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The high-income club’s grip on auto sales

Explore the seismic shift in the auto sales landscape as luxury vehicles become increasingly reserved for the top income earners.

The auto sales landscape is undergoing a seismic shift. In April of last year, CBS Detroit reported that Jonathan Smoke, chief economist at Cox Automotive, says new car sales are increasingly becoming the domain of the top 20% of income earners.

Ignore the “greatest sales year since the pandemic” news you read today; what drove Smoke to comment hasn’t disappeared. The trend isn’t just a minor deviation—it’s a fundamental change reshaping the industry. As luxury vehicles and high-end models become more prevalent on dealership lots, the reality is stark: the middle and lower-income brackets are finding themselves increasingly priced out of the new car market.

CBS Detroit spoke with Natalia Ponce De Leon of North Palm Beach, Florida, who had been leasing a Toyota Tacoma pickup she acquired as new four years ago and had been using it for her custom drapery business. When it was time to replace it, she didn’t even consider a new vehicle.

She ended up settling on a 9-year-old vehicle with 14,000 miles on it — a Toyota RAV4. This shift towards a market dominated by affluent buyers represents both a challenge and an opportunity for dealerships. Now, the focus must pivot to cater to this more exclusive clientele while finding innovative ways to remain accessible to a broader audience.

The Gen Z Factor: Cash Buys and Parental Support

Amidst this tilt towards wealthier consumers, an intriguing trend is emerging among Generation Z. Data from CDK Global Insights reveals that a significant portion of new car buyers, predominantly from Gen Z, are opting for cash purchases. This move towards cash, often supported by parental backing, indicates a shift in purchasing behavior, suggesting a cautious approach to credit and an affinity for more financially accessible options, including pre-owned vehicles.

Revving Up Solutions for Dealerships

In response to the market shifts, dealerships must rev up their strategies to stay competitive and profitable. It’s about adapting to a high-income clientele and uncovering new opportunities in an evolving landscape. Below, we explore some fundamental approaches dealerships can adopt to help navigate these changes successfully.

  1. Pre-Owned Cars as New Stars: Embrace the trend set by Honda’s innovative leasing of older vehicles. Catering to a market segment looking for reliable yet affordable options can open new revenue streams.
  2. Fixed Ops as Financial Lifelines: Amplify service and maintenance offerings. As new car ownership becomes pricier, more consumers will turn to trusted dealerships for the upkeep of their older vehicles. Parts and accessories sales can also be a significant revenue stream, appealing to car enthusiasts and the DIY crowd.
  3. Creative Financing for Diverse Needs: Flexible financing options can make car ownership more accessible, which is especially important as traditional buying patterns shift. Expand leasing options if you can, offering a viable alternative for customers deterred by high purchase costs.
  4. Digital and Community-Focused Marketing: It’s a time to strengthen community ties through local events and sponsorships, creating a dealership presence integral to local life. And, if you haven’t already, you should harness digital marketing to engage customers where they spend their time – online.
  5. Sales Team as Knowledge Hubs: Equip your sales team, especially new hires, with in-depth knowledge about various vehicles, including pre-owned and budget models that appeal to cash-conscious buyers. Train them to provide exceptional customer service, understanding the needs and constraints of a more economically diverse clientele.

A Time for Tactical Change

The narrowing of the new car market to higher-income buyers, decreased middle-income buyers, and the rise of cash purchases among Gen Z signifies a pivotal moment for dealerships. It’s a call to diversify strategies, focusing on pre-owned markets, enhanced service experiences, and more robust community engagement. Dealerships that recognize these shifts and proactively adapt will survive and thrive, carving out a vital role in a transforming automotive landscape.

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Steve Mitchell
Steve Mitchell
Steve Mitchell is a contributing writer and reporter for CBT News. He earned bachelor's degrees in Marketing and Television from the University of Texas in Austin and a Masters of Theology study from Dallas Theological Seminary in Dallas. His passion for automobiles lead him to become a creative director for automotive marketing ad agency. Most recently, he was the manager of interactive marketing for Mitsubishi Motors, NA.

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