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2022 ECONOMY AND FIXED OPS (PART 4)- CAR SALES TRICKLE-DOWN EFFECT TO FIXED OPS

We’re wrapping up our series with a look at the decrease in car sales and how this has impacted the fixed ops departments over the past two years. TVI MarketPro3’s Eric Hawkes gives his thoughts.

QUESTION: What has been the status of new cars sales over 2021-2022?

ANSWER:

Two major factors and they’re somewhat intertwined, but the Covid Pandemic has created a loss in the labor force with manufacturing, be it in Japan or be it in the United States that’s tempered the pace in which the cars are produced.  The other item is the chip, the chip crisis, the chip shortage.  Cars are ¾ of the way completed on the assembly line, but they need the chip to finish through, so they have to park them to the side, and neither one of those, I don’t believe we’re going to see a difference in 2022.

I’m not an expert on the pandemic, but it seems to be with us for a while now, maybe different strands, maybe not as potent, but either way, it’s going to disrupt the workforce just the way it has in the construction business, the service business, restaurants, hotels. 

And then to compounded with that, you have a lack of chips, so what has occurred is a lack of sales in total volume, but what cars are available, be it used or new, they’re capturing a very high premium.  So, dealerships are actually making more money through this craziness ironically.  They’re making more money per car being sold be it new or used, and people are shying away from buying as the inventory is not there, and the cost factor is increasing, people are shying away from buying new and used cars which then goes to the service industry.

It’s quality of sale over quantity.

Is this decreasing the number of sales reps?  I don’t think so.  I think that might just be natural attrition if it is happening.  But remember, salespeople in the service world and the sales world are typically on commission, so it doesn’t cost a whole lot of money to have more employees or the same amount of employees they had before with the exception of hourly employees be it the valets.  The office may not need as many people for support because there may not be as many car deals, so there might be a little bit of hit there.

QUESTION: How is the current state of the economy affecting these issues?

ANSWER:

The auto industry is a great economic indicator just like first-time home purchases, just like other indicators out there.  The automobile groups and manufacturers are not immune to inflation.  Parts go up because materials are more expensive. Labor goes up because there’s less people, so it’s just causing an increase in cost and an increase at the end of the day in what you’re going to pay for your car.

QUESTION: List some occurrences in 2021-2022 and their cause/effect relationship to car sales issues.

ANSWER:

I think what you see again is that used car prices are up an average of 35% from the prior years.  New cars, I believe it’s about 16% to 18% for the same vehicle.  The inflation and the economy have caused this.  So again, what it’s helped ironically is the dealership groups and the dealership owners to increase their profitability.

The other side of that is it’s causing a lot of customers that were thinking in their third or fourth or fifth year of their car to upgrade and get another car, ah maybe not.  Let’s get those brakes, let’s get those tires, let’s reset our car. 

Yeah, it might be a thousand or two thousand dollars, but I own that car now.  Looking at the price increases and looking at the value of what they have has changed a lot.  You know, three years ago, leases were very popular, just lease a car for three years, buying a car every three years, getting a new car.  It was almost a self-sustaining business, and this has a kink in it, but again, the irony of it is there’s a lot of money being made.

2022 economic effect on fixed ops - car sales

Back to the service end, a lot of customers are opting to keep their cars and put money into them.  One side is if I sell it, a used car, I can make good money on it, but then what do they do for transportation?

QUESTION: Did you ever face similar issues in your time as an automotive leader?

ANSWER:

No, not similar, but there’s been some major impacts.  Let’s go back to the 1970s when I was a little wee tike, we had gas lines.   There was an odd day you could get gas if you were a license plate ending in an odd number, you could go on those days.  If it was an even, you had to go on the other days. There were lines half a mile, a mile long that you waited.  Some people ran out of gas waiting in line for their turn at the pump.  Well, that was a major shift from taking the large domestic cars to trying to make them economical. 

And then as that was happening, Japan swooped right in as they were trying to get entry into the United States.  Toyota, Honda, Nissan, they had cars that were 25-35 miles to the gallon. Unheard of and the American V8, we’re going to get you there with power and speed.  That definitely changed the dynamics of the auto world.

Go back a little further, World War II.  There was such a shortage of natural resources like rubber and metal that weren’t available t produce cars, and those people that were available to produce were more likely to produce airplanes, engines, tanks, and equipment necessary for the war.  So, it is kind of neat to look at the big picture and see some of the disturbances in the business cycle of the automotive world.

QUESTION: What effect have these sales issues had on fixed ops?

ANSWER:

 Initially, when Covid hit, everything just stopped, but automobile dealerships were still open because they were considered a necessity.  I’m not sure about that because if you can’t drive to work, and you can’t drive anywhere, what type of necessity was it? 

When you look back and think back to when Covid really hit at the end of March and the beginning of April, it was catastrophic.  Everybody just stopped what they were doing and said I’m not doing it.  I’m not going to work.  I’m not touching anybody.  I’m not seeing anybody. 

But most of the states considered automobile dealerships, particularly service departments, essential.  And so they stayed open, but the fixed ops business, parts, and service, certainly took a hit because the people, even though dealerships were open, were not opting to go in.  And that was pretty much the end of March, April, and May.  Not that the pandemic changed or got better, but June and July I saw what I coin as basically Covid revenge. 

People had enough.  They had to get out of the house.  They wanted to get their cars fixed.  There were recalls that needed to be done.  They needed brakes.  They needed oil changes, so it flooded the market.  So you have that over the course of the next year and a half coming in compounded with the people that aren’t buying new cars and aren’t buying used cars. 

They’re servicing their car, so we’re finding quite a bit of dealerships service departments booming right now during the pandemic which is sometimes counterintuitive.  You wouldn’t think it would happen, but it is, and that’s good again for the dealerships to maintain their strength and we need that. 

We need restaurants and automotive dealerships, and construction workers to be out there working and making money because when our technicians get their check, they may go out to dinner with their family. But when Covid first hit, they weren’t going out to dinner A – because of Covid & B – because they didn’t have any money.  They had to figure this out.

There’s been a lot of issues that have come from the fear of Covid and getting around the pent-up need for service and recalls that are coming out.  And again, the chip shortage is just dragging the new car sales down, but fortunately, knock wood, the dealers can make money on the profit side of it.

QUESTION: With the fixed ops side booming at this point, are the other challenges that aren’t income-related?

ANSWER:

There’s no doubt that the… probably the number one challenge that our service departments and dealerships are experiencing is a labor shortage.  There seems to be a lack of people in the pipeline coming through that want to do this as a profession. 

What do they want to do?  Cyber security, computers, I don’t know. But if there was one greatest issue right now that is staring us in the face in the fixed ops is shortage of labor.  Technicians, parts counter men, service advisors. It’s hard work.  It’s long hours. It’s very similar to being in the restaurant business, the hotel business, long hours, lot of upset and angry people because they’ve got Covid, or their family’s got Covid, and their government is telling them what to do or how to do it. 

All these pent-up frustrations, and they’re quite often thrown out at the people that are trying to help them in the service department, in the restaurant, and a lot of people are saying “not going to do it.”

So, some of the dealers are getting creative in finding technicians, taking some people from maybe the HVAC world, taking electricians, and trying to encourage them to come into the auto dealerships. It goes back to the almighty dollar. 

There’s a lot of dealerships stepping it up and saying we’re going to pay what I find to be astronomic wages, but they’re in a crunch situation, and they say of we’re going to do it, we’ve got to go, and we’re going to go hard and try and get ourselves situated.  Which is kind of like the NBA, and the NFL where there’s a little bit of a bidding war on this type of labor that increases the cost for everybody.

QUESTION: What are some suggestions you would give to a fixed ops leader that is trying to overcome and/or capitalize on these issues?

ANSWER:

Just remember always, we are in the customer service business, and we happen to work on cars.  We’re dealing with someone whose pet may have died before they came in or whose son just graduated from MIT and they’re the happiest people in the world.  You never know what’s happening with your customers, so while we’re the experts on the cars, we can’t assume they are, and we need to respect their peace, their place, respect the fact that they’re coming in and trying to hand us money.

So just sometimes take a step back in respecting the owners that are taking risks every day that they could go out of business particularly when Covid just hit.  The customers that are coming in, and that you’re making a paycheck.  You’re making good money.  I think that’s paramount with what we have not just in our industry, but in all industries.  Just taking a step back and appreciating what we have.

RELATED ARTICLES:

2022 ECONOMY AND THE EFFECT ON FIXED OPS (PART 1) – SUPPLY SHORTAGE ISSUES

2022 ECONOMY AND THE EFFECT ON FIXED OPS (PART 2) – LABOR ISSUES

2022 ECONOMY AND THE EFFECT ON FIXED OPS (PART 3) – INVENTORY ISSUES

2022 ECONOMY AND THE EFFECT ON FIXED OPS (PART 4) – CAR SALES TRICKLE-DOWN EFFECT TO FIXED OPS

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