Some luxury dealers probably wonder what happened to the segment they used to know.
As the lines between automotive mainstream and premium blur, the mix of consumers shopping for luxury has changed – and so have the types of vehicles they want to buy. Consumers are purchasing midsize luxury SUVs faster than dealers can stock them, while sedans linger on the lot for weeks or months. It’s a simple supply-and-demand issue that doesn’t seem to have a simple solution. How can you stay profitable if you’re stuck with inventory your market won’t buy?
Automakers are working to solve the imbalance by adjusting production mix. That takes time, though, so some luxury dealers are relying on OEM incentives and rebates on slow-moving inventory as a short-term fix. But a dealer can’t profitably discount much more than an OEM is willing to incentivize. Simply put, solving this complex problem is going to take more than discounts.
These three tips will help dealers protect profits and keep inventory moving while awaiting OEM production mixes to rebalance:
1. Find and fix issues in new- and used-vehicle listings.
Optimizing listings is always a good idea, but it’s even more important when supply outweighs demand. While selling luxury sedans against the tide, listings have to be even more compelling to catch consumers’ attention. Unfortunately, many listings are incomplete. In a recent review of more than 10,000 dealerships with listings on Autotrader.com, 27 percent of listings had no photos, 29 percent were missing vehicle descriptions, and 16 percent were missing a price. Of listings that included prices, 86 percent only listed MSRP and 52 percent didn’t include relevant live specials or incentives, making those vehicles look less competitive than they actually were.
As dealers know with used vehicles, complete and compelling listings drive interest in inventory traffic to showrooms. But the same rules apply to new cars, too. A new car listing that’s missing key information will get overlooked. It won’t even show up in most online searches. This doesn’t have to be a complicated project. Just focus on the basics: photos, descriptions, retail prices, and relevant incentives for every sedan listed, every time. The more compelling, the faster it will sell.
2. Move more new sedans by leasing.
More attractive online listings will help consumers find luxury sedans, but not necessarily help them pull the trigger. Plenty of consumers won’t choose to buy a luxury sedan for various reasons. But they might feel great about leasing one. Leasing has always been a powerful force in the luxury market. It lets consumers get the new luxury vehicle they want for a lower monthly payment, and it makes it easy to upgrade to a new model every few years. As sales volumes slow down a bit in 2017, dealers can lease new luxury vehicles to bring in a continuous stream of revenue.
And what kind of vehicles do luxury consumers want to lease? Sedans. The ones dealers are having a hard time selling. Luxury sedans make up 56 percent of the lease share of new-vehicle volume, while luxury SUVs total only 33 percent. By targeting potential lessees and promoting sedan inventory, dealers can start those slow-moving cars rolling off the lot.
Comb through the customer-relationship-management system for consumers who could be interested in a new lease. Consumers near the end of current lease terms are an especially good fit, because dealers know exactly when they’ll need their next vehicle. And because returning lessees are more likely to upgrade than new buyers are, coordinate upgrade-focused offers with lease renewal dates. Educating consumers about the benefits of leasing can convince even more shoppers to give it a try. If customers have never leased before, make sure they know it’s an option that can get them into a higher-end vehicle faster and at reasonable monthly payments.
3. Upgrade used sedans to Certified Pre-Owned.
Leasing is all well and good for new vehicles. But what about used ones on the lot. Used luxury sedans can be a major opportunity for dealerships that take full advantage of certified pre-owned options.
Driving a luxury vehicle is a goal for countless consumers, but the cost of buying or even leasing a new one can shut many people out. Certified Pre-Owned creates a best-of-both-worlds solution for these consumers. They can get their dream car for a lower price, while the vehicle’s certification removes potential quality and safety concerns sometimes associated with buying used. That peace of mind is a major CPO selling point: 64 percent of consumers who purchased CPO said certification played a major role in their decision.
Certifying used luxury sedans does come with an upfront cost. But this small investment can result in a major payoff. It’s a simple way to make used vehicles feel like new. That’s an upgrade consumers will pay more for. Used-vehicle shoppers are willing to pay more for a CPO vehicle than for the same vehicle without certification. Even better, 74 percent of CPO buyers will purchase their next vehicle from the same brand. CPO does more than move sedans off lots. It can win customers for life.
Yes, shifting consumer preferences can leave dealers with misaligned inventory. But that doesn’t have to be a disaster. The right moves can keep dealership inventory moving. All of it.
Brian Geitner is president of Cox Automotive Media Solutions which includes Autotrader, Kelley Blue Book, and Dealer.com