Rising car prices and higher interest rates make it much harder for many Americans to buy a new vehicle than in years past. According to a new report, demand for used vehicles will likely continue rising as many consumers turn away from the new car market.
However, as consumers have shifted their demand away from higher-end luxury vehicles to used cars, used car prices are also rising. The cost of used vehicles has increased by 9% over the past two months, contributing to the recent rise in the Consumer Price Index.
As auto dealers continue to face concerns over rising inflation, lower inventory levels, and ongoing supply chain disruptions, there continue to be growth opportunities available. Safeguard can help business leaders identify potential new opportunities, allowing them to achieve maximum productivity and drive long-term business success.
How inflated are used car prices?
Used car prices rose by about 40% from December 2019 to October 2022. According to the U.S. Bureau of Labor Statistics, the used cars and trucks index, a component of the private transportation index, tracks these prices and is included in the Consumer Price Index (CPI) transportation group.
Growth Opportunity: Implement Inflation-Fighting Strategies
Since the pandemic, ongoing economic factors, such as inflation and the corresponding rising interest rates, have affected the automotive industry, affecting sales figures and influencing hiring, spending, and other planning decisions.
Although wholesale used car prices have decreased slightly, down 1.6% from June to July, it could still be several months before consumers see a change in the retail market. While this is ongoing, auto dealers should continue to find ways to remain competitive during inflation, such as improving productivity and efficiency, adjusting expenses, and strengthening their pricing power.
- Improve Productivity and Efficiency: Workflows, communication methods, and the work environment can all impact efficiency. Take time to evaluate your processes and look for areas to improve. Finding ways to eliminate any unnecessary work can tremendously enhance efficiency. Calendaring automation, online collaboration tools, or outsourcing payroll are ways companies can more effectively leverage resources and bring costs down.
- Adjust Expenses: Auto dealers need to take a hard look at their expenses, identifying areas where they could reduce or eliminate costs. Typically, anything that’s not essential to business can be considered unnecessary spending and is a potential area to cut expenses.
- Strengthen Your Pricing Power: Pricing power refers to the ability of an organization to get the price it deserves for the value it delivers. Auto dealers can strengthen their pricing power in various ways, including identifying what differentiates them from the competition and focusing on deepening customer relationships.
Growth Opportunity: Online Car Shopping
Changes in supply and demand and the new car industry are highly influencing used car prices. Data shows that the average transaction price for a new vehicle has risen 33% in just the last five years, going from $35,794 to $47,713 as of March 2023. Because of this, affordability has become a growing issue for Americans trying to buy a vehicle and has pushed many to seek more affordable options, including used cars.
New car sales can also impact used car prices in other ways. Fewer new car sales also usually mean fewer trade-ins, which affects the supply of used cars available to consumers. Sales of new vehicles last year are estimated to have dropped roughly 8% to 9% compared to 2021, making it the lowest level since 2011.
In the face of inventory shortages and higher prices, online car shopping can represent a tremendous opportunity for auto dealerships. When shopping online, customers can shop at their convenience, input their vehicle of choice, select their features, and get the financing they need.
Additionally, online purchasing is frequently much more efficient and less time-consuming for buyers, helping to alleviate common pain points in the car buying process.
Unsurprisingly, buyers reported the highest satisfaction levels when the overall car-shopping experience took less time and was more efficient. To seize this opportunity, dealerships may offer potential buyers the convenience of conducting an at-home test drive and providing home delivery of the vehicle they purchase.
Growth Opportunity: The Electric Vehicle Market
According to recent inventory data, electric vehicles have twice the days’ supply as all new vehicles. This increased availability of EVs may be due to automakers prioritizing chips for their more expensive vehicles, including EVs.
Additionally, the chips that EVs require are more complex and profitable, making chip companies more eager to produce them. Several car manufacturers are enticing car buyers with a new and diverse lineup of electric vehicles, from SUVs to supercars.
After a record-breaking 2022, Americans continue to buy EVs in record numbers. According to Kelley Blue Book, Americans sought nearly 300,000 new electric vehicles (EVs) in the second quarter of 2023, 48% more than in the second quarter of 2022. Other factors contributing to increased EV adoption likely include a more widely available charging infrastructure, lower battery costs, and stricter emission regulations.
EVs generally encompass three main types: hybrids, plug-in hybrids, and pure battery-electric vehicles. As electric vehicles are expected to continue to gain more market share from conventional internal-combustion engine vehicles, understanding what EV trends prospects want in a vehicle can help auto dealers source the ideal options for their inventory.
Whether it’s business essentials that streamline daily operations or full-color print marketing that drives customers to your showroom, at Safeguard, our automotive marketing experts specialize in engaging and effective solutions to help you leverage these growth opportunities. We know that the right products, services, and planning can help drive business success. Visit our site to get started.
- Used car prices have increased by 9% over the past two months, contributing to the recent rise in the Consumer Price Index.
- Auto dealers can find ways to remain competitive during inflation, such as improving productivity, adjusting expenses, and strengthening their pricing power.
- Online car shopping can represent a tremendous opportunity for auto dealerships, allowing customers a greater selection and higher satisfaction.
- Americans continue to buy EVs in record numbers, with 2nd quarter sales up 48% yearly.
- At Safeguard, our automotive marketing experts specialize in engaging and effective solutions to help you leverage these growth opportunities.