Car Dealers Warned of Oversupply: ‘Innovate or Die’

Car buyers in the coming year can expect dealers to provide such things as 5-day buyback guarantees and service departments that are open round the clock, thanks to a “hyper-competitive,” oversupplied automobile market.

But consumers shouldn’t look for any bigger price breaks than dealers are now willing to give.

Market conditions will make it a buyer’s market in 1988, but dealers will compete with service, not sales, according to a research study by Irvine-based USP Automotive Advertising.

The company annual study is based on a survey of 60,000 car buyers at 60 U.S. dealerships.

“Innovate or die,” USP president Jeremy Anwyl told his dealership clients in a recent seminar designed to prepare them for the turbulent 1988 car market.

Anwyl said he expects total auto sales in the United States to decline to about 14.5 million cars in 1988, from 15.5 million this year. Meanwhile, he said, 18 million cars will be produced in or shipped to the United States this year by the growing number of auto makers competing here.

“The buyer is overchoiced, and it’s great news for him. It’s terrible news for the industry,” Anwyl said.

He said steady or declining demand over the next several years will cause a third of the nation’s 25,000 car dealers to go out of business in the next decade.

Anwyl said up to 15% of the nation’s dealers are losing money.

“It’s not hopeless. In 1980, the market was oversupplied and nobody was buying. There are buyers today, but (dealers) have to steal them from other dealers,” he said.

To attract business, Anwyl said, such traditional ploys as claims of the lowest price in town won’t work anymore.

“A car buyer can go to 11 dealerships, and his price is going to about the same at each of them. He’s thinking about value, not the actual dollar amount.”

To convince the buyer that he’s getting value, the dealer must try to improve the image of dealerships by increasing credibility and service.

“Buying a car is going to be a lot like going to Nordstrom,” he said. “Salesmen at quality department stores earn commissions. But they don’t put the buyer under pressure like car salesmen do.”

One of Anwyl’s clients, Ron Arbaugh, president of Ontario Nissan, said: “Most car dealers and sellers think they know the best way to sell. And they won’t change.”

Arbaugh said that since he took over at Ontario Nissan in January, he has virtually stopped mentioning specific prices in ads. And he said that he is hiring sales people who don’t have car-selling backgrounds.

“I want them to learn the way cars are to be sold in the future,” he said.

Arbaugh said his new sales staff includes a former banker and several recent college graduates.

He has also worked to improve the image of the dealership’s service department: “Getting your car serviced is one of the least fun activities imaginable. If the service department can take my car at the end of the day, work on it that night, and have it clean and ready for me the next morning, I’ll be happy.”

Within two years, he said, some dealers can be expected to have service departments open round the clock. In just the last year, many dealerships have extended their weekday hours and started opening on Saturdays.

To increase their credibility, Anwyl suggested that dealers offer 5-day buyback guarantees to show confidence. Such guarantees allow cars to be returned if the buyer is unsatisfied or has found a lower price.

Anwyl said his experience with a dealer in Florida shows that few customers will return cars.

Dealerships will continue to expand car variety, too, he said, with new foreign car makers entering the U.S. market each year.

Anwyl predicted that China will be the world’s leading exporter in 10 years, because of its inexpensive and steady labor force.

WHAT CUSTOMERS WANT MOST FROM CAR DEALERS Quality service department 25% Convenient location 20% Quoted lower price 11% Car availability 10% Other 5% Salesperson’s attitude and knowledge 30% Source: USP Automotive Advertising