Christmas is just around the corner, and dealerships are in the middle of the holiday sales boom. Still, it’s never too early to look ahead and start planning for next year. What should dealers expect in 2019? That’s what we are here to answer.
In this article, we’ll discuss the most significant car buying trends for 2019 and how dealers can prepare for them. We’ll cover topics like:
- New and used car sales
- Emerging technologies
- Adapting to the “enlightened” consumer in the Internet Age
- Using technology to improve decision-making
- And much, much more.
But first, let’s take a look back on this past year and see what we can learn.
What happened in 2018?
Despite falling short of record high sales in 2016, 2018 has been good for car sellers in both used and new car markets. Sales were strong in the first half of the year, and most forecasts were bumped up. Cox Automotive increased its 2018 forecast from 16.7 million units up to 16.8 million.
However, increasing interest rates and tariff issues are expected to slow sales in the 4th Quarter this year.
“All indicators tell us that we have reached peak market and it won’t be getting any better from here,” said Charlie Chesbrough, a senior economist for Cox Automotive.
US auto sales peaked in 2016 when Americans bought 17.55 million vehicles. Since then, sales have slowly but steadily dropped by some 700,000 units per year.
Cox Automotive said that despite the headwinds, the economic conditions were still favorable to car sales and demand for personal vehicle ownership was still high.
New car sales trends in 2019
Following the trend of Q4 2018, new cars sales are going to flatten out in 2019 while used vehicles become more popular.
Interest rates are one of the biggest factors in new car sales, and they are not trending favorably. Interest rates for 5-year vehicle loans have risen in the last several years, from 4.18% in August 2016 to their peak at 4.83% in July 2018. With the average financing for new vehicles just over $31,000, that increase amounts to hundreds of dollars.
The other factor impacting new car sales is the growth of used car sales. Vehicles are lasting longer than ever, and owners are more reluctant to turn in their cars for new models. As buyers hold on to their vehicles longer, trade cycles are lengthening.
Used car sales trends in 2019
While new vehicle sales are plateauing, used vehicles are picking up steam.
Jessica Caldwell, director of industry analysis at Edmunds, notes that:
“Used vehicles will likely grow in popularity as new-car substitutes if incentives continue to stagnate and interest rates creep up. A large quantity of near-new used vehicles are expected to come into the market that will undoubtedly offer a compelling value message that resonates with discerning new-car shoppers.”
At the same time, used car supply is increasing thanks to an influx of “nearly new” off-lease vehicles on the market. This added supply is expected to drive down the prices of used vehicles.
New ownership models and technologies are attempting to shake up the industry from its core. Will these new trends come to fruition in 2019?
One major concern for car dealers is peer-to-peer ride-sharing services like Uber and Lyft, which are continuing to grow in popularity. Uber operates in 58 countries and nearly 800 metropolitan areas. Lyft is available in 300 US cities and expanding to other countries like Canada.
However, these services are not as dominant as they might seem. Ride-sharing services (part of the “shared mobility” category that includes bike-shares and scooter rentals) are still primarily used in dense urban areas.
In fact, according to Business Insider, the majority of adults did not use shared mobility services in 2017. Despite the media buzz around ride-sharing, it will not be a major threat to auto dealers in 2019 or for the foreseeable future.
Similarly, subscription models, which have also gotten a lot of attention, are nothing that dealers should lose sleep over.
Vehicle subscription services are like a hybrid between leases and rentals. Drivers pay monthly to access a vehicle but are not locked into multi-year contracts. They can choose from a number of vehicles and swap them out whenever they want.
Some luxury OEMs are experimenting with subscription models– including Lincoln, BMW, and Mercedes– while 3rd party companies are setting up peer-to-peer models similar to Turo. However, these services are not yet practical for most Americans and are limited to just a few cities.
In short, Americans will continue to buy cars in 2019. We still value the freedom gained from owning a vehicle, and that will not change just yet.
What is already changing is how we buy cars.
The Internet is Making Car Buyers Smarter
It’s no surprise that the Internet has flipped car-buying on its head.
What’s more interesting is that online research is making car buyers smarter.
In the 2018 Global Automotive Consumer Study, Deloitte found that American car buyers are spending less time researching vehicles purchases than they did in 2014. It’s not because they care less– they just don’t need to do as much. As online resources improve and car buyers become savvier, they are coming to decisions more quickly.
How do we know this is true? In the same study, Deloitte found that in emerging car markets– where many consumers are buying their first vehicle– shoppers did up to 50% more research before buying.
Back in the US, the “enlightened consumer” is spending less time at dealerships. Car buyers only visit an average of 1.2 dealerships before purchasing a vehicle, and just 20% of their total shopping time with the dealership that sells them their car, including the paperwork and sales process.
This means that dealerships have fewer chances to attract and win customers, so they need to make the most of each interaction.
What should dealerships do in 2019
To recap what we’ve learned so far:
Used car sales are increasing, but prices are dropping. New car sales are plateauing, but alternate ownership models are not yet having a significant impact on dealers. As car buyers conduct research online, they are getting smarter about the market. Dealers are getting less face time with each customer, making each interaction more critical.
So, what do we do with all this information? Here are a few practical tips to win in 2019.
1. Improve Your Reconditioning Practices
Used vehicles will gain popularity in 2019, and consumers will spend more on cars that are “like new”. When done right, $1,000 spent on reconditioning can go a long way. Read our best practices for reconditioning to improve your dealership.
2. Embrace the Information Age
Like it or not, dealerships need to embrace the changes ushered in by the internet. Consumers are smarter than ever, and they know exactly how much they should pay for a vehicle. Dealers who try to charge more than the value posted online will instantly lose credibility and a customer.
However, dealers who lean into the information age can use it to their advantage. By using the same tools that consumers use, dealers can actually build credibility with potential customers.
For example, some dealers have started printing out the Kelly Blue Book results for vehicles and sharing them with customers. Customers will be ecstatic to see that your prices align with the KBB values.
3. Understand Your Customer
Earlier in the year, Ford decided to ax almost all of their cars except the Mustang and Focus Active. While it was a big announcement, nobody was shocked to see them go.
Sales of sedans have been on a downward trend for a few years now, and this move by Ford simply proves that the manufacturer has been listening to consumers.
Dealers can learn from Ford and stock only the vehicles their customers want. Identify your niche and stick to it.
4. Make Data-Driven Decisions
Last but not least, dealerships should use technology to make data-driven decisions. Software solutions for real-time pricing and market insights are more affordable and accessible than ever, especially for small and mid-sized dealers.
Dealers have to work harder to get customers to their lot, which means they need every advantage they can find. When it comes to pricing vehicles and appraising trade-ins, it’s not good enough to follow your gut.
To keep the competitive edge, dealers have to adjust to the market. The backbone of your inventory, prices and sales strategy needs to be data and not gut feeling.
Get Ready for 2019
The new year is just around the corner. Are you ready? 2019 is gearing up to be one of the most competitive car markets ever, and dealers need to be prepared.
DealerCue creates a fleet of tools to help dealers succeed. Schedule a demo today and see for yourself.