Maintaining Gross When Normalcy Returns: Part 2

July 21, 2021

Part 1

Grosses. You are probably tired of hearing about them (but probably not about the maximized profits you’ve been experiencing). But, when it comes to examining the market, we need to have our eyes and ears open. We need to have the past on our radar with the future in our eyesight. No matter what happens to our industry today, we need to realize that there will always be an ebb and flow from the past to tomorrow. Let’s start by digging deeper into the nuts and bolts of our current state.

First, here are some facts and figures. In 2019, car sales were down overall with fewer new vehicles purchased. Things were starting to look up in 2020 until the pandemic struck. COVID-19 took a toll on the economy and the automotive retail industry. What happened next was a feat of resiliency as many dealerships found themselves growing, while also downsizing staff. Overall in 2020, dealers saw varied grosses across the board leading into 2021. Things seemed in decent shape, but the unexpected always rears its ugly head.

The past six months have shown us how prepared we need to be for unpredictable changes. Thankfully, dealerships have always shown flexibility during uncertain times. From inventory shortages to increased profits, the industry is seeing grosses increasing day by day. With that being said, we need to acknowledge that the ax will swing in the other direction. The question to ask is just how far.

As we dive into the second half of 2021, dealers continue to try to strike a balance between where they’ve been and where they’re going. Wholesale prices are plateauing and we are seeing the first signs of devaluation. This indicates a dramatic shift in the market. With new car inventory coming on the horizon, it is inevitable that there will be some negative responses in pricing.

As inventory returns, prices might still be obtuse. Specifically for the used car market, inventory is an ultra-hot commodity. This will only increase competition, which would likely result in a resurgence of racing to the bottom. Consumers will feel a sting at price and might want to revolt at the high sticker prices. I don’t mean to drum up doom and gloom. Rather, I want us as an industry to find the sweet spot.

For us to maintain grosses and profitability, we need to be smart. We need to weather the storms as they come and manage our inventory accordingly. There is money to be made, but we need to take the right steps first to ensure we are set up properly. Hedge your bets strategically and make the right investment decisions to help your lot succeed in the midst of disruption.

The automotive retail industry is primed for disturbance. It is up to us to navigate the waters and set ourselves up for success. We can’t ignore the past, but the full financial repercussions may not have set in yet. Chances are that they won’t be resolved until 2022. With continued supply chain restraints, new car registrations will feel the force of challenges. The war for inventory acquisition will continue as online disruptors swoop up used inventory.

The key is to stay confident and steadfast. Continue to stay resilient, dealers. Work hard to acquire inventory and continue to bring the workforce back. Many have been working harder and smarter with less. Now is the time to prepare for maintaining grosses when normalcy returns.