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The Spending Shift is Coming

When dealers were struck with the 2008 recession’s fallout, it was sink-or-swim to stay in business. Then, Cash for Clunkers arrived, and the outlook began to change. Dealers made an even more incredible pivot during the coronavirus pandemic, roaring back from lockdowns with record-breaking sales. Many dealerships are still experiencing this bullish seller’s market, but new data shows that a cooldown is on its way.

Retail Spending Has Dropped

Reports from May 2021 show a decline in consumer spending on big-ticket items, including automobiles, according to the Wall Street Journal. Americans are shifting their buying habits away from goods and into services.

Consumers cut spending by 1.3% in May, according to Commerce Department figures. Conversely, spending on services has risen – 1.8% for bars and restaurants alone. This shift comes as most businesses have fully reopened, vaccination rates climb, and increased employment opportunities allow for more confident spending. Consumers are also sitting on significant savings that many accumulated during lockdowns, enhanced by multiple rounds of government stimulus.

From April to May of this year, spending on leisure services rose. Casino spending increased by 17%, theme park and indoor entertainment center spending at places like bowling alleys increased 9%, and money spent at gyms rose 4%.

How Consumer Spending May Be Affected in 2021

Factors like waning government stimulus combined with supply shortages and price increases are happening in tandem with the summer spending shift. At the same time, the economy’s recovery continues to be uneven. Employment figures have lagged behind GDP growth, in part due to enhanced unemployment benefits, increased childcare responsibilities, and fear of contracting Covid-19.

Another point to watch is the rising inflation rate in the U.S. and abroad. The Federal Reserve maintains that consumer price increases (an indicator of inflation) are a temporary side effect of the economy revving back to life. However, some economists have expressed concern over the Fed’s hesitancy to raise interest rates.

Making the Most Out of the Market

The signs of a strong economic recovery are still plentiful. However, dealers should take note of the shift in consumer spending, as it directly relates to the retail automotive industry. Now is the time to implement an aggressive messaging strategy to capture consumers who are considering reallocating their dollars elsewhere.

A recent report highlighted how some used cars are now worth more than they were when new (Wall Street Journal). For consumers, this is an excellent trade-in incentive. Dealers have the opportunity to gain inventory while also bringing customers into the dealership, all while creating a positive trade-in experience. Direct mail is a prime method for targeting vehicle owners with trade-in offers. The wealth of ownership data available makes for a cost-effective strategy that drives a high level of traffic.

Don’t wait until it’s too late to capture customers who are beginning to shift. Reach the right audience with the right medium, and drive traffic to your dealership now.

John Paul Strong

John Paul Strong combines his two decades of automotive marketing experience with a team of more than 150 professionals as owner and CEO of Strong Automotive.

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