Navigating the Challenges of 2024: How Automotive Dealerships Can Thrive in a Changing Market

The automotive industry has experienced challenging few years, and 2024 is shaping up to be no different. The honeymoon period of pent-up demand that followed the COVID-19 pandemic has ended, and customers will have more choices as supply chains recover. In addition, interest rates are at their highest levels in years, making it more expensive for consumers to finance vehicle purchases. Discounts and offers will return to the market, putting pressure on automotive dealerships to compete. With more supply than demand, residual values are likely to drop, which could lead to decreased profitability for dealerships. Finally, global uncertainty around geopolitical issues and economic instability may also contribute to a decrease in consumer confidence and a shift in demand (according to a report by McKinsey & Company, the global automotive market is expected to grow at a compound annual growth rate of only 2.4% from 2019 to 2030, compared to 3.6% from 2010 to 2019)

All these factors combined will make it essential for automotive dealerships to adapt and implement strategies to navigate the changing market in 2024.

In this article, we will highlight the key factors that can help automotive dealerships to maintain their essential role in the automotive industry.

Effective Inventory Management:

One of the most important aspects of running a profitable automotive dealership is effective inventory management. The dealership needs to maintain an appropriate level of inventory that matches the demands of the market. This includes understanding the sales trends, identifying popular models, and avoiding overstocking on slow-moving vehicles. Additionally, dealerships need to keep a check on the costs associated with maintaining inventory, such as storage and financing expenses.

Here are some KPIs and ideal ratios that automotive dealerships can use to monitor and steer an effective inventory

• Days to Turn (DTT): measures the number of days it takes to sell a vehicle from the time it's acquired. Ideal ratio: 45-60 days.
• Inventory Turnover Ratio: measures how many times a dealership sells and replaces its inventory within a given period. Ideal ratio: 12 times a year or higher.
• Gross Margin Return on Investment (GMROI): measures the profitability of inventory by comparing the gross profit generated against the cost of inventory. Ideal ratio: 1.5 or higher.

Exceptional Customer Service:

A customer-centric approach is the key to success in any business, and automotive dealerships are no exception. Providing exceptional customer service can make a huge difference in attracting and retaining customers. It starts with hiring the right staff who are knowledgeable, friendly, and can build strong relationships with customers. Ensuring a hassle-free buying experience and prompt after-sales services can create a loyal customer base and drive repeat business.

Here are some KPIs and ideal ratios that automotive dealerships can use to monitor and steer exceptional customer service

• Customer Satisfaction Score (CSAT): measures how satisfied customers are with the dealership's sales and service experience. Ideal ratio: 90% or higher.
• Net Promoter Score (NPS): measures the likelihood that customers will recommend the dealership to others. Ideal ratio: 70 or higher.
• Customer Retention Rate: measures the percentage of customers who return to the dealership for service or purchase another vehicle. Ideal ratio: 50% or higher (depends on the segment)

Use of Technology:

Automotive dealerships need to embrace technology to improve their operations and stay competitive. This includes using customer relationship management (CRM) software to track customer interactions, sales, and service history. It can also help dealerships personalize the customer experience by sending targeted marketing messages and personalized recommendations. Moreover, the use of advanced analytics tools can help dealerships make data-driven decisions to optimize their inventory, pricing, and marketing strategies.

The following KPIs and ideal ratios are essential for any automotive dealership and only can be achieved by the use of digital technology

• Website/Social Media pages Traffic: measures the number of visitors to the dealership's website. Ideal ratio: an increase in website traffic month over month.
• Lead Conversion Rate: measures the percentage of leads generated that result in a sale. Ideal ratio: 30% or higher.
• Return on Ad Spend (ROAS): measures the return on investment (ROI) generated from advertising campaigns. Ideal ratio: $2 or higher in revenue for every dollar spent on advertising.

?Efficient Business Processes:

Automotive dealerships need to have efficient business processes in place to ensure smooth operations. This includes streamlining the sales process, managing inventory, and improving the service delivery process. The use of automation and standardization can help dealerships reduce turnaround time and eliminate errors. Additionally, dealerships need to establish clear communication channels between departments to avoid any confusion or delays.

Some KPIs to steer efficient business processes:

• Salesperson Productivity: measures the number of vehicles sold by each salesperson. Ideal ratio: 10-12 vehicles per month. (Depends on the car segment and dealership territory size)
• Service Labor Gross Profit: measures the gross profit generated from service labor. Ideal ratio: 65% or higher.
• Cycle Time: measures the time it takes to complete a service request. Ideal ratio: less than 2 hours.

Embrace Digital Marketing:

Digital marketing is becoming increasingly important in the automotive industry. Dealerships need to establish a strong online presence to reach out to potential customers. This includes maintaining a user-friendly website that provides all the necessary information about the dealership, inventory, and services. Moreover, dealerships need to use social media platforms and search engine optimization (SEO) techniques to drive traffic to their website and increase brand awareness.

Here are some popular digital marketing KPIs

• Website Conversion Rate: measures the percentage of website visitors who take a desired action, such as filling out a form or making a phone call. Ideal ratio: 2-3% or higher.
• Cost per Acquisition (CPA): measures the cost of acquiring a new customer. Ideal ratio: $500 or lower.
• Social Media Engagement: measures the level of engagement on social media platforms, such as likes, comments, and shares. Ideal ratio: an increase in engagement month over month.

Employee Training and Development:

Well-trained employees are the backbone of any successful automotive dealership. Dealerships need to invest in employee training and development programs to ensure that they are equipped with the necessary knowledge and skills to meet the demands of the job. This includes providing regular training sessions on new models, products, and technology. Additionally, providing opportunities for employee growth and career advancement can help dealerships retain their top talent.

• Employee Satisfaction Score: measures how satisfied employees are with their job and the dealership. Ideal ratio: 80% or higher.
• Employee Turnover Rate: measures the percentage of employees who leave the dealership within a given period. Ideal ratio: 20% or lower.
• Training Hours per Employee: measures the number of training hours each employee receives. Ideal ratio: 20 hours or more per year.

In conclusion, the automotive industry is facing several challenges in 2024, including financial stress, high-interest rates, end of semiconductor shortages, and global uncertainty. Automotive dealerships will need to adapt and implement strategies to navigate the changing market and maintain profitability in the face of more supply than demand. However, with the right approach and focus on customer satisfaction and efficient business processes, automotive dealerships can thrive in this changing market.

Please share your thoughts, views, and opinions on this topic. Join the conversation on how the industry can continue to evolve and succeed in the years to come.