BSE Insights - Metrics, Inflation and Bears

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Arjun Kumar – Director of Business Development

October 21, 2021

When looking at the various metrics we have access to in a dealership, we can measure most KPIs (Key Performance Indicators): vehicles sold, gross profit, turn rate, touchpoints, SSI, prospect conversion, marketing spend, days supply, and endless other KPIs. However, the one thing that we rarely emphasize is: Which indicator should I use for which situation? An issue not unique to our industry; instead, it’s an issue building consistently in this age of Big Data. Often, we have so much data at our fingertips that we end up trying to look at everything at once. As a result, we end up falling back to the KPI’s we are most comfortable using and inadvertently ignore ones that aren’t immediately obvious.

The Big Picture

When we speak about “market factors” in this industry, we specifically discuss the automotive market. Rarely, in our day-to-day operations, do we take the time to analyze the macroeconomic factors that are constantly at play around us. Consumer Price Index (CPI) and Consumer Sentiment data are two factors that impact the automotive market.

CPI (Consumer Price Index) Data – tracks the change in prices of consumer goods and is considered to be a leading indicator of inflation.
Consumer Sentiment – Consumer sentiment is an economic indicator that measures how optimistic consumers feel about their finances and the state of the economy.

Numbers, Charts, and FUD (Fear, Uncertainty, Doubt)

The table below displays October CPI data. It shows a 5.4% change in the various categories that a consumer uses in their day-to-day between last year and this year. The red box shows the overall year-over-year percentage change, and the yellow box highlights the automotive market’s contribution to the overall inflation data.

Energy sector aside, automotive is the most significant contributor (by percentage change) to our current inflation numbers. In the previous BSE Insights newsletter, we mentioned that used car wholesale prices have contributed to CPI data for the last several months. We can see that in comparison to the other sectors below.

Numbers, Charts, and FUD (Fear, Uncertainty, Doubt)

The table below displays October CPI data. It shows a 5.4% change in the various categories that a consumer uses in their day-to-day between last year and this year. The red box shows the overall year-over-year percentage change, and the yellow box highlights the automotive market’s contribution to the overall inflation data.

Energy sector aside, automotive is the most significant contributor (by percentage change) to our current inflation numbers. In the previous BSE Insights newsletter, we mentioned that used car wholesale prices have contributed to CPI data for the last several months. We can see that in comparison to the other sectors below.

Neither CPI nor consumer sentiment has affected us too heavily in the last ten years. However, today the American car buyer is looking at the cost of groceries rising, a surging housing market, and the possibility of a bearish stock market; they are looking down the barrel of inflation. As a result, August sentiment for purchases saw ten-year lows (University of Michigan Sentiment Survey) in September Data. We must keep in mind that the Automotive market has been (and will continue to be) a leading determinant in the increased CPI data; as a result, we may see an excessive amount of short-term impact and a paradigm shift in the kind of buyer we see visiting dealerships.

The Federal Reserve has repeatedly said that inflation should be “transitory” to avoid any panic in the markets; the 9/14/2021 CPI data seemed to support this – as such, the narrative continued. However, two key things happened on October 13th’s Fed Minutes Release:

The Federal Reserve board finally expressed concern about inflation, saying that it could last longer than assumed, with risk to the upside.
The Fed would maintain lower interest rates until economic numbers reflect a longer-term inflation goal anchored at 2%.

Both these factors point to an acknowledgment that inflation is here for the near future, and they genuinely don’t have a timeline of when it will recede. The language is purposely opaque, giving no definitive timeline yet attempting to leave a semi-hopeful tune in the air.

How are you responding the current Market?

Guidance:

What does this mean? Inflation is here. It’s time for dealerships to focus. During this last cycle of “good selling” many salespeople picked up bad habits. Now that customer visits at dealerships are slowing, it’s time to execute a game plan that will undeniably impact results. Our next edition of BSE Insights will address this crucial topic.

Last week’s question:

How are you dealing with the current market conditions?

References: 
CPI Data: Bureau of Labor Statistics 
University of Michigan Consumer Sentiment Study
Manheim Used Car Value Index  
Cox Automotive

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BSE Insights – Metrics, Inflation and Bears

BSE Insights – Metrics, Inflation and Bears

Metrics, Inflation and Bears

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