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Economic Developments and Used-Vehicle Inventory Influx Provide Ideal Market Conditions for Independent Dealers

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Article Highlights

  1. An ideal set of market conditions are currently emerging that provide independent dealers with maximized floor planning opportunities.
  2. The Federal Reserve announced another 0.25 percent decrease in interest rates which could mean additional opportunities for independent dealers who are now able to offer lower cost financing options to their customers.
  3. Strategic floor planning choices can be the difference needed to drive efficiencies and compete with local rivals.

An ideal set of market conditions are emerging that provide independent dealers with maximized floor planning opportunities.

First, we are experiencing the longest sustained period of economic expansion on record in United States’ history, boasting 122 consecutive months of growth.

Second, during their Federal Open Marketing Committee meeting yesterday, the Federal Reserve announced another 0.25 percent decrease in interest rates. This decrease is in addition to the previous decrease in July, which happened at a time when rates had not been lowered for more than a decade. Lessened borrowing costs could mean additional opportunities for independent dealers who are now able to offer lower-cost financing options to their customers.

Third, there is an influx of in-demand inventory about to hit the auction block. Four- to nine-year-old vehicles are a sweet spot for used-car dealers – comprising upwards of 60 percent of the inventory floor planned by NextGear Capital’s clients. And with top movers such as SUVs and CUVs from 2014 and 2015 coming back into the marketplace, dealers are positioned to see a better selection of inventory than has been available in recent years.

Finally, millennials – who are responsible for a significant portion of inventory sales – are coming into their next vehicle purchase. Given millennials’ financial status is not as strong as they’d like, used inventory remains an attractive option for them. Coupled with the fact that the average transaction price of a new vehicle in August was $37,401, according to Kelley Blue Book, all signs are pointing to the continued growth of the independent market.

It’s clear, the economy is shaping up to favor independent dealers, but how can they take advantage of this opportunity?

  • Be Data Driven: To be successful, it’s crucial to understand clients and the ways their needs change. It’s no longer enough to purchase vehicles on a gut feeling. Dealers need to leverage data and properly source inventory that the market has deemed in-demand to increase the likelihood that it sells within 45 days.
  • Control cash to maximize impact: Too often dealers use their own cash to buy inventory. These dollars could be better allocated to improving the customer experience or making needed lot improvements. The solution? Dealers should rely on a trusted floor planning provider to finance this inventory. Why? Floor planning can stock dealers’ lots with a larger variety of vehicles; and with a broader selection of inventory, dealers can attract more consumer interest.
  • Take advantage of technology to become more efficient: To move inventory faster, independent dealers should take advantage of the latest technologies. The newest digital solutions can better highlight which vehicles are in demand, increase the flow of capital, and make the titling process more efficient.

For independent dealers, the dilemma has always been competing for inventory with larger dealers who have access to more capital. It will continue to be challenging moving forward, but strategic floor planning choices can be the difference needed to drive efficiencies and compete with local rivals. With these ideal market conditions and the right floor plan partner, independent dealers are certain to see success.

Dave Horan is acting president of NextGear Capital. NextGear Capital, a Cox Automotive company, is the automotive industry’s leading comprehensive provider of lending products and solutions. NextGear Capital dealer floor plans provide buying power to over 1,000 live and online auctions nationwide. The company is revolutionizing the finance industry through easy-to-use dealer financing options, best-in-class customer service and innovative technology.

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