NADA Day 4: Dealers Depart, Big Themes Emerge

It got quiet pretty early at the final day of NADA 2015 in San Francisco.

Word of bad weather out east prompted many to catch earlier flights back home and it was the final day of NADA, when pretty much everyone’s feeling the effects of three full and productive days and looking forward to getting back to their dealerships.

But the relative dearth of dealers afforded me time to reflect on the bigger themes that emerged during this year’s event:

A shift in online strategy. As I talked to dealers and other vendors, it’s become increasingly apparent that dealers’ marketing and vehicle merchandising online, across their own and third-party websites, is undergoing a transition from being largely informational to transactional. This strategic shift stands to reason: Dealers are catching up to other retail sectors where online purchasing has been the norm for some time. We’re still a ways away from start-to-finish purchases of vehicles online, but it’s fair to say that the rise of market-based pricing and online tools that facilitate many aspects of a vehicle purchase mark automotive retails initial steps into e-commerce.

A focus on fixed operations. Vendors selling service lifts, tire replacement/rotation equipment and car washes saw plenty of business during the convention—a sign that dealers are investing in fixed operations. The focus on fixed operations is a good thing. Dealers have long struggled to retain customers in their service departments, where the margin on every dollar earned is larger than in either their new or used vehicle departments. Les Abrams of NADA’s Dealer Academy notes that top-performing dealers say a 31 percent increase in their customer pay labor hours in 2014. The gains flowed from tactical changes such as extended service hours and online marketing campaigns that give customers good reasons to visit the dealership for vehicle maintenance and other work.

Troubling business fundamentals. Over the past couple days, I’ve noted the ongoing challenges margin compression and new/used vehicle supply volatility will create for dealers. In addition to these concerns, I would add the prospect of higher interest rates and the seismic change in gas prices.

On the former, dealers have been blessed with an unprecedented run of record-low interest rates, a good thing for retailers who typically borrow a lot of money. Most signs point to a rise in interest rates in the coming year, which will require keen attention from dealers to maintain the profitability they want to achieve.

With gas prices, dealers may well find themselves on the short end of the stick. Manufacturers have invested hundreds of millions of dollars to produce ever-more efficient vehicles that may well fall flat with buyers who, in light of falling prices at the pump, see no reason to look past the gas guzzling vehicles they really want to buy.

As one dealer put it, “it’s only a matter of time before one of these shoes drops and we find ourselves in a pickle.”

Like it does every year, leaving NADA stirs a mix of emotions—a bit of melancholy that our industry’s single-best event has come to a close, and a renewed sense of mission and purpose to serve dealers in the months ahead.

Thank you to all the dealers who stopped by the vAuto booth, and a special thank-you to the entire vAuto team at NADA, who demonstrated once again why they are the best in our business.