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What Might 2023 Have in Store for Car Dealerships?

Check out our 2023 outlook for automotive dealers from Councilor, Buchanan & Mitchell.

The past several years have created a challenging environment for auto dealers. With shortages caused by the pandemic, increased pricing from lack of supply, employee recruiting challenges, and an inflationary market – there has not been a shortage in hurdles. In fact, the Cox Automotive Dealer Sentiment Index (CADSI) survey for the fourth quarter of 2022 showed a 17-point drop from last year, with most surveyed dealers reporting they view the current auto market as weak. Where will the opportunities lie as we move into the new year, and what pitfalls still exist? Keep reading for our 2023 outlook for automotive dealers.

2023 Outlook for Automotive Dealers

Lease Standard Updates

While public companies have been reporting to the new lease standard updates for several years, private companies and dealerships were not required to comply until the fiscal year beginning after December 21, 2021. If your company doesn’t release quarterly financial statements, these end-of-year reports could be the first time your employees have to report to the new lease standards.

Furthermore, the Financial Accounting Standards Board (FASB) released clarification on the reporting of real estate and lease agreements between common entities (e.g., related companies or parent/subsidiary relationships). Private companies should review the terms and conditions for these agreements to see if a ‘lease’ exists.

Electric Vehicle Credits

With the introduction of the Inflation Reduction Act in August of 2021, the clean vehicle credit was updated with new, more stringent sourcing requirements. Beginning in 2023, new vehicle purchase price limits and income limits take effect, as well as battery sourcing and manufacturing requirements.

Supply Chain Constraints on Auto Dealers

Two years ago, the COVID-19 pandemic created supply chain hurdles due to shutdowns and worker capacity limits in many factories and shipping docks. Between unresolved supply chain issues and the inflationary market, dealers are looking at alternative methods for handling customer orders and dealership inventory. This includes consumer-direct sales models and build-to-order deals, which allow dealerships to pivot quickly to consumer demands and updated car technology. Over the next few years, dealers will be able to see what staying power these methods have in the automobile market.

In addition, auto manufacturers are looking to streamline costs to increase their profit, another potential strain for auto dealers.

Federal Trade Commission Compliance

The Federal Trade Commission (FTC) has issued several new compliance guidelines for car dealerships.

  • Gramm-Leach-Bliley Act: By 2023, “Auto dealers that extend credit, arrange financing or leasing, or give financial advice must notify customers about the information they collect, who they share it with, and how they protect it.”
  • Safeguards Rule: Besides the privacy policies mentioned above, non-banking financial institutions, like dealerships that provide financing options to buyers, must develop and maintain a comprehensive program to keep customers’ information safe. This includes identifying a qualified individual to oversee the program, training employees on procedures, and establishing cyber-security measures to protect consumer information coming into your dealership.
  • Proposed changes to sales processes: The FTC is considering changes to how consumers purchase vehicles from dealerships. If implemented, digital and in-person car buying processes will need to be on the same system and reflect the same pricing, junk charges will be subject to fines, and upfront disclosures of costs associated with the purchase must be provided to the consumer.

Technology and Industry 4.0 Lessons

The internet has allowed consumers to easily shop around for what they want and where they want to do business. New consumers are prioritizing companies that provide a seamless shopping experience across different channels, protect their information, and are socially conscious. As you go into 2023, consider the following:

  • Enhance technological capabilities to provide a better user experience and enhance cyber security. Foul players can hold systems hostage and cripple your business if your security isn’t up to date.
  • Use technology to provide better service. Direct-to-consumer and built-to-order buying models allow dealerships to respond to trends and consumers to pick and choose exactly what they want.
  • Use lessons from big retailers and dealerships as they’ve implemented Industry 4.0 technologies to simplify the integration into your dealership.

Summary (2023 Outlook for Automotive Dealers)

This upcoming year will continue to provide opportunities for dealerships to reimagine how they do business. Many agree that the auto-buying market will not self-correct or even balance out in 2023. By continuing to do things the old way, your dealership may find itself hitting roadblock after roadblock. Being flexible and embracing the change already here and up the road can help you thrive in the long run.

Contact John Comunale via our online contact form for more information about the firm’s 2023 outlook for automotive dealers.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.   

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