Wednesday, January 6, 2016

January 2016: "A Look Ahead and a Look Back"

Once again it's that time of year where we devote our first issue of ACG's "Smart Parts" to what lies ahead in the New Year. We will also take a back at results and trends from last year that just may support forecasts and predictions for what lies ahead in 2016.

As I mentioned in the intro, this is one of my favorite issues each year because it gives me a chance to reflect back on my own personal performance as well as looking ahead to what I can do better in the new year. In order to do this year end assessment and future forecast, I need to start with some facts and trends from reliable sources to support my own future goals.

Normally, when I do my year end assessment and future forecast, I would always take a look back at what history and the latest trends to get an idea of what lies ahead.

 This year, I decided to "flip it around" and take a look at what industry analysts are forecasting for 2016.  After a review a their forecasts, I can then look at last years' results to see if the they support these forecasts made by industry analysts.

One of the best resource providers that I have always relied on is the N.A.D.A., (National Automobile Dealers Association) for the latest and most accurate industry guides, data and trends. Plus, with such a massive dealer participation and membership rate, it is an obvious choice to gather resource information.

One of NADA's most recent "state of the industry" presentations in November 2015 featured one of their top industry analysts and economist, Steven Szakaly. Steven is currently NADA's chief economist and has held this position since October 2013. His resume is very impressive with many years as an economist in the automotive industry

His forecast for 2016 starts with an increase in new vehicle sales in 2016 from 17.3 million in 2015 to 17.7 million in 2016, which represents a 2.3% increase. If true, this would be the seventh straight year of new vehicles sales growth.

Not only has this trend been growing over the last seven years, I was rather surprised that the gap between new light duty truck sales versus new car sales is at an even bigger gap with new light truck sales accounting for 56% of overall new vehicle sales to new car sales at 44%.

Some of the positive indicators for this growth forecast are; projected increases in employment, rising new vehicle sales trends, consumer confidence and stable oil prices. Some other "neutral" indicators are the equities market and industrial production. 

After the GDP, (Gross Domestic Product) crash in 2008 and 2009 where the GDP fell to approximately -3.0%, the GDP percentage rate has slowly risen back to it's current rate of 2.5% and is predicted to be hitting as high as 2.9% over the next four years. 

A much stronger U.S. Dollar is also a major contributor to Steven's forecast as indicated in the rise of our U.S. Dollar in Trade Major Currencies worldwide. This steady rise over the last seven years has also been consistent to other trends mentioned earlier.

What does all this mean to the average consumer though?...there has to be more than just lower gas prices! To me, it appears that new vehicle prices just keep rising and that doesn't add to my consumer confidence. Most importantly, what does all this "stuff" mean to our Fixed Operations Departments as we forecast the year ahead?

Even though Steven's Szakaly's forecasts for 2016 look great and with much great research to back it up. How do these forecasts play into our roles in the Dealers' Fixed Operations Departments? Last I heard, Customer Pay Repair Order Counts have been dropping at a rate of almost 10% since 2014.

In order to bring this all together, it's now time to look back into 2015 to see where we have been with some data and information once again provided by N.A.D.A.'s Dealer Financial Profile for 2015.
The following information was provided to N.A.D.A. by dealer members through October 2015. Not the complete year, but still a very good sampling with great information.

Let's start out with the average life span of a new vehicle today which is almost twelve years. That in itself is pretty amazing, but just why is that number growing and growing? Better vehicle manufacturing can't be the only reason.

A few other reasons for this longer vehicle life span are; longer lease terms, higher vehicle prices, higher vehicle average payments, ($550 Monthly) and higher extended service contract penetration. Extended service contracts are up from 23.5% in 2000 to 41.7% through October 2015.

Quite simply, people are being forced to keep their vehicles longer. As a matter of fact, over the past few years, retail prices are out pacing peoples wages! Worst part about that though is that those higher retail prices aren't going to the dealer as one might think.

Even though new retail vehicle prices are getting higher, the dealers' profit margin is shrinking. Through October of 2015, new vehicle retail selling price has increased 2.5% over the same period in 2014 while new vehicle gross, excluding F & I has decreased, -3.3% over the same period.

Increasing regulatory costs is one of the major contributors for this increasing gap over the past few years. It's not getting any easier for new car dealers and that's where we come in from the Fixed Operations side. Even with all the above adversities, here are a few facts from NADA's Dealer Financial Profile through October 2015 compared to the same period, through October 2014;

    • Total Dealer Total Gross Up 6.3%
    • Total Dealer Total Net Profit Up 8.8%
    • New Vehicle Sales Up 7.7%
    • Used Vehicle Sales Up 6.6%
    • Total Dealer Expense Up 5.7%

So just how can these dealers be doing so well with less net gross opportunity on new and used vehicle sales?

Quite simply, New Vehicle Sales Incentives, Used Vehicle Sales, Finance & Insurance, (F & I) and Fixed Operations Departments are where most the gross is created in today's automotive dealership. As profit margins continue fall in New Vehicle Sales, the strongest needed gross producer from the above mentioned is the Fixed Operations.

Even though I mentioned earlier that Customer Pay Repair Order count is steadily dropping, to the tune of almost 10% over the last few years, the Dealers' Fixed Operations are still growing from a sales and gross perspective.

The increases in Express Service, Warranty Repairs and higher customer loyalty numbers have given dealers the "shot in the arm" needed to sustain these rather impressive results in growth as well as healthy forecasts looking ahead in 2016.

Looking ahead to 2016 and beyond, I believe customer loyalty, or "retention" will replace our industry standard "Customer Satisfaction Index", (C.S.I.) as to how dealers and manufacturers are measured in the near future. 

With longer new vehicle "life spans" due to higher average monthly payments, longer lease terms and on going higher new vehicle retail prices, it just makes sense to me that customer retention needs to be the number one factor in overall dealership profitability.

I guess the old saying is still true today...."the more things change, the more they stay the same"....

Take care of your customers and they will take care of you. Also, don't discount the fact having strong Fixed Operations Departments with strong Service Absorption percentages is even more important today than it has ever been. 

Are you ready for 2016?....Is your staff trained and prepared? Are you ready to achieve "Predictable Results"? The competition has never been stronger or better and all the market indicators seem to point in a very positive direction. Maybe that's why we have been extremely busy here at ACG!...Training and Coaching never stops....

Wishing All a Happy, Healthy and Prosperous New Year "Smart Parts" Readers from ACG!!....Make It Your Best Year Ever!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at Vist our Website at