“It’s life by a thousand little things, or death by a thousand cuts.”

A dealer recently shared this line as we were discussing how the car business has changed in the last 25 years. The dealer’s observation strikes me as a perfect, clear-eyed summation of how efficiency, technology and transparency have made retail automotive a much different environment for dealers.

Consider the following common, everyday tasks and how much the little things matter more than ever before:

Stocking vehicles: For years, many dealers have followed a fairly reasonable strategy as they order factory vehicles: We’ll stock as many of the cars that we know we can sell, based on what we’ve sold. If we get stuck with some cars, it’s OK. We know that, eventually, the factory will offer the incentives that will help us get our inventories back into shape.

But here’s the problem with this strategy today: It’s too passive. It relies too much on past history, and your factory partner. It can ignore, and miss, faster-moving retail trends that help you maintain, if not gain, sales and market share. It’s also imprecise. The task often falls to a single individual, who’s probably relying on guesses, gut and instinct more than competitive market data to determine the best vehicles to order and stock.

“Within a model line, there’s usually one or two specific things that makes one particular combination stand out more than another,” says the general sales manager at a Southeast Volkswagen dealership. “We’ve made it our business to know these specific things, and configure our inventory accordingly. Our goal is to turn and earn cars. We can’t do it if we’re not ordering the best sellers from the manufacturer in the first place.”

The situation is very much the same in used vehicles. Variances in vehicle color, condition, mileage and specific equipment make the difference in determining a vehicle’s wholesale or retail value, and its likely appeal among potential buyers, given competing vehicles in the market. It’s easy for an appraiser or buyer to make costly mistakes if they’re relying solely on what they know, rather than augmenting their intelligence with market data.

sale 291x300 How The Little Things Determine Your Car Business SuccessPricing vehicles. It wasn’t all that long ago that pricing new and used vehicles was fairly easy. In new vehicles, you pretty much only needed the MSRP or “Call For A Great Price!” In used vehicles, your retail price was just a standard mark-up away from the cost of the unit. Pricing cars didn’t require much critical thinking and, if you made a mistake, buyers forgave you, and they were none the wiser.

Today, it’s so very different. Many consumers know almost exactly how much they should pay to buy a new or used vehicle, and get a fair deal. They know if your vehicle’s price is in, on or off the market, given the car’s color, condition, equipment and other particulars. They won’t bother if your prices don’t fit their perception of fair purchase parameters for that vehicle.

The environment means that if your prices fit in the context of a consumers’ competitive set, you’re in the game. If not, you’re out. Likewise, if you’re too deeply in the game, you stand a good chance of giving up gross. On top of all this, you’ve got the constant tick-tick-tick of inventory age undermining your gross profit potential. Simply put, it’s impossible to price effectively without some kind of technology or tool to help you optimize each vehicle’s market price position.

Engaging buyers. It’s easier than ever for consumers today to find the vehicle(s) they want to purchase, and the price they think they should pay. It’s also fairly easy for them to find at least one dealer, in virtually every market, who claims to offer a different, hassle-free car-buying experience. We also know that most consumers will only visit one, possibly two, dealers before buying a vehicle.

As a result, some dealers take every customer engagement very seriously. To them, every customer conversation, e-mail, instant chat or text message could be the last.

“We truly believe that it’s almost as if the customer is looking for a reason not to do business with us,” says the COO for a West Coast dealer group. “We work very, very hard to make sure they don’t find that reason.”

Today’s car business may be different, and arguably more difficult, than it used to be. But it’s still a healthy, viable business where success awaits those who properly apply themselves to its pursuit.

My dealer friend is correct. The little things matter more than ever. To paraphrase an old saying, “the devil is in the details, and so is your next deal.”

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I had an eye-opening conversation the other day with used vehicle manager Jim Mason of Steven Toyota, Harrisonburg, VA.

We were discussing how the dealership’s average front-end gross profit was lagging its target by about $300 for the current month.

Mason knew exactly why: The store’s average days in inventory had crept up about four to five days, and the average price to market at the time of retail sale had dropped to 90 percent.

“There’s a combination of factors at work,” Mason says. “But the biggest hurdle is the incentives being offered on new cars. The incentives are huge, and they’re across the board in terms of manufacturers. It means that the ’16 and ‘17 model year cars become ‘new car bait,’ for lack of a better term.”

In this scenario, Mason explains, customers ultimately end up purchasing a new vehicle because there isn’t enough difference between the payment and price of the used vehicle—a problem that’s most profound on the certified pre-owned vehicles that make up about 30 percent of Mason’s monthly retail sales.

“Our grosses on certified cars are anemic,” he says. “We have to be a lot more aggressive on these cars than what we have been, and that has a direct impact on gross profit.”

I asked Mason how he’s tackling the problem. He offered three tips that seem relevant to share with other dealers:

1. Source more near-new inventory from trade-ins. “There’s about a $2,000 spread between MMR and retail asking prices on 2016 and 2017 used Toyotas,” he says. “By the time you get it here, by the time you pay to certify, and by the time you pay the other costs, there’s nothing left. These are not cars I should be acquiring from auction unless I absolutely have to fill a hole in my inventory.”

2. Price the vehicles more aggressively. Mason notes that the current market doesn’t allow you to initially price near-new vehicles at or near a Price to Market ratio of 100 percent. “You have to start at 90 percent because that’s where you can sell it,” he says. The danger, Mason adds, is “getting it in your head that you’ve got to make $1,200 or $1,500 a copy. That’s not going to happen.”

There is a silver lining, though. Mason correctly notes that while you won’t make as much in front-end gross profit as you might like on these vehicles, they are available and in-demand, which offers the opportunity for a repeatable, quick-turn retail cycle.

3. Diversify your inventory mix. Like many dealers, Mason is looking to auctions to source slightly older, higher-mileage vehicles to diversify his inventory. “Those cars are expensive today, relatively speaking,” he says. “It’s like the expensive cars are cheap and the cheap cars are expensive right now.”

Mason shares my sense that there will be more market volatility in the months ahead, particularly as rental companies unload their fleets and wholesale prices adjust.

The good news is Mason and other managers will be ready. They’ll know that time isn’t on their side. They’ll make the necessary adjustments to fare the best and suffer the least.

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Dealers often have an “all or nothing” view of digital retailing.

That is, to them, digital retailing represents the full monte of selling a new or used vehicle online. You’d have a “buy it now” button on every vehicle details page (VDP) for every vehicle, customers would work their deals, and dealers would deliver “sold” cars to customers at their homes.

These dealers also often dismiss this concept of digital retailing as unrealistic-as something too few customers are willing to do today. In turn, the dealers then make a critical mistake: They put the whole idea of digital retailing on the shelf until the time comes when they’re fully convinced more customers would actually “buy it now” for their next vehicle.

mmd 300x289 A Longer Term View Of Digital Retailing For Dealers This viewpoint isn’t necessarily wrong. In fact, the dealers are absolutely correct that a majority of new/used vehicle buyers today wouldn’t want to buy their next vehicle completely online. Studies show that maybe 10 to 15 out of every hundred people might be ready for this kind of vehicle purchase experience. It does seem a bit ill-advised to invest in an end-to-end digital retailing experience when the vast majority of buyers wouldn’t use it.

But here’s the big miss for dealers who shelve digital retailing on these grounds: The “all or nothing” view is a bit short-sighted. It undercuts your ability to serve the remaining 85 percent to 90 percent of customers who are, in fact, receptive right now to taking part in at least a piece or two of a digital retailing experience.

These are customers who want more convenience, and a greater sense of control as they purchase a new or used vehicle. They don’t want to spend hours in a dealership to complete a purchase transaction. They might even pay more for the privilege of completing some part of a deal-whether it’s negotiating a payment or purchase price or trade-in value-from the comfort of their own homes.

“I’m getting an additional eight to 10 deals a month because I offer the option of working out deal terms online,” says the general manager of a Southeast Volkswagen store. “We do things differently than other dealers and we’re getting better at telling the world about it.”

I hear similar stories from other dealers. Even if they aren’t adding a “buy it now” option to their website, they are fostering a different type of engagement that speaks to the needs of today’s increasingly me-focused and time-addled buyers. In other words, they’re working deals while “all or nothing” dealers aren’t getting any of the action.

The general manager for a Midwest Lexus store notes that his dealership continues to see a growing number of customers take advantage of his digital retailing offerings. He adds that every one of the customers who negotiates a payment or trade-in value online still wants to “come in and take delivery in person.”

Such is the nature of digital retailing today. The vast majority of vehicle buyers aren’t really looking for a “buy it now”-based, end-to-end digital car deal. They simply want to carve out the parts of buying a car that they perceive as potentially problematic and time-consuming, and complete them in a way that’s more convenient and easier for them.

The take-away here for dealers is that digital retailing shouldn’t be viewed as an “all or nothing” proposition. Rather, it’s more of a “have it your way” approach, wherein dealers provide the digital retailing tools, and customers use as much, or as little, of them as they prefer.

I understand how and why some dealers have landed on an “all or nothing” view of digital retailing. I would simply encourage them to consider the business they’re probably missing as they hold out for a complete, end-to-end digital retailing solution that the majority of buyers may never want, and might never arrive.

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Dispatches From Down Under: A Great Trip Comes Full Circle

06.01.2017

The other evening I had “a parma and pot.” To explain, I was in a pub to take in a most quintessentially Australian experience. I was there to watch the first match of the annual best-of-three State of Origin series between the Queensland and New South Wales rugby teams. The Series tradition calls for eating [...]

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Dispatches From Down Under: Dealers Hungry For Insights

05.31.2017

It’s easy to teach when your students want to learn. That’s a primary take-away from my meetings with dealers in Sydney and Brisbane—the first two stops on my three-city tour here in Australia. In many ways, the car business in Australia is much like it was in the United States nearly a decade ago. The [...]

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Dissecting The Elements Of Velocity Down Under

05.25.2017

I’m excited to embark tomorrow on a very unique trip. I’ll be spending two weeks in Australia, helping dealers there better understand the Velocity Method of Management, and how they can use it to increase their used vehicle sales and performance. Interestingly, the challenges and opportunities that margin compression brings to the car business are [...]

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What’s Your Course Correction In New Cars?

05.05.2017

I imagine there have been a lot of long faces on dealers as they reviewed their financial statements from last month. Not only did many dealers see fewer deals in their new car departments compared to a year earlier, they also earned a little bit less on those deals than they would like. On top [...]

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3 Keys To Increase Your New/Used Vehicle Throughput and Profitability

05.04.2017

We’ve arrived at an interesting time for retail sales of new and used vehicles. Both sides of the business face a market supply/demand imbalance, which raises risk for dealers. In new vehicles, there’s almost an inventory pile-up on some dealers’ lots. Dealership days supply is running well north of the norm. Some dealers don’t even [...]

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Pope Francis Calls For ‘Revolution Of Tenderness’ In Surprise TED Talk

04.26.2017

“A single individual is enough for hope to exist, and that individual can be you.” In a surprise appearance via video at the TED 2017 conference in Vancouver, Canada, on Tuesday evening, the pontiff said that tenderness is “the path of choice for the strongest, most courageous men and women.” “Tenderness is not weakness; it [...]

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A Thoughtful Note from NCM Associates

04.25.2017

I received the following thoughtful note from Terry Wichmann, a retail solutions consultant at NCM Associates. Dale, Thanks for your continuing help when I ask you to send your books to current vAuto clients and vAuto prospects. When discussing “velocity” (in general) and vAuto (specifically) during NCM Associates “Profit Improvement Meetings” at dealerships, I always [...]

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