Key Takeaways
- How proper training and education impact penetration
- How normalizing inventory is affecting profitability
- How 2022 sales compared to projections
- How new leasing behavior is changing dealership loyalty
This report, which focuses on the fourth quarter with a view of the year as a whole, will provide context on why certain areas of the business are outpacing others. You will also be able to measure how your dealership is performing in several key sales and F&I performance metrics.
Before you dive in, view this brief introductory video with insights from Ian Hunter, JM&A Group’s assistant vice president of Sales.
Get all the details below to find out how you can stay ahead of the shifting market and develop strategies for continued growth.
Sales Performance
The Sales Performance data, which is an aggregate of surveyed dealers from across the country, will help you understand the modern vehicle retail market, including the impacts of reintroduced incentives, supply chain challenges, inventory levels and training.
We will highlight national averages on dealership performance in:
- F&I/Front PVR
- Car Sales
- VSC/PPD
Share this information with your sales teams to consider how store personnel can positively impact overall dealership profitability and performance.
Impacts to F&I and Front PVR Profitability in 2023
After years of unprecedented growth, the industry experienced a steady decrease in profitability throughout the second half of the year. We anticipate this trend will continue into at least the first quarter of 2023, and likely through the first half of the year until the market stabilizes. As long as the trend of high interest rates, limited incentives and inflated car prices remain, gross profits will continue to be impacted. We have found that dealers who focused on the basics - ongoing training and customer service - are leading the pack in terms of overall performance.
Inventory levels will be a contributing factor, specifically on the Front PVR side, as the relationship between additional supply and vehicle prices drives consumer demand and therefore profitability.
F&I PVR
Front PVR
Growing Penetration Through Training and Product Mix
Although we saw gains early in the year, Vehicle Service Contract (VSC) penetration and total Products Per Deal (PPD) fell in each of the last seven months of 2022, with the steepest decline happening in November. We will continue to pay close attention to this trend as we wait for the market to normalize.
VSC
PPD
Tips to Drive Sales Performance
In reviewing the results, we are reminded of the correlation between continued training and dealer profitability. Going back to basics on training is essential on both the consumer level – educating customers on the benefit of service contracts for new and used vehicles – as well as training dealership staff to properly convey the value proposition message and overcome common objections.
Another best practice is to offer an affordable suite of branded protection products that, in turn, tie the customer back to the dealership, building loyalty. For example, the J.D. Power® Edge products are a differentiator, providing instant brand recognition and consumer trust, which may lead to increased interest and product penetration.*
Vehicle Sales
The Vehicle Sales data examines how macroeconomic factors, specifically the cost of borrowing money, and consumer preferences impact vehicle sales on a national scale. We will share overall demand for the quarter and year and examine how industry projections compared to the annual results.
- Deal Percentage (Lease vs. Cash vs. Finance)
- Manheim Used Vehicle Value Index
- SAAR
How Interest Rates Impacted Lease vs. Cash Deals
While the ratio of leased, cash and financed deals did not shift significantly in 2022, the industry experienced a slight decrease in financing during the second half of the year. Conversely, cash deals saw an uptick as interest rates continued to climb, making borrowing money a less attractive option.
Used Car Valuation
According to the Manheim Used Vehicle Value Index, the value of preowned vehicles reached its lowest point during the fourth quarter, with a slight uptick during December. We see this as an indication of the impact that higher interest rates are continuing to have on the price of both new and used vehicles.
2022 SAAR Projection vs. Actual Sales
2022 saw the third consecutive year of a declining new vehicle SAAR, with actual sales reaching their lowest point in more than 10 years at approximately 13.8 million, due in major part to hold-ups in the supply chain and limited vehicle availability. The industry is projecting a slight comeback in 2023 with a forecasted SAAR of 14.1 million.
Automotive Industry Updates
In addition to analyzing performance data, this section will review and interpret the top consumer trends and shifts in the car buying process during the fourth quarter. We will take a look at the overall sales for the year and what they mean for the automotive industry and consider how one OEM is making its case for a return to leasing.
- New and Used Car Average Interest Rate
- Polly Pushes Performance
- 2022 Sales Recap
- A New Lease on Leasing
Average Interest Rates on New and Used Cars
The average interest rate on used vehicles saw a slight decline in the final month of 2022, whereas the rate on new vehicles continued its steady rise, reaching its highest point of 6.5% in December. We suspect this trend will continue, impacting both gross profits and the consumer's ability to purchase a new car.
According to Edmunds, a record number of both new and used car shoppers locked themselves into a monthly payment of more than $1,000 per month. In fact, 15.7% of consumers who financed a new vehicle during the fourth quarter agreed to a monthly payment of $1,000 or more, while 5.4% of consumers who financed a used vehicle during the same period committed to a $1,000+ monthly payment.
Through an alliance with Polly, JM&A Group allows customers at participating stores to receive competitive quotes and secure their car insurance concurrently with the vehicle purchase, creating a more holistic buying experience that can also increase affordability. In a performance analysis of enrolled dealers, we found that if a Polly contract was sold on the deal, there was an 11% increase in performance across various metrics.
Polly creates a more holistic buying experience that can also increase affordability.
2022 Sales Recap
Due in large part to supply chain issues, inflation and heightened prices of new and used cars, the industry’s overall sales took a major hit in 2022.
Despite overall U.S. sales declining 8% from last year, there are some highlights to consider. General Motors retook the national sales crown from Toyota, and electric vehicle sales represented 6% of the overall market, up 3% compared to last year. As electrification becomes more mainstream and accessible, we can expect this trend to continue.
A New Lease on Leasing
As many consumers turn to lease extensions and buy-outs to combat increased new vehicle prices, Toyota is investing in building customer loyalty through a return to a normal leasing cycle.
While these deals have been highly profitable and beneficial for OEMs and dealerships in the short term, this trend could negatively affect demand by extending the standard lease customer three-year lifecycle.
Although JM&A Group's dealer partners’ total average for leasing has not seen as dramatic a shift as Toyota, this is a trend we are continuing to monitor as leasing is an important profitability and loyalty driver, as well as an opportunity to convert leased vehicles to CPO offerings.
Based on our learnings from 2022 and the continued shifts in the market, we anticipate that affordability will be a major industry focus in the year ahead. The average American’s savings rate has plummeted from 33% in early 2020 to 3% at year-end 2022 and the threat of a potential recession continues to loom as The Fed adjusts interest rates, putting a further dent in disposable income and the demand for durable goods.
Now is the time to focus on a return to the fundamentals of dealership success, which will pay off in a big way when the market begins to normalize.
- Focus on associate training to provide great customer service
- Design purchase experiences to enable seamless transactions
- Implement processes and technology to exceed expectations and build loyalty
*J.D. POWER® is a registered service mark of J.D. Power. | J.D. POWER® EDGE is administered by Fidelity Warranty Services, Inc. and operated by the Obligor.
J.D. POWER® does not determine eligibility for benefits, claims or the amount of claim payments, all of which are determined by the Administrator.
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