Skip to Content

8 External Factors That Affect the Car Dealership Industry

Car dealerships serve as the link between the manufacturer of the car and the U.S. consumer. With their large inventory of cars, dealers provide consumers with a wide array of vehicles to meet their needs at different price points. The car dealership industry sells most of the cars, light trucks, and vans that operate on the road today.

Note that the sale of these vehicles are subject to changing consumer tastes, the popularity of the manufacturer’s vehicle models, and the intensity of competition with other dealers. Coupled with the sale of the car, most dealers also sell additional car-related services. These services include extended warranties, undercoating, insurance, and financing.

The aftermarket sales departments are known to provide these services and other merchandise after vehicle salespersons have closed a deal. Sale of these packages indeed increase the revenue generated for each vehicle sold.

Since the sale of cars fluctuate significantly, car dealers offer generous incentives, rebates, and financing deals during slow periods to maintain high sales volumes and to reduce inventories. Please note that performing repair work on vehicles is another notable service provided in this industry. Service departments at car dealerships also provide repair services and sell accessories and replacement parts.

However, despite low profitability and overcapacity challenges, the car industry still dominates with more substantial influence. It is a significant force and industry globally. More than 60 million trucks and cars get manufactured each year, and they consume about half of the world’s oil.

The car industry also offers employment to over four million individuals directly, with several other benefits indirectly. The industry is one of the most-rewarding with enormous benefits for those employed. Besides, it enjoys heavy linkage with supplier companies.

What External Factors Affect the Car Dealership Industry?

  1. Political Influence

The Car Dealership Industry faces the threat of governmental promotion of public transport and other alternatives. For instance, this external factor encourages people to leverage shared transportation, such as buses, trains, and vehicle-sharing programs, potentially reducing customers’ likelihood of purchasing automobiles from car dealers.

In addition, aggressive tax policies threaten the industry through potential increases in taxes. Nonetheless, political stability in major markets presents growth opportunities in the remote or macro-environment.

  1. Taxation

Less taxation in the automobile industry, such as a reduced fuel cost, may influence consumers to consider buying more private cars. Note that to meet the demand, automobile companies will increase their production and car dealership will increase supply.

However, in high taxation on fuel, most clients will prefer public transport to private. In addition, significant cities’ emission charges make most clients switch to public transportation to avoid taxation. Most consumers do not understand the environmental impact that lowers the tax. The first solution is to make clients embrace public transport.

  1. Interest Rate

Have it in mind that interest rate has a major influence on the car dealership industry. Lower interest rates may encourage clients to borrow funds from financial institutions to purchase a private car or even a fleet of vehicles, and thus entails increased production and increased sales of the automobiles. The expansion of automobile industries means more employment opportunities as well.

Meanwhile, increased interest rates may depreciate money value and reduce buying power. With high-interest rates, clients tend to move away from borrowing finances to purchase automobile products and services. Rejection of buying products results in customer demand and low production to minimize the supply of automobiles.

  1. Social/Socio-cultural Influence

The automobile market is marked by the increasing demand for electric vehicles. This external factor creates growth opportunities for car manufacturers through the development, manufacture, and sale of electric vehicles. Similarly, the increasing demand for self-driving cars can promote growth through the sale of such cars by car dealerships.

On the other hand, the increasing demand for vehicle-sharing and ride-hailing programs is a threat against firms in this industry. For example, ride-hailing programs improve people’s access to convenient transportation, corresponding to a potential decline in target customers’ likelihood of purchasing new automobiles from car dealers.

  1. Government Regulations

Irrespective of the form, automobile industries operate within government laws and regulations, especially in the United States. In this industry, the rules directly influence the overall performance, features, looks, and design of a given automobile.

Some government regulations may see an increase in the manufacture of a given vehicle. It will lead to a rise in sales, growth, and expansion of that particular brand. In the same vein, the same regulations from the governments may limit how cars get marketed and sold.

In most circumstances, the governments impose these regulations intending to protect consumers and the environment. The automakers who fail to adhere to the government’s laws and regulations may face penalties or hefty fines. Fines or penalties are drawbacks in the automobile industry.

  1. Environmental Influence

In the car dealership industry, environmental issues of services or products are not the only factors influencing economic growth. A client’s perception also plays a key role. The major environmental factors in this industry are emission and fuel economy. Regulations on clean air are some of the challenges with a significant impact on economic growth. As a result, dealers and marketers are collaborating with fuel-efficient and cost-effective automobiles.

  1. Recession

The huge rising debt worldwide hurts the growth of the automobile industry. It had worsened over time from 2007 when there was a worldwide economic crisis. Financial institutions, including banks, limited their financial support to automobile industries crippling the manufacturing process. As a result, the sale of automobiles reduced with declining purchasing power.

  1. Technological Influences

Have it in mind that increasing implementation of self-driving vehicle technology creates opportunities for car manufacturers to provide competitive automobiles with such technology. The car dealership industry can also benefit from the trend of rising fuel efficiency in automobiles.

This external factor should prompt manufacturers to develop advanced automobiles with competitive fuel-efficiency ratings. In relation, the remote or macro-environment presents opportunities for firms to develop sales and marketing prowess, based on increasing demand in the market.

These factors mentioned above identifies significant opportunities for growth based on a variety of external factors in the remote or macro-environment of the car dealership industry. Because the industry is an integral part of the world economy, its challenges lead to a meltdown in other sectors. A good number of sectors depend on this industry, including media, travel, information and technology, electronics, telecommunication, education and science, fuel, finance, and distribution.