Here’s what’s cookin’ today in Transmission:
- Dealer outlook for 2021 positive after a surprisingly positive 2020
- Ford and Google team up
- Industry news
Dealer outlook for 2021 positive after a surprisingly positive 2020
Auto dealerships across the nation were hit hard during the pandemic, fueling the belief that 2020 was going to be disastrous for sales. Tight inventory and stalled production were a few headlines that circulated throughout the course of last year.
However, much to the surprise of industry professionals across the country (and me), data from the National Automobile Dealers Association (NADA) indicated the average dealer net pretax profit for 2020 stood at $1,786,149, up 33% from 2019. (December data hasn’t been included yet, which only adds to the surprise.) The previous record was $1,503,432, reported by NADA back in 2015.
At the end of 2020, total vehicle and auto part sales came in around $1.15 billion, up 10% compared to 2019 and 14% compared to 2018. If anything, the chart above highlights the industry’s resilience during the chaos. After production was shut down from March through May, the remaining months of 2020 highlight the hard work the industry put in to correct inventory and catch up on outstanding orders.
In the Automotive News 2021 Dealer Outlook Survey, nearly 66% of the 183 dealer executives surveyed said they posted record-breaking years. Those sales figures are especially remarkable given the supply chain disruptions and volatility in consumer spending over the course of the year. Half the respondents were optimistic that 2021 would be more profitable than 2020, even with the year starting off with tight inventory and the chip shortage.
What factors drove success at dealerships? Stimulus checks and low inventory. This goes without saying (and was covered in a previous edition of Transmission), but the combination of stimulus checks and low interest rates persuaded consumers to buy. Dealers also widened profit margins due to higher-than-normal transaction values caused by low inventory.
The gist: Simply put, 2020 turned out better than anticipated. Dealers: Stay flexible. Every dealer ran into a variety of issues (low inventory, sick staff, tough spring season, the list goes on). Those that were flexible were successful, whether that meant transitioning to one shift instead of two, reducing store hours or restructuring pay plans.
Another thought for dealers: Consider the shift to an omnichannel sales experience to prepare for the future. The virus has exposed the vulnerability of dealerships that don’t offer an online channel. Customers couldn’t come to dealers in person due to government mandates and even when the government lifted those restrictions, many consumers were nervous about the possibility of exposure.
The idea behind an omnichannel sales strategy is to create a seamless consumer experience by integrating any minor touchpoints or parts of the purchasing process online to improve satisfaction. This strategy enables customers to possess the confidence needed when making an important purchase.
The Automotive Retail Consumer Survey, organized by McKinsey & Co., found that 60% of consumers in the market for a vehicle find it appealing to book, pay and review additional services online. Consumers are also comfortable conducting research online with hopes that their effort will show in-store. In essence, it all comes down to saving time at the dealership.
“That omnichannel experience really delivers on the time savings,” Brett Pomerantz, senior director of product for retail experience, said. “You don’t have to redo the different elements of what you were able to do online. … You can come into the store with a deal in hand, and really now you’re just confirming what you did online with this in-store experience.”
The days of transitioning to a completely digital purchasing process aren’t anytime soon, but the pandemic definitely accelerated the conversion. In order to continue being successful, dealers should adapt to growing consumer expectations, and in this case, that may mean adding more online tools to move consumers through the buying process efficiently.
Ford and Google team up
There’s been a recent trend of consumer technology giants making moves in the automotive realm. Microsoft invested in Cruise. Apple was rumored to be working with Hyundai to develop its own self-driving car. And as of Monday, Ford (F. NYSE) and Google (GOOGL.NASDAQ) have teamed up.
Jim Farley, CEO of Ford, spoke about the new deal with Google: “As Ford continues the most profound transformation in our history with electrification, connectivity and self-driving, Google and Ford coming together establishes an innovation powerhouse truly able to deliver a superior experience for our customers and modernize our business.”
Starting in 2023, Ford will begin using Google’s Android cloud system in all vehicles, potentially replacing the Ford Sync infotainment brand. The other part of the deal, and arguably the most important, will see Ford utilize Google’s artificial intelligence systems in factories and dealerships. This would allow the Detroit automaker to spot inefficiencies and problems within the manufacturing process and improve logistics capabilities.
With Google taking over the cloud and software systems, Ford can focus on what it does best: building and selling vehicles. Farley said that the integration of Google’s services will give customers a more personalized experience. This is a huge selling point for automakers and part of the reason why Ford chose to go with Google. Think about it: Google allows users to stay signed into a Google account, which gives them access to a variety of applications including Google Maps, Google Docs, Google Meet or Google Drive. Imagine the capabilities that the consumer tech giant could deliver if it was in charge of the car’s internal architecture and software. Consumers would gain the ability to customize dashboards or functions within the dashboard display and increase connectivity. More importantly, the software, as it learns the behaviors and habits of the owner, would be able to predict and suggest what the owner may need, whether that means adjusting cabin climate or even opening a specific playlist on Spotify.
Industry news:
- Semiconductor shortage update: Ford is trimming production at its Chicago assembly plant. The plant is home to the Ford Explorer and Lincoln Aviator and will only be operating a single shift. Ford already cut production at its Louisville, Kentucky, plant twice due to the lack of supply, with hopes that the stall would allow for a supply correction. However, much to the chagrin of OEMs everywhere, bottlenecks in the semiconductor supply chain are still unresolved. Auto industry experts say it’ll be an issue for months.
- In 2020, Laredo, Texas, saw 2.3 million trucks and 239,017 rail containers cross the border, accounting for at least 60% of all trade between the U.S. and Mexico. As a result of heavy cross-border activity, Majestic Realty, the mastermind behind the project, is building a $1 billion warehouse and distribution center to address tight logistics space.
- “The days of an iron block supercharged 6.2-liter V-8 are numbered,” according to Tim Kuniskis, CEO of Dodge. Speaking specifically about the Hellcat, Kuniskis said that strict emission regulations would speed up the death of the powerful engine. The combustion engine may come to a close, but be on the lookout for an electric version of the Dodge Hellcat in the future.
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