularly given the size of negative equity in many owners’ current vehicles).
It’s no wonder that dealers also are feeling ever-greater pressure to reduce their asking prices for new and used vehicles to move inventory—even if it means giving up profits to make a sale.
But there are other ways to contend with the current vehicle affordability challenge that isn’t solely about taking less to sell more. Below, we’ve outlined several considerations dealers might apply in their new and used vehicle departments:
Leveraging Technology for Affordability-Minded Vehicle Advertising
Effective Incentive Management
A return to more normal levels of new vehicle inventories, coupled with affordability serving as a value check on sales volume, has spurred OEMs to increase their incentive spending. That’s the good news.
At the same time, though, the OEMs have made their rebate and incentive offers more intricate and complex for dealers to manage. This reality has spurred enhancements to vAuto’s new vehicle inventory management solution, Conquest, to help dealers take full advantage of the targeted, VIN-specific incentives OEMs are now putting into the marketplace. The enhancements ensure dealers can automatically apply the mix of incentives they prefer to offer across new vehicle models and trimlines, as well as ensuring the VIN-specific incentives are correctly applied to the right vehicle.
Conquest helps dealers ensure that their online new vehicle listings present the best possible mix of incentives and competitive asking price so budget-conscious buyers can see your best price when they shop online.
Dynamic Pricing Models
We’re long past the point where dealers are able to sell vehicles at or above the Manufacturer’s Suggested Retail Price (MSRP). The rise of new vehicle inventory, and the six-to-seven-fold increase in floorplan expense, has put significant pressure on dealers to reduce their retail asking prices.
The key for dealers, however, is to have a keen understanding of the specific vehicles in your inventory that pose a risk of not selling if they’re priced to high, and those that can command a higher price due to the supply/demand dynamics in a local market. On top of that, it’s imperative that dealers price their vehicles with a keen understanding of each unit’s time in inventory to avoid creating additional floorplan expense that results when someone isn’t paying attention to inventory age.
vAuto’s Conquest solution helps dealers manage both of these important fronts. With Conquest, dealers can create automated pricing rules that are calibrated to adjust prices as vehicles age and their Market Days Supply changes. In addition, dealers can use Conquest to keep close tabs on competitors’ pricing to ensure their pricing rules that correspond to a dealer’s strategy to drive sales volume, gross profit or a combination of both.
It should be understood by every dealer that your ability to retail new vehicles depends to an ever-increasing need to provide transparent new vehicle pricing. The more gamesmanship you apply in your pricing, the less likely you’ll see potential buyers taking interest in your vehicles. Today’s consumers expect clear and straightforward pricing information, free from hidden fees or surprises. Dealers that prioritize transparency build trust with customers earn their business and enhance their reputation.
Innovative Merchandising
Perhaps the most fundamental shift in new vehicle merchandising in recent years rests with the way consumer expectations have changed. They want to see and explore the vehicle you have in your inventory to sell, not just a stock image of the type of vehicle that holds their interest.
Similarly, it’s important for dealers to understand that the story they use their merchandising to tell about a new vehicle depends on the vehicle. That is, some vehicles have specific packages that should be featured to capture the most potential interest, while the attention-getting features of other vehicles may be different.
Consumer tastes have also shaped their expectations for how you present each new vehicle’s Vehicle Details Page (VDP) carousel. As vAuto Performance Managers will point out, the VDP carousel has transformed to become your “online showroom” where consumers spend much of their time evaluating (or affirming) that the vehicle they have in mind is truly the one they want.
vAuto’s merchandising solutions, including Vehicle Intelligence 360 and Intelligent Promotion, work in tandem with our Conquest solution to help dealers efficiently manage today’s vehicle merchandising challenge to ensure that each vehicle’s story gets told, and shows up, in the proper light that today’s vehicle buyers expect.
In addition, dealers should also understand that other merchandising techniques, such as personalized video tours and interactive online listings, can make vehicles more appealing to potential buyers.
All together, these techniques and the vAuto merchandising tools that enable them, help dealers showcase the unique features and benefits of each vehicle, helping customers make informed decisions.
The Role of vAuto in Supporting Dealers
Superior Insights and Strategic Planning
vAuto offers dealers superior insights and strategic planning tools that help optimize inventory management and pricing strategies in today’s market. Through a combination of data-driven insights and expert coaching, vAuto empowers dealers to make smarter decisions more efficiently and achieve greater profitability as they retail vehicles for their optimal return.
Real-Time Market Data
Access to real-time market data is critical for staying competitive. vAuto's live market view provides dealers with up-to-date information on market trends, enabling them to adjust their strategies quickly and effectively. This real-time data helps dealers stay ahead of the curve and respond proactively to market changes.
Performance Management and Continuous Improvement
Performance management is a key component of vAuto's approach. By partnering with experienced performance managers, dealers receive personalized coaching and support to continuously improve their operations. This collaborative approach ensures that dealers are always optimizing their performance and achieving their business goals.
By leveraging technology, offering transparent pricing, and managing incentives effectively, dealers can attract more buyers and drive sales. Partnering with vAuto provides dealers with the insights, tools, and support needed to stay ahead of the curve and achieve long-term success.
Ready to take your dealership to the next level? Explore vAuto's solutions and see how we can help you optimize your inventory management and drive profitability.