What Happens When the Acute Chip Shortage Turns Chronic? - AutoSuccessOnline

What Happens When the Acute Chip Shortage Turns Chronic?

Safety recalls are often found after the vehicle has left the lot. Getting those customers back in for repairs has tangible benefits.

With demand high and supply low, auto retailers are making bank right now. Per-vehicle prices skyrocketed to $42,802 in September, according to J.D. Power. With transaction prices that high, dealers are naturally focusing more on finding inventory and sales, not service.

Riding the current profit-per-sale wave makes sense. The global chip shortage has suppressed unit sales nearly 15% in 2021, and IHS Markit predicts the shortage will continue through 2023. 

Good Today, Gone Tomorrow?

That leaves an important question: Will consumers continue paying significantly above MSRP? Or are dealers grinding through the higher-income consumers, where prices are highly inelastic? Mistaking early adopters who will pay more than $10,000 over MSRP for mainstream consumers who will not or cannot may be a costly mistake.

If consumers balk at higher prices, the lingering chip shortages and subsequent logistical issues could impact dealers sooner rather than later. Dealers will have to scramble to make up the revenue, which will swing the pendulum from sales to fixed operations. Will dealers be ready?

Many dealers are currently taking advantage of the additional profits that warranty reimbursement provides. But many dealers still look at safety recalls as a nuisance instead of an opportunity. This can be a long-term strategic mistake, as dealers can find hidden revenue in recalls that can help off-set low volume sales.

What About Longer Term? Or…“But wait, there’s more!”

Warranty reimbursements for safety recalls represent a significant revenue opportunity for dealers, and it’s likely to rise as vehicles add more technology, EVs, new safety features, more complex electronics and software, etc. For example, a recent recall by GM for a Chevy Bolt battery issue came with an estimated $11,000 per repair price tag. Yes, that’s an extreme example, but it shows there is money to be made in high-tech vehicle safety recalls.

Dealers also can strengthen customer relationships through safety recall management. One simple exercise is to process VINs on customers’ recently purchased vehicles. Often, dealers find safety recalls that have come to light since the vehicle left the lot. Getting those customers back in for repairs has four tangible benefits:
1. It adds to warranty repair revenue. 
2. It creates thankful customers who may not even be aware they had a vehicle problem. 
3. Your CSI scores will likely increase. 
4. You might just save a life!

What’s the Financial Return? 

We can only speak from the experience of our dealer clients. They regularly bring back customers from independent repair facilities by having their BDC reach out to them when their vehicles have been recalled. They can generate anywhere from a 5:1 to 84:1 return on investment, depending on the type of recall, effectiveness of their BDC and, mainly, their belief that recalls can be valuable.

How can dealers accomplish all this? It starts with three simple steps:
1. Appoint one person in the organization to have responsibility for making it happen.
2. Develop a written policy and processes on how the organization will handle safety recall management. 
3. Commit to an automated process. There are companies who provide turn-key solutions. 

Enjoy the high profit margins while they last, but prepare for some bumps down the road. Mining safety recalls for extra revenue will be an important lifeline moving forward

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