Is there even a new normal in the dealership world or is the business just in constant evolution?
Often when I speak with folks from auto retail, I often get the question “when do you think things will be back to normal?”
My answer to this seemingly simple question is not simple at all. If you are waiting for 2016 or 2017 to return, then you are going to wait an awfully long time.
If you are referring to an environment of constant change like we have had for the past 20+ years, then I’d say we are already there. Often, I find that folks are referring to new vehicle inventory levels and related new vehicle unit sales.
Other times folks are referring to new vehicle gross profit pools, to which I answer gross profit levels on new vehicles are very high and most dealerships are recording record department profitability. Other than sales volume, things are not all that bad. So why wait for the return of something that may never come?
Since I am writing this in October and the race to the World Series is in full swing, let’s go around the horn and touch all the bases to examine this return to normal concept. Think back to the Abbott and Costello bit. We will have customers at first, brands at second, employees at third and the economy at home.
Firstly, are your customers behaving the same way they used to? I would suggest that customer behaviour has changed significantly over the past few years in ways we would not have thought possible five years ago.
Shopping patterns for both the variable and fixed sectors of our businesses have shifted. Working with our customers has been both rewarding and challenging. It has been great to sell at list or above, but extremely challenging to deliver on customer expectations. As dealers we have lost much control because of inventory availability uncertainty.
Secondly, are brands behaving the same way they used to? Again, I would suggest that brand behaviour has changed. Brands have taught themselves many things they would have not thought possible five years ago.
Brands chasing vehicle margins to maximize corporate profitability have altered vehicle production and thus delivery schedules. Direct to consumer has led to hurried brand internal process changes and therefore, changes in a brand’s relationship with its dealers.
Brands are also in many ways being forced to electrify their product offerings to meet government mandates and are looking at new ways to bring that product to market to compete with newcomer single focused electric vehicle competition.
Thirdly, are dealership employees behaving the same way they used to? Our employees survived pandemic stay at home orders only to come out with higher expectations for work from home options, many driven by childcare challenges, and in the process changing what they expect from their employers. Higher cost of living has fueled increasing wage and salary demands. On a broader scale, labour unrest is currently the norm.
Finally, is the economy behaving the same? How long will current economic conditions last? If inflation falls back to two per cent does that mean that prices will return to pre-pandemic levels, or does it mean that current prices are only increasing two per cent on a base of post-pandemic prices.
In general, post-pandemic prices are already conservatively 15 per cent to 20 per cent higher than pre-pandemic prices. The government’s target is to limit annual price increases to two per cent not reduce prices. On top of that the “R” word is being used more often and certain sectors are beginning to slack off. All this leads to headwinds in the near-term.
Thus far, I have only highlighted a few considerations. Normal has so many subcomponents to it that it is virtually impossible to return to normal.
More importantly however is the return to normal in the emotional connection we feel with customers, our staff, and our brands. This can only happen if we accept the reality that we are building a new normal on the fly.
This can only happen if we make sound business decisions using the factors under our control. This can only happen if we make the necessary changes in the way we operate our dealerships to keep pace with our local business environment.
It’s how we adjust and reset that will help us be winners in the longer run. In reality, we must learn to partner with our brands, our customers, and our employees. The perfection of this partnership will help us build the emotional strength to be successful.
Part of building this new normal on the fly has to do with the impact of digitalization as the catalyst for change. I believe change is not solely about digitalization and digitalization is not the sole blame regarding change.
From my perspective it’s about how we choose to implement digitalization in our dealerships. Digitalization is simply a set of tools. It’s how we each accept and choose to use these tools that sets us apart. Most are not there yet and naturally digitalization is an easy target.
Automotive retail is still and likely always be a people business, run by people for people. It’s how we use the tools we chose to employ to help us along our journey that supports our emotional connection with our customers, our brands, and our employees. The business has evolved well beyond tracking how many. It’s evolved to be more of a focus solely about the how.
So, looking ahead to 2024 and back to the original question “when do I think things will be back to normal?” The answer is never!
In 2024 we will continue our collective efforts at building a new normal on the fly each and every step along our collective journey forward.
