EFG Companies predicts 2023 will be a year of buyer needs, not wants

Dealerships will face more of a challenge in 2023 than 2022, and it will take work for dealerships to achieve the kind of revenue seen in recent years, EFG Cos. predicted last month.

"It's gonna be a grind," Scott Kaskocsak, executive vice president of dealer services for the finance-and-insurance product provider, told Automotive News in January.

Kaskocsak cited factors such as ongoing supply chain issues, a softening economy and inflation in predicting vehicle affordability was likely to be dealers' top concern outside of inventory.

Nevertheless, Kaskocsak and other EFG executives predicted auto retailers would still have opportunities.

"Success in 2023 will require dealers and lenders to scrutinize performance across all areas of revenue generation if they expect to come close to the historic revenues banked over the last couple years," EFG Chief Revenue Officer Eric Fifield said in January.

EFG said dealers who focused on vehicle prices would miss out on the revenue possible from F&I and vehicle service in 2023.

"The 'order-taker' sales model of 2022 likely will change in 2023 as sales decline because of waning consumer confidence and economic uncertainty," EFG wrote in a series of January predictions for 2023.

"Whereas many dealers netted sizable net pretax profits without added F&I revenue in 2022, the story will be different for 2023."

The same month, Capital One's 2023 Car Buying Outlook revealed only 33 percent of consumers polled in October called it a good time to buy a vehicle, compared with 84 percent of dealerships. Both dealerships and consumers flagged inflation, increases in gasoline prices and increases in vehicle prices as the top three economic factors impacting current or future vehicle purchases, Capital One said.

Meanwhile, Automotive News' 2023 Dealer Outlook Survey found 33 percent of retailers predicted 2023 would be worse for their businesses than 2022, while 38 percent thought they would have a better year. The remainder expected the two years to be similar.

Yet 44 percent predicted their profits would fall in 2023, while only 28 percent expected improvement. Dealers overwhelmingly listed interest rates among their primary concerns, followed by recession and vehicle affordability, which tied for second, and inflation in the No. 3 slot.

EFG predicted dealerships' customers would shift from "want buyers" into "need buyers" in 2023, which demands a different mindset.

"These need-based buyers will look for the lowest total price but are also more likely to see the value of consumer protection products on their overall budget," the company wrote.

Kaskocsak said he thought interest rates and affordability could cut into F&I product sales in 2023. Automotive News' polling found only 5 percent of dealerships viewed finance and insurance as their top profit opportunity in 2022.

But Kaskocsak thought a focus on sales and F&I staff training could counteract an F&I sales decline.

"They've had guardrails," Kaskocsak said of dealership staff during the inventory shortage. What few cars existed could be sold for $4,000 over sticker price, and the lack of inventory fostered customer interest in protecting their vehicles with F&I coverage, he said. Fifeld also pointed out customers settling for used vehicles with less time left on a manufacturer warranty also produced an "automatic bolster" to F&I sales of vehicle service contracts, and elevated used-vehicle prices encouraged guaranteed asset protection coverage

"It's been pretty easy" on staff in terms of demonstrating the sales skills of handling objections and determining customer needs, Kaskocsak said.

According to Fifeld, some dealerships have been focusing on training. When EFG participates in requests for proposals from large dealership groups, it finds the most common demands to be for training and compliance assistance, he said.

A smart dealership would start training staff and get "back to the basics" on topics including sales and fixed operations, according to Kaskocsak.

"We gotta get back to selling," he said. "The gravy train's over."