Forecasting 2022 is Tricky for Sales But Some Bright Spots for F&I

The forecast for 2022 in the automotive industry is a bit of a mixed bag as 2021 did not see the huge turnaround from COVID that many had hoped for.. Everyone was looking for the pandemic to finally abate but instead Delta and, at the end of the year, Omicron, made its way across the country fueling speculation that we could be dealing with this for at least another year or two.

Add to that the chip shortage that settled in early last year and you have an industry that is being affected on all fronts. Higher prices for new and used vehicles, empty lots, and inflationary pressures at a 40 year high put dealerships and manufacturers in a rather precarious position with little choice but to wait it out the best they can.

What does 2022 look like? What data can we look to for clues as to how this year will turn out and how will these trends and predictions shape the outlook for F&I?

Empty Lots Filling Back Up?

Industry insiders are projecting that supply should start to come back by the end of Q2 saying that the worst is over for OEM’s trying to play catch up from the worst of COVID. That’s a small glimmer of hope after a disappointing year. It shows the pandemic is not through with us yet.

IHS Markit projects a modest 2% increase in new car availability which is rather lukewarm news for everyone downstream. OEM’s are still not a full production and it may be 2023 or 2024 before inventory levels match what they were pre-COVID. With more customers in 2021 putting off buying new cars due to low availability, it affected the used market with fewer front-line ready trades. 

F&I PVR’s have been higher this last year due in large part to higher sales prices for new and used which has bolstered high finance reserves. Supply and demand is causing many car shoppers to pay MSRP or higher to get the car they want and even then many have to wait for factory orders that could take months. 

An increase in sales, albeit small for the first half of 2022, presents opportunities for ancillaries to remain strong as buyers are looking to protect their new purchase in more ways than just a VSC or GAP. Keeping the car looking good and well maintained is becoming more important to buyers who know they will need to squeeze every future trade-in dollar out of their car to make the next purchase happen as prices rise.

VSC Sales Up/GAP Could Suffer

There is a shift happening in consumer ownership behavior that many dealerships may not have seen coming. The average car owner is now keeping their vehicle an average of 12 years before trading up or buying new. That’s a long time. 

This presents a strong opportunity for F&I staff to double-down on VSC sales to every buyer. If you know they are likely to keep the car well beyond their loan term, especially due to higher new & used prices, then VSC should be the focal point of the presentation on every deal. Between the high cost of parts and the increase in expensive electronic parts, buyers must be made aware of the risk of not having this protection.

Your PVR will benefit but so will the service department by having a steady flow of repeat customers keeping the lanes busy. 

There is one area where there could be some decrease in sales…GAP insurance. As insurers are offering higher valuations for vehicles due to overall wholesale increases, buyers may feel that there is not as much worry about bridging the gap between the loan balance and value at the time of loss. Used car values have risen quickly and are not forecasted to return to more ‘normal’ levels until well into late 2022. 

It’s time to step up your game for GAP and have your staff ready to counter this objection by reminding them that these historically high values are due for a crash later this year.

Rate Increases Coming? Probably.

There has been widespread speculation that the Fed will increase the prime lending rate in response to historically high inflation. Some have predicted it could come in the form of 3 separate .25% increases though nothing has been confirmed. 

If that happens, F&I could be negatively impacted on finance reserves but with a strong mix of lending options available and an increased focus on tightening F&I menus to focus on the highest margin products, it’s a storm that can be weathered easily. The Fed would have to move the rate much higher for the sky to start falling. But by the end of ‘22 expect some movement on this front.

Digital Retailing Not Going Away

A recent survey shows that 70% of consumers prefer to shop online for their car versus going to the lot. It’s clear this trend is not going away. People would rather stay home to find their next car and are perfectly ok with handling every aspect of it from the comfort of their living room.

This will force dealers who up to this point in the pandemic have been hesitant to fully embrace digital retailing to finally go all in. Consumers want a faster overall process to buy a car and online buying is in many ways a more seamless way to sell. Dealers who offer all F&I information online also have a much easier time selling since most consumers want to do their research before reaching out to sales.

Helping Your Dealership Be Ready for an Uncertain ‘22

truWarranty is here to help your store prepare for what could be a bumpy ride into 2022. Take a look at our products and services for a better idea of how you can benefit from a no-fluff, no BS way to help your F&I department be the most profitable they can be. We’re here for you.