How dealers can better manage their new and used car business today — Brian Finkelmeyer

Today on Inside Automotive, we’re joined in the studio by Brian Finkelmeyer, Senior Director of New Vehicle Solutions at Cox Automotive, to discuss the latest trends for the new and used car markets.

October marked a turning point for auto dealers who have gotten used to cars selling over MSRP, says Finkelmeyer. This past September, manufacturers began ramping up production and made almost as many cars as they did pre-pandemic, about 1.3 million. Many car dealers now have 50-60 cars on the lot instead of 8-10.  

Demand is also easing slightly as consumers face higher prices and rising interest rates. As a result, the average monthly payments for vehicles are more expensive. For example, monthly payments for the same Toyota RAV 4 increased by $55, year-over-year. 

Regarding used cars, Finkelmeyer says there are warning signs that demand is softening, like looming affordability issues. 

“If you look at used cars based on the pricing buckets, the bucket that has the most inventory, the highest day supply now, is $35,000 and over,” says Finkelmeyer. 

The industry is seeing consumers trend toward more options like compact and midsize sedans. Cox Automotive data also shows that the average loan amount on a used car is 9-10%, so auto dealers will need to be strategic moving forward. 

Over the past eight weeks, Manheim Auto Auction has seen a point of depreciation every week. As wholesale used cars begin to depreciate, dealers will likely see the effects at the retail level in six weeks or so. Now is the time for dealers to take action on their aged inventory.

As for the EV market and direct sales from OEMs, Finkelmeyer says most manufacturers understand they’re not going to be able to “wipe dealers off the street.” He says dealers already recognize they will need to adapt to a changing industry, and most understand things will likely look very different in the next five to ten years.

Finkelmeyer says Tesla is an example of a company capitalizing on changing consumer sentiment and shopping habits, pointing out that the company has the highest owner loyalty rate in the industry at 81%. At the same time, most manufacturers sit around 55%-60%. They also manage a 27% gross margin compared to the industry average of 14%-15%.

Finkelmeyer says a lot of that has to do with Tesla offering customers the buying experience they want today, including easy access to online tools, home delivery, and a dealership visit that lasts less than an hour on average. He says other dealers can take notes on Tesla’s success by finding ways to remove friction from the buying process.

As for the future, Finkelmeyer says Cox is forecasting a 5% uptick in business year-over-year for 2023. However, he says the current economic uncertainty means nobody knows what will happen. He points out that Cox lowered their 2022 forecast four different times. He calls it a “moving target.”

He advises auto dealers to focus on removing customer friction, being mindful of which cars they’re bringing into inventory, and how they’re appraising those cars. Doing those things, he says, will help dealers set themselves up for success in the future.

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