If you had forgotten what it’s like to be living in a truly growing economy, welcome back. The housing market is getting back on its feet, jobs are being added to the tune of nearly 300,000 per month, and all of this is having a positive effect on the auto market. This year, US auto sales are predicted to top 16 million, their fifth straight year of growth. Does this mean it’s time to shift into fifth gear and bend that accelerator? Not so fast.
Yes, things are looking good, but we’ve been here before, and not so long ago, back in the bubble years. Although the major economic indicators are starting to show green lights, enough structural weaknesses remain – stagnant wages, insufficient consumer demand – to recommend caution. Today, we’re going to separate out this confusing mix of factors in order to give a clear sense of where auto dealers should be looking to go, regardless of which way the economy finally decides to turn.
The Confidence Accelerator
After a series of false starts and backslides, the economy appears to be finally attaining the “escape velocity” necessary to pull away from the vortex of lingering recession. As unemployment falls and homeowners see their primary asset gaining in value, they are dusting off their wallets and spending again. Just take a look at California, the nation’s largest housing market: home values have gone up 16.2% over the past year, with a further 9% rise expected for this year. Or Florida, where home prices rose 14.2% last year, and are expected to rise again. Add to this the advantages of low inflation and low interest rates with no increase in sight, together with eased mortgage loan qualifications, and there is plenty for auto dealers to cheer about. Remember: increased home equity and the easy ability to borrow are two of the most positive signs for auto sales.
The Caution Brake
Even with all of those good numbers being posted, the question still needs to be asked: is the economic recovery legit? Or are we walking headlong into another bubble? Sure, housing prices are on the rise, but much of that may be due to investors scooping up excess capacity left by the wave of past foreclosures. Once that excess capacity dries up, will the housing recovery still be sustainable?
There is some evidence that the recovery may not be sustainable, with stagnant wages and low-paying jobs among the factors holding back growth. And where housing is growing – see the California and Florida cases above – there are worries that it may be growing too fast, outstripping economic growth. The IMF is not alone in sounding the alarm bells in that regard. If housing prices climb too fast, new homeowners have no other choice but to invest all of their equity in their house, leaving them with less credit for other acquisitions, such as cars. For these reasons, leading real estate analysts consider the current housing market to be somewhat of a “crapshoot.”
Creating All-Weather Strategies
Where do all of these mixed signals leave auto dealers? The best mindset for these ambiguous times is a state of cautious optimism. All of the right factors are there for a measured expansion of auto sales, but nothing is for certain. A case in point is Ford Motors, which has recently warned that this year’s profits will fall short of its 2013 postings by a billion dollars or more. In this topsy-turvy scenario of globalized pressures and irregular growth, auto dealers are well-advised to put in place some “all-weather” sales strategies, strategies that will work in good times—or bad.
Such strategies include paying attention to the trends that govern your local market—which may or may not be going in the same direction as the national market. Make sure you cultivate your local prospects and return customers. Now, when times are good, is the opportune moment to review your marketing strategies. Rather than a “one-size-fits-all” approach, which often wastes valuable resources, a highly targeted, personalized marketing approach will help you get your message to the right people, while saving money to boot.
Understanding your target audience will help you keep sales alive if the bubble bursts, even while other dealerships may be closing their doors. And by adopting methods that work in rain or shine, you will be ready to face whatever the market throws at you.
