A gaze into the crystal ball reveals ups and downs on the road ahead
No one has a crystal ball but it seems like there are no shortages of individuals willing to make predictions each and every year, acting like they have one. 2012 is no exception and I am sure by the time this article reaches your screen or your desk you will already have had your fill of pundits predictions.
Since the editors at Canadian auto dealer magazine asked me to take a crack at it, here are my expectations for the coming year as they relate exclusively to automobile retailers.
Buy and Sell
Dealer consolidation will continue. I see the sellers market holding steady for quite some time as the number of dealers and dealer groups looking to acquire outnumber those dealers actively on the sales block.
Pricing will hold strong as long as acquirers can attract suitable financing for goodwill and at a reasonable cost. This is a big if. World financial markets are in turmoil and 2012 could well see a return to some of the restrictive lending practices we experienced in the latter half of 2008 and the first half of 2009. If this materializes this will not be good news.
You have read in my articles before that brand values drive goodwill. Top-notch brands command higher goodwill than brands that are not perceived to be so top-notch. This will continue since brand is a critical component of overall dealership value. There may, however, be some surprising shifts in 2012. 2012 will see some movement up and down the list.
Many OEMs are embarking or at least now enforcing their image and facility standards as part of their buy/sell approval process. Look to OEMs to increase this activity.
Interest rates
2012 will see interest rates similar to 2011. There are no large rate hikes on the horizon, assuming all remains normal. The influence on the world financial markets, however, caused by the economic uncertainty across Europe could spread to other countries. Social revolt could spread if measures taken by central banks become too restrictive in the short-term. We saw some of this during the fall of 2011, first a European reaction then a global reaction called the “occupy movement.”
Central banks are more concerned about a global recession than inflation. Normally interest rate hikes are in response to inflationary pressures. The dynamics in the financial community have changed dramatically and the financial world has become very small and totally interconnected in ways many of us could and did not imagine. Much smarter people than I hopefully will be able to work together to right the global ship. All that being said, I believe we are safe from significant interest rate hikes for next year.
Product shortages
2010 and 2011 saw many natural disasters (and some not so natural) impact the supply of vehicles onto your lots. We could still feel some of the lingering effects of product shortage during the first half of 2012. The reason for this is twofold. First, production of some models could remain impaired into the first few months of the new year. Secondly, as OEMs fill their global pipelines, Canada is well down the list for allocation. It should not be too bad for North American produced vehicles but for vehicles produced outside the North American zone, delays could be experienced.
Move to luxury
Given the demographics, the luxury market will continue to improve. Pure luxury will fare better than near luxury, again as the importance of brand value and customer acquisition are heightened.
Consumers
Given the turmoil around the world and job uncertainty for certain industries, consumers will be cautious in 2012. Consumer confidence is not strong and reasons for improvement could be further off than we would like.
Incentives
The blessing and the curse, incentives will likely remain heavy, especially for brands trying to rebuild their customer base. Dropping MSRPs to closer reflect transactions prices has been tried by some but still some vehicles need the help heavy incentives provide to move product.
Increased focus on used vehicles
The market will continue to favour used vehicles over new ones. With used vehicles outselling new vehicles close to 2:1, dealers would be wise to try and capture as much of the used vehicle market as possible. Used vehicles not only provide gross opportunity in the used department but also in service, parts, body and F&I. Some dealers were forced to rely on used during the past few years to survive. I see new vehicle dealers focusing more on used in 2012 since this is just smart business.
Increased focus on fixed operations
The car park in Canada is growing and will continue to grow. In recent years, large numbers of customers unwillingly became free agents. Some of those free agents are still out there looking to land a new dealer and perhaps even a new brand. This means that conquest sales will continue to be high for at least another year. Some new vehicle dealers will experience fixed operations capacity shortages.
Customer satisfaction
Social media has changed the way our customers communicate with each other. Specialty websites have emerged to give customers a forum to express their views and rate their dealer. In 2012, the importance of these media will surpass traditional customer satisfaction survey processes. Dealers will respond positively and in timely fashion to this instant feedback. Monitoring these sites is critical. If social media can topple a country, remove Presidents and organize social rebellion around the world, just imagine what could happen to your dealership. This medium is powerful and 2012 will see dealers harness that power to their advantage.
Customer loyalty
Historically, customer loyalty has been very brand focused. Today I believe there has been a significant shift. Both the driving experience and dealership experience are critical. Loyalty was almost a given decades ago, but today it has to be earned. The communication explosion means customers in 2012 will have access to more information than they ever have before.
Most of this communication that they trust, comes from third parties. This is nothing new, however what is new is how the message is communicated and how broadly the comments are spread. Today the nod from Facebook friends and Twitter followers generates more power than we could have ever imagined. The customer loyalty game will continue to change significantly in 2012.
The market
2012 should see new vehicle sales at levels similar to 2012. As is normal, some brands will improve their market share and others will go the other way. This is the normal ebb and tide of automotive retail.
Even though Canada’s population will approach the 35,000,000 mark in 2012, new car sales will not be significantly higher than 2004–2005 when the population was about 32,000,000. To me this indicates potential, however, I do not think we will realize this potential during 2012. I hope I am wrong.
2012 could be a troubling year as the impact of events and decisions well beyond our borders potentially enter our showroom and service bays. The first half of 2012 could see a rocky ride but as the Canadian summer arrives, the domestic fundamentals are there to provide a platform for dealership growth. Lets just hope the rest of the world cooperates!
