How dealers can manage economic downturn: Clues are in data
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February 22, 2021 12:00 AM

How to manage a downturn? Clues are in the data

John DeMarco
John DeMarco
Senior vice president of automotive at Experian
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    The automotive industry has been among the leaders in the recovery from COVID-19. Despite business restrictions and factory shutdowns, we've seen sales rebound, albeit slowly, over the past few months. According to Experian's Q3 2020 Market Trends Review, monthly new- and used-vehicle registrations have inched closer to pre-pandemic levels.

    Still, it's hard to overlook the fact that the industry and the rest of the economy have weathered considerable downturns over the years. Time and again, we've reacted to the economic landscape and adjusted business strategies on the fly — knowing full well that the landscape will continue to evolve. It begs the question, how can dealers and the rest of our industry take a more proactive position and implement a readiness plan to get ahead of potential downturns, not to mention continue to recover from our current situation?

    As an industry, we need to be more strategic, more efficient, more agile. With the economic outlook changing seemingly every day, we need to rely more heavily on data to adapt.

    We understand that every economic downturn is different since the impacts and underlying factors behind them are distinct. However, certain economic events are bound to happen.

    According to Experian's Automotive Market Insights dashboard, there is almost zero lag time between a drop in interest rates and an uptick in vehicle registrations; however, the peak of unemployment predates a decline in vehicle registrations by approximately one month. Similarly, housing market recovery has been about a month ahead of an uptick in vehicle registrations. Analyzing the impact certain economic events have on the automotive market better enables you to plan for various economic scenarios to make adjustments in strategy and budgets — which can make or break your dealership's short- and long-term viability.

    Preparing for negative scenarios is only half the battle — you still need to find opportunities to grow, or at least sustain, business during prolonged downturns. Let's take the past few months. While some car shoppers are hesitant to re-enter the market, others have newfound needs. This has resulted in significant pent-up demand. The more quickly you can identify growth opportunities, the sooner you can adjust go-to-market strategy and position for success.

    For example, Texas, Florida and California have the highest annual volumes of consumers coming off-lease, off-loan or who have positive equity in their current vehicle. This represents considerable opportunity to conquest these consumers, no matter who sold them their current vehicle. With digital retailing becoming more prominent, perhaps it's an opportunity to expand your target markets and audiences.

    Related Article
    Here's our annual ranking of the largest U.S. dealership groups

    Digging deeper, we found that the highest uptick in off-lease and off-loan vehicles in Texas are in the Austin area. Based on that information, dealers and lenders in Austin should begin structuring attractive lease and trade-in packages that could boost sales activity over the next few months. In addition, the highest percentage of consumers in Florida with positive equity in their vehicles are based in West Palm Beach. These dealers should consider incentive programs that might entice these consumers to upgrade to a newer model.

    But keep in mind, anytime you reach out to a prospective shopper — through loyalty programs or conquesting campaigns — your outreach to them needs to be relevant to their specific situation and needs; messaging is critical. Rely on data to build out the profile of prospective shoppers. For instance, which marketing channels are these consumers most receptive to? What vehicles do they own today? Was there a recent lifestyle change?

    Data is immensely valuable; it's an objective source of information. And while we all know that downturns are cyclical, gauging the cycle time is crucial. Data can help us understand how and when certain economic indicators might trigger movement in the industry. It'll help us plan and prepare well in advance, and importantly, allow us to find opportunity for quicker recoveries once the downturns hit.

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