As the government tries to put a lid on inflation through rising interest rates, many inside the auto industry are caught between high consumer demand and the “what if” of a slowing economy right around the corner.
Even as consumer spending has cooled slightly, car shoppers have continued to parade through dealership lots keeping vehicle inventories extremely tight. This has kept auto executives thinking there is continued confidence that consumer demand will remain strong through the final quarter of 2022, with hopes that supply chain disruptions will finally ease in 2023.
Recent history has only added to this mindset. A customer-order backlog, low dealership inventories and car shoppers paying higher prices for vehicles have resulted in several profitable quarters for most vehicle manufacturers and dealers. This extended cadence of profit has remained even though the U.S. has undergone two straight quarters of GDP declines, the technical sign of a recession. All of this has fueled an aura of optimism that the industry will weather any potential economic downshift in the coming quarters.
However, are times changing in the months ahead?
In terms of raw volume, September’s 1.11 million sales was a 1.0% decline from August’s 1.12 million, according to Wards Intelligence data. Based on daily selling rates, September – with 25 selling days – increased 2.9% to a DSR of 44,490 from 43,231 in August (26 selling days).
Industry observers are seeing the first signs of increased incentives for buyers – something automakers haven’t had to ratchet up in the past few years because of strong demand. August incentives were up 9% compared with incentive activity in July.
Coupled with the Fed’s continued path of more interest rate hikes and growing concern of a tightening labor market, consumer spending may slow down, taking auto sales down with it.
Better Data to Make Smarter Advertising Decisions
Today’s dealers and OEM brands have the luxury of leveraging advanced data, real-time tools and sophisticated resources to make quicker and more educated pivots in their advertising strategies. Long gone are the days of “set it and forget it” advertising where dealers worked with ad agency partners to set their ad strategies to continuously run for months at a time, taking advantage of buyer economies of scale and ad packages in bulk.
The advertising industry is smarter and more competitive these days. Dealers need a trusted advisor to navigate and succeed in this complex environment.
Focus on the Right Marketing Investments
Leveraging advanced data and marketing technology can help dealers make the right marketing investments, such as making quick pivots in messaging from inventory acquisition (when consumer demand is high) over to customer acquisition (when the economy cools and incentives kick in).
Reviewing data helps dealers easily identify – on a daily basis – which vehicles in inventory require more or less marketing investments, as well as deliver insight on the right media mix for models to deliver the most efficient returns. Automotive groups that identify and adjust their media mix across search, social, streaming television and traditional media channels often can realize millions of dollars in efficiency gains that go straight to reinforced profitability.
Dealers and smart agency partners leveraged technology to make fast, intelligent and efficient pivots when the pandemic hit, quickly adapting ad messaging to emphasize cleanliness, contactless shopping and service and repair messaging. The same technology and decision-making should be scrutinized at the first signs of a slowdown (such as rising incentives and slowing sales activity). And this messaging can be monitored and shifted weekly or even daily in certain markets.
Today’s successful dealers are leveraging a more scientific approach with sophisticated marketing technologies to more closely align their strategies with retailers who have perfected the art of digital advertising. This combination means dealers look at their advertising strategies in a unique way, reallocating investments rather than relying on legacy practices.
Stephane Ferri (pictured, above left) is the CEO of PureCars, an Atlanta-based provider of digital marketing technology and services for automotive dealers.
