Six Ways Car Companies Can Benefit From Corporate Trade
Many observers regard the auto industry as an indicator of how the overall economy is doing. And if automotive performance is a true measure of market health, then the economy is cruising along. For the seventh straight year, vehicle sales have risen, with 2016 showing 17.55 million cars and trucks purchased. It’s widely thought that this increase in vehicle sales has been bolstered by easy credit, an unemployment rate below 5%, and cheaper gas prices. All of which means Americans are flocking to auto dealerships.
But even though 2016 was a good year, this is no time to idle. With the New York auto show happening in mid-April, consumers and industry experts are focusing on the latest innovations and technology (driverless, electric, etc.). But now is the best time to focus on reviewing strategies for business efficiency and profitability, and this review should include the integration of partnerships with corporate trading companies like Sherwood Integrated Solutions.
Corporate trade is an opportunity to increase the value of assets – not only manufacturers and dealer inventories, but those of fleet owners, trucking companies, and parts and equipment suppliers. In a typical trade, the barter company purchases the an asset or funds a program for the customer. In exchange, the customer agrees to use the barter company to provide services such as media buying. A well-designed transaction will increase revenue, stimulate the pipeline, and improve supply chain efficiency in the short term, with no disruption to existing agency relationships. In the longer term, an ongoing relationship will ensure the annual sell-through of older models as new technology gains scale.
When selecting a corporate trading firm, keep in mind three general criteria:
- Ensure that they deliver high-quality media services.
- Understand the array of business and marketing services beyond media that can be provided. More choice is always better.
- Make sure that the trading company can fulfill both the sale of your asset and the use of any trade credit.
Keep reading to get an inside look at exactly how you can benefit from having a corporate trading partner in the passenger seat.
(1) Selling off-lease vehicles at a more attractive price
In recent years, there has been a huge surge of Americans leasing vehicles in a bid to keep their monthly payments low. In the first quarter of 2015, almost 32% of new vehicles were leased, rather than bought up-front. If you go back to 2010, that percentage was only around 24%. This shift is driven by the rising cost of cars which makes leasing the most viable option.
And this poses the challenge for car companies as to what they’re going to do with off-lease vehicles. The fact of the matter is that most car companies are going to sell of these vehicles as CPO (certified pre-owned) or wholesaled – both of which are going to be at a less-than-attractive price. One great way for car companies to deal with the downward pressure in pricing is by utilizing a corporate barter company like Sherwood Integrated Solutions as a unique sales channel.
(2) Increasing the sales of slow-moving models and turning over fleet inventory
It’s a fact of the automotive industry that some models and categories are going to be more popular than others. For example, in 2016, passenger car sales dropped (as opposed to trucks, SUV’s, minivans and crossovers). Small car sales decreased by about 8.4%, midsize models were down about the same amount, and large cars were down by an astounding 44.7%.
This is a challenge that every car company must face – there’s no fighting the market. These slow-moving models can be sold in bulk to corporate trading companies. This is a highly effective strategy to help slow-moving vehicles fly out of showrooms, and it can also help older fleet inventories to be moved off the lot.
(3) Trimming supply chain costs
A partnership with a best-in-class corporate trading company will have supply chain benefits. In an IBM study of global supply chain chiefs, leaders from the automotive industry were more concerned about supply chain visibility and cost containment than their peers in other industries. Barter companies can help: it is relatively simple to design a program to provide a multitude of logistical services (freight forwarding, customs, trucking, air freight, purchase order management, etc.) as part of the transaction.
(4) Subsidizing dealer incentive programs
As we’ve noted before, leasing is on the rise in the vehicle industry. More families are purchasing more cars with luxury features, features that are more affordable thanks to dealer financing programs. In the third quarter of 2016, the average loan for a new vehicle was around $29,000, an increase from 2015. On top of that, the average length of loans was approximately 67 months.
However, interest rates are also on the rise. This has the potential to lower demand for dealers in future years. If this is a risk to the forecast for your car company, then it’s a good idea to work with a corporate trading partner like Sherwood Integrated Solutions to mitigate this potential issue. Corporate trading will help you accelerate future sales by subsidizing your dealer incentive programs.
(5) Subsidizing new marketing initiatives at the point of sale
In a study that was conducted in 2014, it was found that approximately 82% of purchase decisions of mass merchant channel shoppers were made in the store. More consumers are allowing the shopping experience to impact their decision. This trend carries into car-buying decisions. Shopper marketing in the showroom is now a critical selling tool. For example, showroom marketing using advanced interactive video, 3D and animation is a reality. And another reality is VR (Virtual Reality), which also should be considered as part of automotive marketing plan.
Marketing initiatives like these are incredibly innovative and impactful for your bottom line but of course they are expensive and can be difficult to fund. Automotive barter programs with leading corporate trading firms will help you to subsidize the development of these types of display and merchandising tools.
(6) Benefits and opportunities for parts and equipment firms
The advantages of corporate trade are not limited to vehicle manufacturers and dealers. Manufacturers and retailers of parts and equipment, OEM and aftermarket, can enjoy the same benefits, unleashing more value for assets and more efficiency in marketing programs and business services. The market is healthy and more momentum can be captured using corporate trade.
In summary, the auto industry is changing continuously, and your ability to adapt will benefit from an exploration of how today’s corporate trading capabilities can help your company. By using firms like Sherwood Integrated Solutions, you will steer to new levels of profitability and efficiency.