The Pandemic Created a Perfect Storm

If you thought 2020 was a strange year in automotive financing, well, 2021 is shaping up to be even more challenging. Legacy issues from COVID-19, along with intractable manufacturing challenges, have created a retail environment where consumers want to buy while dealers face financing and supply hurdles. Following are the key issues currently facing dealers:

Sputtering inventory availability: If you don't have cars, you can't sell cars. That simple fact is confounding many a dealer as the pandemic begins to shrink in the rearview mirror. The COVID-19 manufacturer shutdowns last year put a wrench in the entire production and supply process for vehicles, and the ongoing lack of parts – from microchips to batteries to rubber – has made maintaining vehicle inventory a recurring issue that some experts say will last deep into 2022. It's a tough situation: Many manufacturers are building vehicles, but then parking them at storage facilities because they can't install the rest of the parts in them. Other automakers are simply removing features and selling slimmed down versions of their vehicles.
Incentives fall while transaction prices rise: Demand is growing and vehicle prices are getting higher, but dealers shouldn't expect any discounts or rebates to help them sell their vehicles. With so little inventory, and such high demand, manufacturers don't need to offer incentives to move their inventory. Dealers, on the other hand, are still competing with other dealers, and without manufacturer incentives they have little wiggle room to offer a good deal to their buyers while maintaining their margins.
Customer service is hamstrung: The inventory situation means that sales and finance teams are forced to dig deeper into what buyers want and how they plan to use their vehicles – and face the unpleasant task of limiting customer expectations. Buyers simply have to make a few concessions; they just can't get exactly what they want right now because dealers and automakers can't get the parts. However, those dealerships, and the credit unions that work with them, can make the transaction positive despite the circumstances by providing leasing as a finance choice.

This lingering drama means that surviving (and thriving) through 2021 and 2022 will require a creative approach for dealers and the credit unions that serve them.

Instant Insights /

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