Powering automotive after the inventory shortage
While the automotive industry continues to grapple with low inventory levels from the chip shortage, only a few OEMs have made public statements on their future plans. With uncertainty ahead, the AutoFi Business Development team weighed a few questions regarding the shortage, the build-to-order model, and how digital retailing fits within the future.
What are you hearing on how long the inventory shortage will last?
When the inventory shortage began to have a material impact last year the thought was that it would be resolved in a few months. Adjustments were quickly made to production levels on certain trim levels and packages—and a new plan was put in place to reach market share and profitability goals. In the days following the initial shock more bad news came in, with additional shortages identified almost daily. Now nearly a year later the shortage still hangs over our heads—with increased downtime production facilities across all segments of the market. There is hope that a recovery will happen by the middle of 2022, with some reports predicting impacts hampering production in 2023 as well.
Does digital retailing help or hurt dealers with low inventory levels?
While inventory levels remain low, shopping activity remains strong across all segments—and the best way to reach a customer regardless of inventory levels is with a fully transactional digital retailing strategy. Here’s why: dealers with strong DR strategies build trust with shoppers more quickly. Shoppers can determine their payment based on their credit, value their trade-in, add accessories and F&I products, and gain real-time approvals through a network of the dealer’s lenders—including their captive finance arm. For every additional step they complete, shoppers rank their experience incrementally higher, as reflected in SSI scores. For example, shoppers who reach a price of their vehicle online scored satisfaction 42 points higher than those who did not.* As inventory levels run low for the foreseeable future, shoppers will be searching for vehicles outside of their normal radius; they will search for dealers who develop trust in their process, and will pay for that trust.
As the chip shortage impacts inventory, OEMs are working to capitalize by not mass producing what they think consumers want, but rather building what they know consumers want through custom orders.
Do you see inventory shortages having a long-term impact on the industry?
From an OEM perspective, massive initiatives are underway to reduce product complexity and maximize margin. In other words, this has been a good period for R&D. The results should include a sustainable, built-to-order model. With limited inventory, consumers are shopping online for vehicles more than ever before. As dealers embrace digital retailing solutions and processes to accommodate this need, the way shoppers purchase vehicles will change forever. As AutoFi gains insights into shopping behaviors through thousands of dealer, enterprise and OEM partners, we see that consumers are increasingly completing at least some piece of their purchase digitally. As proof of continued interest in digital transactions, AutoFi has seen a more than 200% increase in online credit applications in 2021 compared to the same period in 2020.
Some OEMs are discussing a strategy focused on build-to-order rather than the traditional way of purchasing vehicles. Do you think this strategy will survive?
The answer is likely more nuanced than a yes or no. For OEMs, exact predictions of consumer buying patterns would represent the gold standard of efficiency. However, matching supply with demand proves to be difficult, if not impossible, to achieve. As the chip shortage impacts inventory, OEMs are working to capitalize by not mass producing what they think consumers want, but rather building what they know consumers want through custom orders. Moving toward a build-to-order strategy allows for a better experience, refined product offerings, and ultimately increased profitability. From a consumer perspective, they drive away with a car that is uniquely theirs and satisfied they purchased the exact vehicle they wanted. However, this model will work for some consumers, but not all. A segment of buyers will want to show up to a lot simply needing a white SUV to get from Point A to Point B. So the question is if an OEM wants to be everything to everyone? If yes, then they can provide a hybrid approach of specific models as built-to-order or simply increase marketing and awareness that consumers can build their vehicles. The industry is big enough to accommodate a build-to-order model, but as inventory increases, and incentives follow, it could lead to stagnant or declining market share for OEMs that hang their hat fully on build-to-order.
So if the most innovative brands in the industry are using AutoFi to prepare for the post-shortage world, why can’t it work for you too? Reach out to us today to schedule a demo.