5 Critical Challenges Facing the Automotive Industry

Social media marketing in the automotive industry might paint a cozy picture for industry observers. That is because some of the biggest challenges facing the sector are not discussed frequently. But, just because they are not discussed does not mean they do not exist.

The entire automobile industry is changing. If you have acknowledged this – great. You are in the minority of dealerships. But, you don’t have to be reactive to these changes. Let’s look at the USA automotive industry’s critical issues and how you can resolve them.

5 Strategic Challenges Facing the USA Automotive Industry

Some of these challenges are because of the pandemic. Others result from the changes in demand and technology. But, irrespective of their source, the challenges will shape the industry and your automotive dealership.

1. Semiconductor Shortage and Lumpy Supply

As the pandemic unfolded, most automakers expected lower demand. Hence, they did not scale up production. And as a result, they did not order more semiconductors.
Most other semiconductor-consuming industries like consumer electronics saw a substantial increase in the demand for their products. So, they increased their semiconductor purchases by 9% compared to the previous year.

As most of us already know, the recovery in demand across the automobile industry was fast. When automakers reacted to this recovering demand, they realized that the semiconductors manufacturers had already allocated capacities for other sectors. This resulted in a shortage because it’s not easy to establish new semiconductor plants.

Due to the lack of semiconductors in the supply chain, several major automakers have not been manufacturing at the pace they would prefer.

The consumer-side demand has continued to grow. The industry will have more unfulfilled demand and supply shortages with a longer time to deliver new vehicles in 2022.

2. Growing Human Capital Costs and Talent Gaps

The Detroit Bureau recently reported the shortage of labor at every stage in the automobile hierarchy. Companies want to fill gaps at the manufacturing line, workshops, and desks for engineering specialists.

Glassdoor Economic Research reported that it takes about 23 days on average for an American company to fill a full-time position. If your dealership takes more time than that, you should consider automotive social selling to attract the right talent. Here is how you can do it:

1. Make your employees your social media brand ambassadors.
2. Provide them with the right content.
3. Use schedules to regularly do this.
4. Monitor the results.

With time and focus, this can substantially strengthen your employer brand for almost no extra cost.

3. Transition to an EV Portfolio

Over the last few years, EVs have come to a step closer to going mainstream. Even the best-selling truck in the USA for the past 44 years went electric. And now, it’s happening – the USA automotive industry is going electric. The change will be slower than most people expect, but it is underway.

In the immediate future, this shift will have an impact on your business. The average electric car costs over $19,000 more than its petrol variant. This means that the ideal buyer for such vehicles would be different from your current target market. And, you might not be on their radar as a prospective dealership.

Your local marketing tactics will have to change alongside your staffing plans to suit the new buyers. Social media marketing in the automotive industry will be a decisive channel to attract this new buyer and this new talent to serve the EV market.

4. Pressure on Profits

On average, automakers make between 7.5% to negative in net income. But, the industry average is closer to 2%. The EBITDA margins are relatively healthier and stand at approximately 10% for the entire industry.

According to the National Automobile Dealers Association, the average dealership saw a 48% pretax margin growth in 2020 on an annual basis. That should be a healthy sign. But this was a particular year of excess demand and trailing supply.

Industry estimates show that margin will be under pressure going forward. Experts suggest that the margins might shrink by 3-4 percentage points in 2022.

If you have been running short on cash flow or have a levered balance sheet, it’s time to evaluate your marketing budget. This would be the right time to consider pivoting to performance-driven, scalable, and visible strategies like automotive social selling.

5. Supply Chain Issues and Cost of Components

The manufacturing costs, labor shortage, changing product portfolio, and surging demand would mean one thing – supply chain constraints. Dealerships are not directly impacted by the change at the moment. But, it will catch up.

The problem is that you can’t do much to solve this problem. But, your customers will feel the pain of a longer waiting period and expensive services. Hence, the solution would be to improve the customer experience and educate the prospects honestly and deliberately.

Transforming the Auto Dealership Model

Here are a few solutions you can deploy to prepare for the industry-wide challenges we have addressed thus far.

1. From the ‘Car Salesman’ Concept to Employee Advocacy

Most buyers do not prefer aggressive sales tactics, especially in the automobile market. Pull marketing is the exact solution to this problem.

With pull marketing, your focus shifts to attracting leads with pain points you can address with your product. And then, you simplify their purchase journey. Employee advocacy can be a great strategy to achieve this goal.

To learn more about employee advocacy, you can go through our free eBook here. Once you have read it, try Inrelay. You can invite dozens of employees to your advocacy program, track their invitation acceptance rate, and empower them with the right marketing message.

Such messages go on social media from their accounts and attract leads in their social circles. With a focus on content that addresses customer problems, you can build a formidable online brand without spending millions on ads and influencer campaigns.

2. Adopting Automotive Social Selling and ORM

Online Reputation Management (ORM) has never been more important. The typical customer journey has changed. Leads go through Google queries, YouTube reviews, and social media recommendations before moving to their purchase decision.

Automotive social selling, paired with employee advocacy, gives you an edge in this digital-first customer journey. All you have to do is provide the right category of content optimized by your marketing team to your employees for social media publishing.

With more eyes and brains working on your ORM, you can turn the tables and optimize the customer experience. Inrelay allows you to categorize and distribute content alongside scheduling your posts. This way, all the content shared is a part of one united strategy. And any leads generated with the changed game-plan will receive consistent marketing messages.

3. Value-Added Services

The dealerships that can use social media marketing in the automotive industry will do better than their competitors. But, to defend their territories, such dealerships will have to add more value to the service. Here are the three frontiers for achieving this:

1. Buy Now, Pay Later: The perception has to be shifted to ‘buy now, pay later’ instead of a financed car. This would require a ground-up change in messaging. From the lead acquisition part to when the customer drives her car home, she should feel like she is paying nothing at the moment but getting all the benefits. This might require bringing in more finance partners but can help in getting a sustainable edge.
2. Lesser Cost of Ownership: Customers have to be educated to think like homebuyers, who often consider the cost of ownership over the purchase price. Well-planned automotive social selling will be the path to begin this customer education journey, which ends at more cost-effective after-sales services. Your customers should not feel that they have to go somewhere else to get affordable repairs on the car they bought from you.
3. Risk Management: Financing is great. But, who looks into mitigating the risks? Insurance is central to ensuring your customers are not running the risk of the car causing a dent in their financial plan. You can tie up with local fee-only financial planners and help your customers fit the car’s insurance into their overall life risk management strategy.

4. Used-Car Portfolio

In 2019, used cars were 18% more profitable than new cars for auto dealerships. While customers are looking for electric vehicles and new car demand is surging, till the deliveries start matching the demand growth, used cars can be a great transitionary offering. You have the specialty to spot the right vehicles and price them accurately. Use it and expand your product portfolio.

With employee advocacy adding more eyes for your auto dealership brand on social media, it can become easier to generate leads for buying used cars. All you need is expertise in fixing them up and bringing them back to the market. The used car market is usually independent of the new car market economics and is twice its size. So, you can have more profits at a greater scale.

5. Consumer Intelligence > Competition Intelligence

Focusing on your competition makes you reactive. Focusing on your customers makes you relevant. And with this differentiation, you can achieve better results on even seemingly small marketing budgets.

With an army of ‘in-house influencers’ in your employee advocacy program, you can gather more customer insights by directly engaging with your prospects. As backed by Harvard Business Review, customer intelligence can deliver more proximity to customers and help you allocate even relatively smaller marketing budgets more effectively.

In Conclusion

There is no doubt that the industry’s challenges would put several dealerships at risk. But, the auto dealers that understand the value of automotive social selling and a customer-centric marketing strategy will have the edge over their competition. Inrelay is helping such ambitious dealerships unlock a new level of efficiency and effectiveness in their marketing arsenal with employee advocacy.

Click here, and learn how to have over 70% of your employees back your dealership actively on social media and generate earned media mentions matching some of the costliest marketing strategies.