Since the 2008 recession, we have seen the greatest transformation of the retail automobile dealer business model. The rapid evolution from simple flip phones to sophisticated smartphones has opened up opportunities to streamline the purchase process and provide the consumer with universal access to information. This access to information and technology has also provided the conduit to change consumer behavior. Those who have been in business for some time remember when you never quoted a price to a customer over the phone and when the Internet began you never put a price online. If you did that in today’s market you wouldn’t sell any cars. This access to information has opened up our business model to numerous third parties that leverage our assets and resources for their own benefit and profit, leaving dealers with nothing more than compressing margins.
Additionally, manufacturers have pushed their “below the line” stairstep incentive programs on dealers of numerous franchises, contributing to the compression (or elimination in some cases) of operating gross profit margins. At the same time, in my opinion, manufacturers have devalued their franchises and contributed to the lack of customer credibility in dealer pricing. All of these factors have helped contribute to the evolution of our business model, one that has changed to an “all or none” mentality for dealership profit.
How Are Dealers Adapting
Over the last few years, I have had the opportunity to moderate 20 Group meetings with dealers of various markets. Together, we have worked closely with a number of dealer groups that are innovators in evolving retail automobile purchase processes. These leaders have the insight and intestinal fortitude to recognize what’s changed with consumer behavior and have adapted their business model to the new consumer priorities. Here are a few highlights from these discussions.
- There have been numerous articles in Automotive News, as well as financial analyst reports, on the big public’s Omni channel and online purchase processes that they have developed and rolled out.
- At the 2018 NADA convention, Brian Benstock from the Paragon Acura Honda organization, introduced his new concierge Google app that provides the customer the convenience of setting up pickup and drop-off of their car for service work. All the customer has to do is say “Hey Google” to contact Paragon Acura or Paragon Honda, and an entire event is set up on the mobile device utilizing voice recognition software to talk with the computer. This initiative has had overwhelming success - happier clients who in turn are spending more on their cars resulting in significant increases in dealership gross and net profit.
- We’ve all seen the progress of the Carvana and CarMax business model, which is based on making the purchase process convenient, easy, transparent, and fast. When I ask members of the 20 Group, “Does CarMax sell units for more or less than the average dealer?”, the answer is overwhelmingly “More!”
In numerous 20 Group meetings over the past year, we have had discussions surrounding all of these changes to our business. I have made the claim to my members that within 5 years, you will be selling cars using a “one-price” or “upfront pricing” model, with one person handling the entire transaction. The majority of dealers don’t agree with me. The reality is if you’re not moving towards that model and your competition is, they will be taking market share from your store. I am already seeing the results with my successful 20 Group dealers who have committed to and mastered this business model.
Meet Your New Competition
The one-price model is proving to be successful in today’s landscape, and it does so for multiple franchises and markets across North America. So, what is the real competition dealers are facing?
The biggest competitor you have is consumer time. How much of the consumer’s time are you going to take in order for them to complete a purchase at your dealership? Are you still doing the traditional foursquare, back and forth to the desk manager, routine? Do you still turn over the customers to the F&I office? Does it take 3 to 5 hours to buy a car at your dealership? If you are not leading the way in streamlining the process, consumers will move on. Think of it this way, if you are making a purchase online and the website takes more than 3 or 4 seconds to load, what are you going to do? If you answered anything other than “click off and move on,” you’re lying to yourself.
The next competition you are facing is consumer convenience. Is purchasing a vehicle or arranging service at your dealership a convenient process? Just like the Paragon model for service, can they also complete the majority of the auto purchase process on their mobile device? When reviewing dealer websites in 20 Group meetings, the vast majority still do not provide the consumer all of the information they need to make a purchase decision.
Worst of all, most don’t even have a “buy now” button on the website. We all know there are legal compliance requirements that must take place in person, but the majority of the transaction can be completed online. A number of my dealers that are set up as a one price (and one point of contact) model typically have a higher F&I PVR from their online purchase process than in-store.
#3 Investment Capital
The last major competitor to the single point operator, or small group operators, is investment capital. The big public’s and large auto groups have significant amounts of available working capital they can invest in innovative technologies. Right now, they are investing significantly to provide the customer with a convenient, fast, and easy purchase process. The internet is rapidly evolving to become the new door that our customers are using to enter our showrooms. Those dealers that provide a convenient, fast, and easy pathway to purchase a car (and/or to get their car serviced) will be the ones that outperform the competition.
When I approach these subjects with dealers, many disagree with the points I am making. I understand, that for many, change is a hard thing to do. Many times in this scenario, I like to compare these new trends to other industries. A simple example is Amazon. They are the leading online provider of goods, and they make their shopping experience easy, fast, and convenient. If you were to ask the Sears and Toys R Us’s of the world 15 years ago about their online experiences, they might also have been abrasive to change. But those that can adapt, are the ones who will thrive in the future.
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