Most dealers understand that today’s car business is an Internet business.

They know that new and used vehicles aren’t really for sale unless they’re posted online.

keys A Connection Commerce Challenge For DealersThe best dealers also recognize that they see more customers when online vehicle listings offer competitive, market-based pricing, and their merchandising (e.g., descriptions, photos, videos) tells a compelling story customized for each car.

I would describe all of these online efforts as “informational.” That is, they provide potential buyers with the information about the vehicle and dealership to make their purchase decision.

But here’s where these informational efforts online fall short for dealers. They do not help consumers initiate, let alone iron out, the terms of a vehicle purchase deal while they’re online—especially when they look repeatedly at a vehicle details page (VDP) for a specific car. This shortfall will become more profound as vehicle shoppers expect dealers to offer the same kind of click-to-purchase options they use on any other retail website.

Now, to be clear, I’m not suggesting that most consumers will want an Amazon-like vehicle purchase experience, where they click to buy and the car gets delivered to their front door.

I do, however, believe that consumers increasingly expect to find a more convenient and efficient way to know the ins/outs of a vehicle deal before they go to a dealership. This expectation, which is fed by consumers’ increasing use of the Internet to buy goods and services, will require dealers’ online efforts to become more “transactional” than they have been in the past.

And therein lies both an opportunity and a rub for dealers.

On the opportunity: Dealers who shift their online strategies to become more transactional will be in the best position to attract and serve customers who want the ease and convenience these emerging online experiences offer. In addition, new technology and tools are available to help dealers provide this experience while meeting their need to manage the profitability, structure and terms of every deal.

On the rub: Dealers aren’t used to providing the type of information car-buying consumers seek online. To be sure, some offer payment calculators, trade-in appraisal tools and other applications that help facilitate the purchase process. But, to date, most of these applications do little to help customers put themselves into the car and the deal. Instead, they are often viewed by dealers as a means to generate a lead and an appointment in the showroom, where the real deal-making begins.

I like how Mike Burgiss, CEO of MakeMyDeal, describes this shift for dealers. He calls it “Connection Commerce, not shopping-cart eCommerce,” where dealers offer a way for consumers to self-guide their purchase experience online.

“Selling cars has, and always will, be a relationship business. But the relationship today has to start differently, with the dealer effectively ‘going first’ by offering payment options and a complete set of deal terms without catches or conditions,” Burgiss says. “We find that when dealers ‘go first,’ they make a connection with customers. In turn, the customers give back by sharing their car-buying story and situation in a more honest and direct way. This connection also translates to faster in-store transactions and a better buying experience.”

Looking ahead, it’ll become increasingly important for dealers to become more transaction-focused in their online strategies. Those who make this strategic shift first will be best positioned to reap the biggest rewards.

{ 0 comments }

Earlier this morning, I heard a robin singing outside our house.

I listened a bit and smiled. The robin’s basically making his play for the summer. Hopefully, his song will attract a suitable mate. They’ll start a family and we’ll have a few more birds around here.

But it also occurred to me that the robin’s efforts to woo a mate are similar to a temptation dealers face as spring approaches: Should I beef up my used vehicle inventory to set the stage for a strong selling season?

Ipoze tari0054 300x251 Three Pointers To Right Size Your Springtime Inventoryn fact, I received an e-mail the other day from a used vehicle manager who’d just started at a Buick/Cadillac/GMC dealer in the Midwest. He wanted my advice on how best to increase his inventory from 80 to 110 units to help drive his sales volume in the coming months.

I offered three pointers that I believe are relevant for all dealers as their instincts urge them to stock up inventory for the spring:

1.  Examine your current turn. I asked the manager for the department’s current inventory turn, which runs about seven times per year. I then stressed that adding more units to this level of inventory velocity would only exacerbate an existing problem: He has too many aged vehicles on the ground today. Adding more inventory would only make it more difficult to get rid of these aged units and might, in fact, increase their number.

I told the manager that he would need to endure some short-term pain (and heat from the dealer) as he cleaned up the mess left behind by the prior manager. This clean-up effort, I advised, would expose retail and wholesale losses that, while painful, are necessary as a first step toward achieving the 12-times inventory turn benchmark.

“I understand, Dale,” he says. “My inventory must be clean before I can run lean and mean.”

2.  Know your true capacity. A decision to increase used vehicle inventory, and maintain a minimum 12-times annual inventory turn, means more work across the dealership. More cars to acquire. More cars to recondition. More cars to photograph and merchandise online. More cars to price and promote. More cars to efficiently retail with customers. More deals in F&I.

Furthermore, all of the additional work must be done in a timely fashion—or you risk turning the additional inventory into your first wave of aged units.

For all of these reasons, I advise dealers to build inventory levels based on an honest assessment of what your dealership can efficiently manage. In most cases, this assessment translates to decisions to add inventory in three-, five- or seven-car increments, and adding more only as the dealership’s capacity remains consistent.

3.  Prepare to stay the course. More cars in your inventory means more risk from setbacks—whether they come from internal factors (as noted above) or external factors, like a decline in consumer demand and sales due to weather, an economic change, etc. It’s often tempting for dealers to use such setbacks, particularly if they involve pressure from the dealer to increase front-end gross profits, as excuses to slow their inventory turn.

When these situations occur, I advise managers to do their best to maintain the minimum 12-times/year inventory turn benchmark. A slower pace may satisfy a dealer’s desire for increased front-end gross profits, but it will cause the number of aged units to grow—possibly setting the stage for another painful inventory clean-up effort.

In addition, a slower pace of inventory velocity diminishes any efficiency gains you might achieve across all dealership departments, and saps the “total gross” opportunity the added inventory is supposed to create for everyone.

Ultimately, dealers and used vehicle managers should recognize that the decisions they make about inventory today, as spring approaches, will have the same impact as the decision the robin outside my window makes about its mate: If you get it wrong, it’s going to be a difficult and potentially painful spring and summer.

 

{ 0 comments }

It’d be safe to bet that 2015 will be a good year for dealers.

The forecasts are rosy: The consensus among analysts is that dealers will likely retail around 17 million new vehicles this year, a tally the industry hasn’t seen since 2006.

2015 chevy camaro imagined is it a batmobile 47741 1 300x200 3 Ways Efficiency Focused Dealers Will Gain Advantage In New VehiclesGenerally speaking, you could say that all boats will rise for dealers as the tide of new vehicle sales continues to swell.

But some dealers will do a lot better in this positive retail environment than others.

Their advantage will come from two primary factors. First, these dealers will work hard to claim their fair share, if not more, of increased new vehicle market share and sales volumes. But more importantly, the dealers will also deploy an operational strategy that emphasizes efficiencies to increase the margin they make on the sale of every vehicle, and help them sell more new vehicles in less time.

I believe this efficiency-focused strategy will provide a keen competitive advantage for dealers who adopt it. That’s because these dealers will be proactively managing the market forces—such as increased factory incentive spending, a higher level of pricing transparency, and a greater hunger among dealers to sell more new cars—that continue to compress the profit margin potential on every new vehicle.

The efficiency-focused dealers tend to apply this strategy to three key areas of their new vehicle operations to maximize sales and margins:

Stocking new vehicle inventory: The dealers base stocking decisions on market data that instantly shows the vehicles on the ground in their markets, and the specific cars/colors/configurations that buyers want the most. With these competitive insights, the dealers gain inventory and margin efficiencies as they consistently acquire vehicles that will sell quickly and pose less, if any, risk from interest expense.

New vehicle pricing: The dealers understand that most buyers are at least aware of the fair market asking and transaction prices, given the time they typically spend online to figure them out. By applying this knowledge to their new vehicle pricing online, dealers gain a larger share of interested buyers because asking prices fit their expectations for a deal. In many ways, the emerging science of market-efficient new vehicle pricing follows the same principles dealers have applied in their used vehicle departments.

New vehicle purchase process: When dealers stock the specific new vehicles buyers want, and offer prices the market validates as fair and reasonable, a good thing happens in the showroom: It’s a lot easier to come to consensus with customers on a deal. Efficiency-minded dealers apply this reality as they reinvent their sales processes to minimize discounts and negotiations, and shrink the time it takes to close a deal. The dealers view such sales process overhauls as necessary to maximize their front-end profit margin and the productivity of individual sales associates, while making it more easy and efficient for customers to purchase cars.

Some progressive and tech-savvy dealers are going even further in their efforts to make purchase processes more efficient. They are changing their websites and new vehicle listings to make both more transactional, rather than informational, in nature. The end goal, of course, is to facilitate the efficient purchase of a vehicle while maximizing the margin on every sale—gains that flow, in part, by allowing technology and tools to perform elements of a transaction that have traditionally been handled by highly paid personnel in the dealership.

It should be noted that dealers making these efficiency-focused operational changes are doing so at a time when they really don’t have to. They could simply continue doing business as usual and close out 2015 with decent results in their new vehicle departments.

But decent isn’t good enough for these efficiency-focused dealers, which is why I think they’ll have a better year than their less-efficient competition.

 

{ 0 comments }

Nagging Doubts About Net Neutrality

03.03.2015

Several dealers have asked me for my take on the Federal Communications Commission (FCC) vote last week to treat broadband Internet providers like utilities. First, I’ll note that I’m not the most impartial observer. My employer, Cox Automotive, is owned by Cox Enterprises, which provides broadband services through its Cox Communications division. I’m not involved [...]

9 comments Read more from Dale →

A Unique and Wise Industry Voice Goes Silent

03.02.2015

I heard the news last week about the sudden passing of Art Spinella, head of CNW Marketing Research, from congestive heart failure at the age of 68. Spinella had a unique view of the industry, and his monthly reports about vehicle buyer preferences and market supply/demand dynamics in new and used vehicles were must-reads for [...]

0 comments Read more from Dale →

Feds Step Up Retail Automotive Financing Inquiries

02.27.2015

Most dealers are aware that the federal Justice Department is paying extra-close attention to the ways and means of automotive financing. This week brings more news of the department’s interest in potential racial disparities in retail loans among captive and non-captive lenders, with J.P. Morgan Chase acknowledging it’s also been asked to provide regulators details [...]

0 comments Read more from Dale →

Memories From The Mountain Carry On

02.13.2015

I just received more photos from my recent No Barriers ski adventure with Erik Weihenmayer. Their arrival, via e-mail and a Dropbox link, reminded me of how far we’ve come since our family ski trips when I was a kid: You’d drop your film off at a local camera shop or drug store, and wait [...]

0 comments Read more from Dale →

An Insight From Air Traffic Control Automation

02.11.2015

  I recently heard a National Public Radio story that sounds kinda crazy. In Sweden, they’re landing airplanes without the benefit of an on-the-ground air traffic controller. The person who informs pilots of local wind/other conditions sits in a tower 100 miles away. But thanks to a sophisticated camera/sensor system, he’s apparently got a reliable [...]

2 comments Read more from Dale →

Rethinking The Problem Of Serving Subprime Customers

02.06.2015

Industry analysts estimate that subprime customers account for about 25 percent of used vehicle financing deals in the past year. With this stat as a backdrop, many dealers are eyeing the subprime segment in the current year as they extend their goals for used vehicle market share and sales. To achieve this goal, some dealers [...]

0 comments Read more from Dale →

A Different Kind Of Ski Lesson: A No Barriers Approach To Business

02.02.2015

I’m still reliving and re-appreciating last week’s No Barriers ski adventure in Beaver Creek, Colo. Over the weekend, as I was replaying the experience in my mind, I found myself asking questions again and again: Why did the entire experience feel a little like magic? What made this adventure so special, beyond giving me the [...]

0 comments Read more from Dale →