January 29, 2020

Auto Dealer Challenges in 2020

The start of a new year is a time of renewed vigor, increased energy and broad optimism. Capitalizing on this, many businesses have carefully reviewed strategy, established tactics, set the budget and are now focused on execution. While specific opportunities vary by company size and industry, the goal is almost always the same – to increase growth and revenue.  Although simply stated, the truth is reaching these goals can be quite complex, especially when certain variables are beyond the company’s control. Atlanta auto dealerships will face many challenges in “moving the needle” in 2020. According to the Cox Automotive Dealer Sentiment Index (CADSI),  independent dealers have ranked credit availability as a top concern in 2020. In addition, there is concern about the overall weakening market and decline in dealership visits. While not every business will face the same challenge, findings from the report offer management key insights for the coming year. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key findings below.

About the Survey

The data collected was obtained through an online survey with responses from both independent and franchise auto dealerships. The survey was available from October to November 2019, and data is based on responses from 1,073 participants (529 franchised and 481 independent dealers). The sentiment is identified with a numerical value from 1 to 100, with scores less than 50 reflecting weaker (negative) conditions and higher reflecting stronger (positive) conditions.

Key Insights

• Market Outlook – The sentiment about current market conditions remained low for independent auto dealers. The low confidence rating is likely connected to beliefs about used vehicle sales which continues to show a significant decline, dropping from 73 in Q3 to 66 in Q4. When the demand for used vehicles increases, it’s likely the market outlook will adjust accordingly.
• Used Vehicle Inventory – Concurrent to the declining market conditions for used-vehicles, there has also been a corresponding increase in the amount of available inventory. According to CADSI, independent dealers rated inventory with a score of 51 reflecting a sharp increase over prior quarters. As economic conditions change, including the impact of tariffs, it will be interesting to see how buyer preferences react.
• Customer Traffic – One way to understand changing demand is to evaluate variations in foot traffic to dealerships. According to CADSI, franchise auto dealerships rated foot traffic at 35 which is a decline from prior quarters. Franchise dealerships rated it a 43, which although higher than independents still represents a decline over prior periods.
• Factors Holding Back Business – Understanding the factors holding back business gives insight into a dealer’s top challenges and concerns. According to CADSI, 34% of franchise dealers indicated market conditions are a key concern, 33% competition, 30% limited inventory, 24% economic conditions, and 18% consumer confidence.
• Negative Impact of Tariffs – Changes in trade agreements such as USMCA and associated tariffs have a significant influence on market attitudes, consumer confidence, and even vehicle pricing. According to CADSI, 5% of franchise dealers indicated there has been a positive impact, 65% no impact and 30% negative impact. More specifically, 57% are concerned about higher prices on used cars as the market adjusts, 44% higher prices on imported vehicles, and 22% lower new vehicle sales.

Contact Us

The good news for independent dealers is the year-over-year comparison show an increasingly positive sentiment about improving business conditions. While the demand for used vehicles has yet to reach a favorable level there are opportunities to position for the future. If you have questions about the information provided above or need assistance with a tax, audit or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us.