Consumer preferences have shifted drastically in the first half of 2008, and the market changes are expected to continue throughout 2008. Dealers and agents find themselves looking at changes in new, used and leased vehicle preferences. Because trucks and SUVs cannot be relied upon as the bread and butter of the automotive industry anymore, F&I managers are changing their needs for ancillary products.

New Vehicles
According to Automotive News, the average transaction price of subcompacts this June rose 1.7 percent from June 2007. Then, in July sales, the mid-sized Chevrolet Malibu beat out the smaller Chevrolet cars, and the Nissan Rogue crossover helped Nissan to be the only of the six largest automakers to gain in July sales. Although customers are trending towards smaller cars and crossovers, the rules for best-selling vehicles don’t hold steady over brands or months.

While manufacturers retool for smaller vehicles, customers’ hopes still are pinned on the price of gas dropping, which could make larger vehicles attractive once again. According to OPEC’s July 2008 Monthly Oil Market Report (MOMR), world oil demand is forecast to grow by 1.0 mb/d (millions of barrels per day) for 2008 to average 86.81 mb/d, which is a reduction of around 0.1 mb/d from the previous MOMR forecast. In addition, North America’s oil demand is forecast to decline by 0.2 mb/d year-over-year in 2009 to average 25.0 mb/d.

With unstable oil prices, manufacturers, dealers and agents can’t put all their eggs in one basket. While the core product strategy of service contracts and GAP traditionally brings in a higher margin, consumers are demanding more customized solutions. A strong menu suited for the individual will be more productive in the changing marketplace. Some consumers may have trouble with higher-cost F&I products, but they may find several of the lower-cost products appealing.

For example, tire & wheel protection appeals to buyers of all vehicles when framed right. Today, even a compact car's tires can be costly to replace. Tire & wheel can also be sold as a combo product with windshield repair protection, dent & ding protection and roadside assistance. And, products related more to the vehicle’s owner are also essential to the product mix. Emergency notification and identity theft protection are great low-cost products to add to a menu.

Used Vehicles
Dealers are have been leaning on used, especially certified pre-owned vehicles, to make up for lost new vehicle sales. However, while May certified sales hit a high of 163,553, June sales plummeted to 141,557. Volatile market conditions are also impacting auction prices as consumers are looking to dump their trucks and SUVs. On the other hand, according to Automotive News, the Power Information Network’s data indicates that used 2008 Priuses are selling for more than new 2008 Priuses due to demand issues.

Used consumers are increasingly understanding the value of F&I products, and like new consumers, a full array of products should be considered for each customers’ individual situation. In addition, with the long-term growth opportunities for CPO, vehicle service contracts that are complementary to CPO warranties could be poised to take off.

Leased Vehicles
In 2008, leases have accounted for approximately 20 percent of new vehicles sold at retail. However, with Chrysler Financial stopping leasing in the United States and GMAC Financial Services and Ford Credit enacting new limits on leasing, the leasing market is growing increasingly volatile. A key reason behind these decisions was the downgrading by Automotive Lease Guide of residual values across the board for 2008-model big pickups and large and mid-sized SUVs.

Since last October, LeaseTrader.com has seen a 24 percent increase in the number of people who want to downsize to a smaller car, according to spokesman John Sternal. And, according to Automotive News, although leasing is a traditional sales tool for luxury brands, it has grown among mass-market brands in the past five years, especially in financing “upside down” customers.

While owners of trucks, SUVs and luxury vehicles are the main consumers of lease wear & tear, smaller car owners are now in a position to adopt this product as lower-end vehicle leasing continues to grow. In addition, as dealers try to move potential truck or SUV leasers to retail contracts, GAP will probably see expansion in that segment.

 Source: Automotive News Data Center