Q2 Wrapped: State of Auto Retail Sales & Inventory

by automotiveMastermind

Halfway through 2023, automotive dealers are continuing to deal with ongoing inventory shortages and, as a result, diminished customer loyalty.

Now amid inflation and rising interest rates, it’s more imperative than ever that dealers analyze ongoing trends to better understand changing buying behaviors and strategize for upcoming months.

For dealers to learn from past experiences and strategize for future success, dealers need to identify emerging trends and swiftly adapt to evolving market dynamics.

To stay ahead of the curve, dealers can identify the areas they need to focus by analyzing their dealership’s performance across departments. This includes benchmarking their efforts against other dealers in their market and comparing them to predicted trends.

Looking back on Q2 2023, in this blog post, we’ll outline key areas for dealers to consider including:

Automotive sales performance
Dealership inventory levels
Changing buying behaviors

Automotive Retail Sales Performance

Fortunately for dealers, automotive retail sales in Q2 experienced a notable upward trend compared to Q1. As the effects of the global microchip shortage slowed, Q2 saw domestic light-vehicle sales are still progressing, albeit slowly.

Increased availability and rising OEM incentives fueled auto sales growth in April and May. S&P Global Mobility projects new light vehicle sales volume in May 2023 to reach 1.31 million units, up 18% over 2022 and representing the 10th straight month of year-over-year sales increases.

According to S&P Global Mobility forecasts, sales volumes over the next several months are not expected to dynamically change from the current trend. However, consumer choice buoyed by increased inventory and sustained downward pricing, coupled with rising interest rates and tighter credit conditions, could restrain dealership sales for the remainder of 2023.

State of Dealership Inventory Levels

Heading into summer, vehicle listings have plateaued at approximately 2 million units in Q2, 67% higher than a year ago, according to S&P Global Mobility’s proprietary analysis of advertised dealer inventory.

However, dealers are already seeing the effects of increased supply and weaning customer demand amid economic uncertainty. “With increased supply comes increased negotiating power for consumers in the market for a new vehicle – as 40% of vehicle listings now reflect a price below MSRP, compared to less than 25% a year ago,” said Matt Trommer, associate director of Market Reporting at S&P Global Mobility.

While certain models continue to be difficult to find as some OEMs continue to experience inventory shortages, savvy consumers are better positioned to find a deal now than they have been since the pandemic.

Still, as economic conditions push some buyers to hold on to their current vehicles longer, the average age of light vehicles hit a new record in the U.S., rising to 12.5 years in 2023, according to S&P Global Mobility. As a result, customers are investing more to keep their aging vehicles running.

Early indications from the S&P Global Channel Forecast conducted jointly with Auto Care Association and MEMA Aftermarket Suppliers, estimate a potential revenue increase in 2023 of 5% or more, prior to adjustments for inflation and other factors. This represents an opportunity for dealers to not only fuel service revenue, but build customer loyalty and engage prospective buyers already planning to visit the dealership.

Changing Automotive Buyer Behaviors

Through Q2, a key notable trend emerged affecting lower-credit buyers, as highlighted in a recent report from S&P Global Mobility. This shift poses challenges for consumers and dealerships alike, necessitating a deep understanding and adaptation to changing consumer behaviors.

Ultimately, the future dynamics of the new-vehicle market may be dictated by the Federal Reserve regarding interest rates. Since March 2022, the Federal Reserve has implemented ten rate hikes to combat inflation, leading to a rapid increase in the Fed Funds rate from 0.25% to approximately 5.1% as of May 3, 2023, notes S&P Global Mobility.

While some experts anticipate a potential reversal starting this summer, S&P Global Ratings believes that the current rates will remain unchanged until mid-2024. These factors will play a critical role in shaping the overall landscape of the market and as a result, dealers may need to adjust their strategies to cater to a broader range of credit profiles.

In addition to the Federal Reserve’s interest rate decisions, other factors such as economic stability and market conditions will also influence the trajectory of the automotive retail market. To navigate this evolving landscape, dealerships may need to emphasize competitive pricing and attractive financing options, as well as prioritize the customer experience when addressing the affordability concerns.

Understanding the preferences and needs of different consumer segments, particularly those affected by credit constraints, can help dealerships tailor their offerings and provide alternative solutions such as certified pre-owned vehicles or lease options. By adapting to the evolving market conditions and catering to the diverse requirements of consumers, dealerships can position themselves for success in a competitive new-vehicle market.

How Can Mastermind Help?

Mastermind, automotiveMastermind’s automated sales and marketing platform, empowers dealers to turn complexity into clarity to stay ahead of changing customer buying behaviors.

Mastermind enables dealers to take a data-driven approach to generating revenue opportunities across the dealership, from:

Acquiring inventory from untapped sources
Mining the service drive
Conquesting from competitors
Increasing customer retention

With Mastermind, dealers can stay ahead of automotive retail trends and:

Predict when loyalty and conquest customers are returning to market
Engage their best sales opportunities using personalized, omni-channel messaging to increase retention and drive new business
Optimize salesperson effectiveness and dealership operations with actionable insights and consistent training

Conclusion

As auto dealers enter Q3 2023, they are finding some new ways to increase sales and experiencing relief from ongoing auto inventory shortages. But with the added pressures of inflation and rising interest rates, dealers need to take a data-driven approach to stay ahead of emerging trends and adapt swiftly to the changing customer demand.

By benchmarking their dealership’s performance, dealers can position themselves for success for the remainder of the year and beyond by focusing on key areas, such as:

Automotive sales performance
OEM financing trends
Dealership inventory levels

Want to learn how Mastermind can help your dealership overcome ongoing challenges and take advantage of future opportunities? Contact us for a free demo.