The State of the Auto Industry in Mid-2021 - Digital Air Strike

The State of the Auto Industry in Mid-2021

The State of the Auto Industry in Mid-2021

Record low vehicle inventory levels, chip shortages, high consumer demand, and higher average transaction prices, plus new light-vehicle sales falling for the second straight month, are all shaping the state of the auto industry today.

The National Automobile Dealers Association’s (NADA) chief economist Patrick Manzi joined our recent Facebook Live along with Digital Air Strike’s COO Erica Sietsma to discuss the current situation and how all the factors impact dealers and consumers, and what’s next.

Because of the chip shortage, the auto industry is seeing record low inventory levels, including the second lowest of all time for the end of June. For example, the industry had 27 days’ supply in June 2021, compared to 59 days’ supply in June 2020, Manzi said.

“The demand remains strong, but because of the chip shortage, the demand has been higher than the OEMs’ ability to fill lots,” he said. “Hopefully, by September, we will start to see some change there. Long term, we are expecting to get back to a 60-day supply.”

Vehicle inventory is down to just under 1.4 million industrywide, which is down significantly from the 2.6 million inventory level from a year ago. Small cars have the shortest supply at 23 days, followed by crossover utility vehicles at 25 and mid-sized cars at 26, Manzi said.

Despite the lower inventory levels, dealers are adapting by pre-selling vehicles not yet on lots and using technology to manage leads and show alternative but similar vehicle options, Sietsma said. Digital Air Strike’s patented AI lead response software, Response Logix, optimizes responses to dealers’ leads, increases the visibility of a dealership’s promotions, and delivers customer experiences that sell more cars.

“Dealers are managing their inbound leads as if they have all the inventory in the world,” she said. “Dealers are showing alternative vehicles, are quick to respond to customers online, and are doing well at advertising the inventory they have coming.”

Dealers are also doing a great job of reaching out to consumers asking for trade-ins to add to their inventory, particularly through bulk text messages. As 91% of Americans have their mobile device within reach 24/7, text messaging with eye-catching images, videos, and GIFs creates another great way to engage with customers. For example, Kia of Alhambra in California was able to get 150 vehicle trade-ins from customers after Digital Air Strike sent out two Power Text messages advertising Kia’s Retail Trade-In Assistance Program.

Average transaction prices are up, with the average new vehicle price hovering around $40,000. Because of the higher prices, fewer OEM incentives, and lower inventory, the used market has never been hotter. Certified pre-owned cars are trending up, with dealers completing the needed repairs on trade-ins to offer CPOs at a premium, Manzi said.

“With a warranty and better financing, a CPO is a great option because you get that peace of mind,” he said. “Consumers can still get in almost a new car and get the warranty too. We only see the potential for CPOs to grow.”

The reduced supply for used cars, including fewer re-possessions, has caused record wholesale prices through June. Manzi expects the used vehicle prices to plateau and stay high until the chip shortage is over, at least for the next several months.

So, what does the second half of 2021 look like for the auto industry? Q3 will still see some supply constraints, but starting in Q4, those inventory levels are expected to rise, Manzi said. NADA expects 16.5 million vehicle sales for the year and should be closer to 17 million sales in 2022, he said. Compared to previous years, the pandemic impacted new light-vehicle sales in 2020, with 14.46 million units sold. Car sales were down 14.7% compared to 2019, according to NADA.

“Once the chip shortage is resolved, I think it will be gangbusters out there, with forecasts of the highest production in years,” Manzi said. “Consumers and fleet buyers will be waiting to buy all these vehicles.”

Meanwhile, smart dealers are maximizing every opportunity, with some dealers having their best months ever. Dealers are pulling in trades, selling used and CPO, and pre-selling everything else, Sietsma said.

“Dealers are not stepping off the gas,” she said. “They are leaning in. Awareness is still a big piece of the market. Dealers must stay present in their community. They need to keep orders coming in and get creative and smart on their digital strategies. Inventory is coming back. Don’t get into a hole now. You’ve got to keep your name out there. You want your customers coming to you first.”

To watch the State of the Auto Industry broadcast, visit Digital Air Strike’s Facebook page. Check out other upcoming webinars and presentations on Digital Air Strike’s webinars page

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