By Jose Morales, Director of Strategic Partnerships, Applied Concepts
We all know that with the current inventory shortage, it is pretty easy not only to sell a car but to make a healthy profit. The question is, at what cost?
The sales staff at auto dealerships have a lot of control right now, however, many may not be well-equipped to handle this power properly. Instead of just thinking about closing deals at premium pricing, salespeople need to consider protecting the customer experience and how their actions today will affect their business in the future.
Dealerships need to weigh the short-term benefits of market adjustments in their pricing with the long-term impact on their customer relationships. While a salesperson may be able to sell a new vehicle above MSRP, it may be penny-wise and pound-foolish to do so. Yes, it will create additional revenue for the dealership and a higher commission for the salesperson. However, flash-forward 2-3 years when there is no longer an inventory shortage and that customer is ready for their next vehicle. If they paid above-market pricing for their current vehicle, and are now faced with having to navigate out of what they consider a “bad deal,” will that customer return to the original dealership? Probably not.
Dealerships need to be forward-thinking about their long-term relationship with the consumer and the fact that they want them to come back when they’re ready for their next car. While a salesperson may be justified to ask for a market adjustment because of the inventory shortage, in retrospect that may not be in the overall best interest of the dealership. In addition to future car purchases, the dealership also must consider potential revenue from fixed operations.
How should a dealership determine its strategy for navigating the inventory shortage while not alienating customers and jeopardizing future business? One approach might be to eliminate above MSRP pricing for local customers and only assess market adjustments for customers living outside the dealership’s market. By doing this, the dealership is preserving its relationship with its core customer base who are much more likely to be sources of additional revenue through future purchases, finance, service and accessories than out-of-town customers. It’s likely not worthwhile for a dealership in Tampa to try and develop and invest in a relationship with a customer in Orlando. Vehicle sales to out-of-town customers are because of inventory and there is little or no prospect of repeat or future fixed operations business.
When selling vehicles to local customers, the dealership will need to find ways to forego the market adjustment pricing in the interest of future and ongoing revenue. Many of the ways to accomplish this are things that the sales staff should already be doing. Financing, extended warranties, accessories and service all provide value to the customer and create revenue for the dealership.
Trade-ins provide another avenue for balancing new vehicle deals and avoiding market adjustment pricing. Customers are expecting high trade-in value during the inventory shortage yet want to avoid paying above MSRP. A smart salesperson can diplomatically explain to customers that it really can’t work both ways. Advising a customer to purchase a new vehicle at MSRP – thereby avoiding a market adjustment deal – and accept slightly less on their trade-in would be in their long-term best interest and help them avoid problems in the future when it comes time for their next vehicle.
The same approach can be taken with finance, with the dealership adding a small percentage to generate additional revenue to give the customer MSRP pricing. Customers may be more interested in avoiding market adjustments and less concerned over a half or full percentage of interest. The dealership must also factor future vehicle sales into the equation. If a customer feels they were treated fairly during a difficult time, and that the salesperson was looking out for their best interests, that customer will more than likely return for their next vehicle purchase. And potentially every vehicle purchase after that.
What about a customer who is seemingly oblivious or doesn’t care about the inventory shortage and is looking for a below MSRP deal? The best approach is simply an honest and solutions-focused conversation between sales staff and customers. The salesperson should explain, in very simple terms, current market conditions and inventory problems, then shift the conversation toward solutions, explaining that a “good deal” is not just all about the purchase price. The dealership can look at trade-in valuation, finance and leasing options, extended warranties and other services. Working together, the salesperson and customer can create a situation that works for everyone. While the customer may still be disappointed at having to pay MSRP, at least they will leave feeling that the dealership tried to accommodate their needs as best as possible.
There will likely be inventory uncertainty for some time, however, this challenging time can be an opportunity for dealerships to rise to the occasion and solidify their relationships with customers. In the aftermath of the inventory shortage, those dealerships that focus on protecting their customers while still sustaining their businesses will see exponential returns on their investment. Those who do not will likely face angry customers looking for payback.
About the Author
Jose Morales has been a guest speaker and coach for hundreds of dealerships and some of the nation’s largest auto groups. He is thought of as one of the industry’s foremost lead handling experts.