Most of the posts on DrivingSales.com are for or from dealerships who sell cars and offer financing as a means to help do it.  However, thousands of stores exist for the primary purpose of financing.  Stocking vehicles is necessary to help them make loans.  It's a different approach to the business, but one that cannot be ignored.  Ours is a country where millions of people rise up from the depths of hardship to live wonderful, secure lives.  Even if you are selling Lexus or BMWs, chances are someone came into your store this week whose perception of car dealers is still impacted by an experience years ago when they were desperate to obtain financing.  It may have been positive or extremely negative.

Many stores offering credit to challenged buyers perform a very necessary service. Eighty-seven percent of the workforce drives to work in a car or truck. If everyone driving a buy-here-pay-here car suddenly couldn't get to work today, the national economy would collapse. Tens of thousands of people regard their car dealer as the best business friend they have in the community. Gone are the days when people get credit at the grocery store, and most community banks are gone, but a car dealer made it possible for them to keep driving to work despite their credit problems.

Prior to the financial collapse of 2008, many stores specialized in sub-prime financing. A number of lending institutions were happy to offer auto financing to consumers with sub-prime credit, and do so through auto dealers. Some of these stores were independent dealerships and some were franchised dealers, but that market dried up fast, and it wiped out a lot of stores that were unable to adjust quickly enough.

Now sub-prime lending is coming back. In August, Experian reported that 40.8% of auto loans were to sub-prime borrowers. The availability of sub-prime financing is rebounding faster for autos than it is for mortgages, and it will again produce some strange promotional tactics.

Here is a website with scanned sheets of inventory and no address for a physical store, ladinstore.com. It may seem ironic, but this man is positioning himself as the alternative to unscrupulous dealerships. This is a centuries old tactic for con artists. By warning shoppers of the dangers they face working with dealers, the con artist positions him or herself as the trusted alternative.

Know what shoppers are exposed to in your market. The landscape for financing is changing, and a new crop of scam artists is sure to infiltrate our industry in your community. Know what they are saying, and consider how you will position your store in your local market. How might you appeal to a vast audience of credit-challenged shoppers without looking and sounding like the lending predators who are sure to rise up in ever-greater numbers? 

Consumers can more confidently shop for a vehicle than ever before, in part because they help each other. They rate dealers and write reviews about them. More are positive than negative, but most are helpful to other consumers. Equally important to consumers, the sharing of this information keeps dealers on their toes.

Can your dealership shop for advertising products, information systems, and training services more confidently than ever? The same tools that help millions of consumers buy more confidently from dealers are available on DrivingSales.com to help dealers buy more confidently from vendors. Just as dealers encourage satisfied consumers to post ratings and reviews, vendors should pass the same encouragement along to dealers.

Most of all, there is some level of social responsibility in pooled information. Far more consumers utilize product ratings and reviews than provide them, and it is the same for dealers. However, those who do take a moment to participate are often the ones with the most to contribute, the shopper's who understand car buying best and the dealers who understand modern-day marketing and operations.

Before you make a resolution for the coming new year, end this one with an act of social responsibility that will help other dealers and better keep vendors on their toes. The next time you are with your 20 group, at a dealer conference, or walking the floor of the NADA convention, you will see your place among your peers just a little bit differently, having met or exceeded your social responsibility.

Earlier this month, Lithia Motors Inc. agreed to pay out $2.5 million to settle a class action claim that it violated the Telephone Consumer Protection Act (TCPA) when sending a series of just two broadcast text messages to its customers, messages that Lithia asserts customers opted in to receive. After reviewing court documents and SEC filings, DrivingSales has discovered that Lithia could have been liable for more than sixty times as much as they settled for.  Lithia, or its agent, made one simple mistake seven months ago that cost the dealer group the equivalent of over 1,000 units worth of gross profit and a mountain of good will among its customers. The facts that follow tell a story every dealer should hear and take heed to.

In April of 2011, Lithia sent text messages to approximately 58,000 of its customers with the help of  DME Automotive, a joint venture between JM Family Enterprises Inc. and DME Holdings LLC. The text message gave the customer the ability to opt out of future text messages; unfortunately, a technological glitch caused the opt-out to malfunction. Approximately 6,000 customers who received the first text message tried to opt out, but were included in the second text message that was sent to approximately 48,000 customers.

The settlement gives $175 to each recipient of the first text, another $175 if the second text was received, and an additional $150 if the recipient of the second text had attempted to opt out of the first text. This settlement appears to be a bargain for Lithia relative to the $500 per violation specified by the TCPA and the fact that Washington state law allows for triple damages, $1,500 per violation. Even at the settlement rate, total payout to all impacted consumers would amount to $20.5 million according to court records. The $1.74 million set aside for the plaintiffs fund is based on the assumption that only 8.5% of those consumers impacted will actually make a claim.

 Breakdown of $2.5 million settlement:

·         Fund of $1.74 million paid out to plaintiffs

·         $600,000 in fees and expenses to plaintiff's attorneys

·         $10,000 incentive award to McClintic

·         $150,000 to administer the claims

The lesson for dealers is that the penalties for violating the TCPA are so severe that defendants of these class action suites are nearly forced to settle for a lesser amount to avoid the extraordinary liability of a loss in court. Indeed, the $600,000 paid to plaintiff's attorneys was the lowest amount the court had seen.

It is also important to note that no damages were claimed from the text messages. This could have further increased the settlement amount. Additionally, Lithia maintained throughout the case that each customer had opted in to receive text messages through at least one of several processes. Lithia never acknowledged knowingly violating the regulations, and there was no evidence brought forth that they had.

One would be hard pressed to find any flaws in Lithia's response to this claim. They appear to have handled it expertly in every way, yet they still face a payout that is many times greater than the gross profit potential of the campaign itself. We reached out to both Lithia and DME for additional tips to pass onto the dealer community. Their mutual lack of response is understandable.

Lithia claimed in the court documents that this was their only text campaign. Before long, 58,000 of Lithia's customers will receive a notice regarding the incident, ultimately saying that Lithia did something bad to its customers. In many respects, the settlement notification may be more damaging to Lithia's marketing than the fact that the text messages did not stop when they were supposed to.  

A solid mobile strategy is essential for dealers, and some texting activities are certainly on solid ground. There is no reason any dealer should shy away from texting a service customer about the status of their vehicle if that customer has given them permission to do so.

Broadcast texting, on the other hand, should be left to the pros. Vendor selection should not be made solely on the basis of price. Ask about the vendor's experience and qualifications, and insist on a small, controlled test before embarking on a broadcast campaign. Make your broadcasts to small groups, and make them contextually relevant to the group.

Most of all, recognize that outbound communications to customers phones is an entirely different set of regulations than you face with emails, websites, print, television, radio, or outdoor. Dealers have a reputation for pushing the envelope on advertising, but people's personal phones invite no such push. Behave as though one of your opt-in customers is an attorney just waiting for you to make a mistake. With this much money at stake, that scenario is not far-fetched. Remember, Lithia sent just two text messages. There was only one chance for 6,000 people to recognize that their opt-out had not worked and to cash in on it. The result was a competition over which plaintiff would control the multimillion-dollar class action claims filed in two separate U.S. courts.

The industry has never faced stakes anywhere near this high. Court documents make it clear that DME participated in the financial settlement – they may very well have covered the majority of the claim.  A quick visit to DMEautomotive.com shows that the firm continues to offer text-messaging services.

Dealix recently announced their Precision Targeting product, allowing dealers to customize what zip codes they receive leads from for each model. This kind of flexibility is not something most lead providers have advertised, but is something they are capable of doing, and it's vital that dealers understand how to capitalize on it. What follows applies to all non-finance, new-car leads.

Start by understanding what a lead is worth to you at the model level. Some of your new models are selling like hotcakes, and you can't get as many of them as you would like to. These are going to sell fast whether you have leads for them or not, so don't spend the money. This may frustrate the companies charging you on a cost-per-lead or cost-per-sale basis, because these are the vehicles it is easiest to produce leads for. Nonetheless, if you don't need them don't buy them. Here is the exception, you may want to still buy leads in the zip codes closest to you. If you lose these customers to a competitor buying leads in your backyard, you might lose the service business as well. Think about the competitiveness of service when deciding on your lead procurement strategy. This is why the GM, not the GSM, should have the final say on leads procurement.

You probably have some models in your new inventory you wish you didn't have so many of. Chances are, these are the same models the factory is cramming down your throat. This is where you need leads. In fact, you probably need leads from a wide radius. Whether you have any chance of getting the subsequent service business, you need to get rid of those units. We don't always think about the value of new-vehicle inventory declining over time the way used-vehicle inventory does, but that is the reality. These vehicles are not going to get any more valuable as the next model year approaches. Let some lucky customer own them for awhile.

Even with an expanded level of flexibility, there are some challenges. If all you have are the trim package with cloth interior, and all anyone sends leads on is for leather interior, just drilling down to the model level is not going to be enough. This is a challenge I expect leads providers to step up to going forward.

To make sure there is no confusion, subscription listings (AutoTrader.com, Cars.com, etc.) do not fall into the same category. You pay one price for the service, so don't hold any of your inventory back. Treat these sites as you would your own site. In both cases, your marginal cost for including the hot-selling, low-supply vehicles is zero. Your decisions for subscription services are whether to use the service or not, and at what level. 

Happy Veterans Day to all who serve and have served! My friends at vAuto hope this day will also be remembered for the launch of their new product, Provision. As the press release (also posted on DrivingSales.com) noted, the tool  helps dealers know what vehicles to stock, what to pay for them, and where to find them. None of these tasks are new to dealers. My grandfather was buying used vehicles for resale prior to World War II, but here are the differences:

1.       The market for selling those vehicles retail is less forgiving. Transparency in the hands of consumers means dealers need to be operating at the highest possible level when it comes to procurement.

2.       The shopping radius for consumers and dealers has increased. Even if there are fewer dealerships in your region than there was years ago, the competition for clean, used vehicles has never been higher.

3.       If the cost of this tool is less than the value of the labor saved plus the value of improved procurement (efficiency plus effectiveness), then those who have it will enjoy a competitive advantage over those who do not. My grandfather bought cars pretty much the same way in the 80s as he did in the 30s. Your career won't be like that.

Improved profitability doesn't always come from doing things you didn't do before. Often it comes from doing what you've always done in a better way.

Using Provision might very well result in a competitive advantage for your store, but just buying Provision won't do a thing for your dealership. Don't buy it to try it. Buy it to change your business or wait until you are ready to. I've heard too many dealers say tools don't work when the truth was that their people were not working the tools. I look forward to the vAutos webinar at noon (EST) and reading reactions from dealers on DrivingSales.com.

I've heard a number of industry professionals say that cars are now a commodity, usually in the process of explaining why it is so important to price relative to the market. I'm concerned about the use of this exaggeration. In fact, It is because I am a proponent of pricing tools and adjusting prices relative to market forces that I am concerned about any exaggeration used to support the argument.

Let's start with new vehicles. A new Buick Verano with the leather group is not a commodity. Some have sunroofs, spoilers, navigation, all-weather floor mats, and cargo nets. Some come with the $125 pedal covers and some do not. Even if two of these vehicles were exactly configured and of the same color, the deal does not stop there. There is the entire back-end portion of the deal to consider. I know some dealers I'd happily pay $50 more to just to avoid having to deal with other dealers at the F&I stage. Even if the customer is paying cash and not buying anything else in F&I, that does not preclude some dealers from charging an additional processing fee.

It doesn't matter who you buy a bar of gold from, because it is a commodity. But it does matter who you buy a vehicle from, because when we look at the entire bundle of features and benefits delivered by the dealer, it is not a commodity. Not only do some stores have better reputations than others, there are probably many shoppers in your community you have no reputation with. This is why actual photos of the new vehicles produce more contacts than stock photos, many customers don't even trust that you actually have the vehicles you say you do. Preference for the retailer impacts the price paid. In the strictest sense, you can't say that about a commodity.

Two used cars of the same year/make/model/trim and accessories with the same mileage and in the same condition will likely sell in the same market for a similar price. Just how similar can depend as much on how well they are merchandised as it does the slight variations demonstrated by that merchandising. If the basic information is the same, the vehicle with more detailed information may appear to be a better value even if some of that information discloses imperfections. Some imperfections are to be expected, disclosing those that are known can reduce the worry about imperfections that cannot be observed. Vehicle condition reports can build preference for the vehicle and the store.

Commodity means there is no preference, and the word is often misused. Oil is said to be a commodity, but it is not. Only oil that is properly categorized can be called a commodity. Crude oil that is certified to be both light and sweet can be confidently purchased at the same price as other light/sweet crude. If the condition report is the same, then it is a commodity.

Price is an essential element to marketing. Now that consumers have access to market information online, there are many of them you will never even meet unless you have the right car at the right price. But that is not enough. Shoppers buy value. Without detailed information about what that price represents, it cannot be processed into a comparable value. When all dealers merchandise their vehicles the same and have the same disclosed back-end practices, then we can talk about cars being a commodity. Until then, competitive attractive pricing will bring more contacts from online shoppers, but the advantage among comparable cars at the same price goes to the vehicle with the most transparent merchandising from the dealership with clearly disclosed policies.

The relationships between a dealer and the vendor reps that call on him or her have always been an important part of the retail automotive business. I noticed in the 70s, that the newspaper rep was the information conduit between local dealers. The GM would ask, "What are you hearing out there?" At a minimum, they needed some gauge as to whether their own movement is sales was something earned or simply a function of the local market going up or down.

Today, dealers have access to incredible tools like J.D. Power's PIN for transactional data and Dataium for shopping data. (Both can be acquired for free in their basic forms.) So the vendor rep has less usefulness as a mere conduit of information regarding sales and shopping activity in the local community.

Some reps are leaned on heavily by dealers for their knowledge about technology and other vendors. They often hear things like, "I'm not happy with my website, what are you hearing about Dealer.com?" Dealer satisfaction studies and rich repositories of dealer reviews, like DrivingSales.com, allow dealers to accesses hundreds of opinions and ratings from other users at one time. So the value of this added service can best be obtained from sources other than the rep.

Ironically, most dealers are not receiving all the value from vendor products that they should be or could be. Personal selling is very expensive. Reps need to be constantly evaluating the performance of their dealer customers and recommending actions sure to increase profitability. That doesn't mean just up-selling them all the time. Dealers need to be diligent about asking the question, "what can I do to get more value out of your product?" Just telling the rep that you are not happy with the product or not happy with the price will likely put them on the defensive and eliminate any chance you had of getting real value out of them.

I've written plenty about when dealers should not buy something, but millions of dollars are being wasted each week on vendor products that should be purchased, but the dealer is only extracting a fraction of the value from. From my experience, most dealers using vAuto are getting sufficient value from the product, but not all the value it is capable of delivering. Some dealers buying leads from AutoUSA, Dealix, Autobytel, and NewLeadsPlus have teams skimming those leads rather than working them diligently. A good rep can show you signals when that takes place. Many dealers using listings services like AutoTrader.com, Cars.com, Edmunds, and others are not sufficiently merchandising their vehicles to receive full value. Worse, they are too slow in merchandising their vehicles at all.

As a dealer, you may wish your vendors would just move to a transactional selling model and lower their prices accordingly. Over time, I'm certain that more and more vendors will do that. For now, you are paying the price anyway, so you may as well be strategic about how you extract value. Some reps are as useless as a hangnail, but many know how to get maximum value from the products they sell. Start there. If you exhaust their ability to improve the value of their products, then you can grind them or dump them; however, it may not be the most profitable place to start.

On any given day, 17-18% of used-vehicle inventory posted online by dealers has no photos. Virtually every dealer realizes the critical nature of photos. If there is no photo showing on the Search Results Page, that listing has very little chance of being selected for the viewing of a Vehicle Details Page. Nonetheless, more than one in six vehicles are standing naked in the face of tough competition.

Even some of the largest, best known dealers have a poor record when it comes to merchandising their vehicles quickly. Last night, Sun Chevrolet had 33% with no photos, Paragon Honda 27%, Galpin Ford 12%, and Longo Toyota 10%. Mighty CarMax did little better than the national average. From a random sample of 10 CarMax stores, the percentage with no photos averaged 16% and ranged from 9% in Burbank, CA to 26% in Charlotte, NC. The point here is not to pick on any store but to point out that the problem is going unnoticed at even some of the finest stores.

The two best stores I've found so far are Texas Direct Auto (6%) and Finish Line Ford (3%). I track Finish Line Ford regularly, because I know they understand the importance of getting vehicles merchandised quickly. On most days fewer than 2% of their vehicles are without photos. I'm convinced that 2% is a reasonable standard for any store. If the vehicles are not merchandised online, then it is not much of an exaggeration to say they are not really for sale, even though the flooring costs and depreciation are in full swing.

Time is the problem. As the numbers below indicate, most vehicles get merchandised eventually. The problem is that it takes too long to get around to it.

Age of Listing                     Percent with No Photos

1 Day                                     87%

2-3 Days                               60%

4-7 Days                               41%

8-14 Days                             29%

15 Days to 1 Mo.                 15%

More Than 1 Mo.              

    5%

Vehicles often wait days or even weeks for merchandising. Commonly, one person is in charge of taking the photos, whether they are an employee or outsourced. When they are not there or unavailable, the vehicles stand naked online and wait. Another problem is detailing and reconditioning. The best stores process nearly every vehicle in just one or two days. Better yet, photos are taken at the time of purchase and later replaced after detailing or reconditioning.  

The solution to both of these problems is simplicity. When the process is so simple anyone can do it quickly and easily, then the vehicles get merchandised the day they come in. When involving human labor, the path to speed is simplicity. Engineers have understood this for over 100 years. Assembly lines break tasks down to their simplest form. Similarly, batch work can be segmented and distributed to specialized teams. But both these systems require volume. Tasks like used-vehicle merchandising, where one person tackles a series of differentiated vehicles, requires automation of the process instructions. Merchandising a pickup truck is different than merchandising an SUV or a sedan. Simplicity is achieved by automating the process instructions to fit the job and allowing the device to guide the person rather than the other way around. This method is similar to a GPS providing specific instructions based on the travel objective. Any number of drivers can follow the directions with little trouble and no need for thinking through the changes when the next objective is different.

The research for this article was done on October 30,2011 using the over 1.3 million cars listing on Cars.com by dealers only. Since the inventory feeds going to Cars.com are generally the same as the majority of feeds going to AutoTrader.com, and website providers, it is a good representation of the industry as a whole. This research can be duplicated at any time using data and filters that are publicly available on Cars.com. Results vary only a few percentage points from day to day. My hope is that this article can stimulate action that will move these metrics over the month ahead. This is not a zero-sum game. When inventory is merchandised faster inventory turns improve for everyone participating in the change.

The wall between fixed operations and sales needs to come down.

• Franchised dealers must regain some of the accessory sales lost to online and offline competitors. That is not going to happen unless Parts, Service, and Sales all work to make it happen.
• Regardless of what is done with social media, it is impossible to maximize customer relationships for loyalty and advocacy if the store is not uniformly committed to growing those customer relationships.  
• Service revenue is lost every month when customers call in for service on the same tracking number they used when initially shopping for the car itself. Sales people don't get paid to answer service calls, and the way some of them handle those calls surely reflects it.
• Most service managers don't get paid to teach people how to operate their vehicles. And it shows when customers call up complaining about their car not operating when the customer simply doesn't know how it is supposed to operate. Vehicle delivery is insufficient at thousands of stores. Of course, most sales people don't care about that. Their only worry is about the next sale, not the last one.
• Occasionally, nasty comments are tossed back and forth over the variable-ops/fixed-ops wall, but most of the time these departments uttered their disdain for each other to the consumer.

When Ronald Reagan gave his famous speech at the Berlin Wall, telling Mikhail Gorbachev to "tear down this wall," it was not a new policy position. The five previous presidents had all wanted the same thing. In fact the wall did not come down for another 29 months, nearly one year after Reagan left office. Persuasion takes multiple efforts, even when it is clearly the right thing to do.

Many stores are changing their commission plans on accessories, splitting the gross profit equally between parts, service, and sales. Although there are plenty of success stories coming from the use of this approach, some stores baulk at the idea of taking such a big step right away. At a minimum, GMs can start by adding non-human touchpoints that introduce service to sales customers and sales to service customers. Here are a few product examples:

1. AdVantage Tec, an Innovation Cup finalist at DSES, uses 15% of the TV screen in the waiting area for promotional messages, often promoting sales to waiting service companies.
2. Dealer e-Process won the 2011 AWA Fixed Ops Technology Award for their service solutions on dealership websites. Many websites are virtually controlled by Sales and neglect service opportunities.

I'd love to hear what your store or product is doing to help tear down this wall. 

The purpose of most marketing research is better decision making. The problem is that it is cheaper than ever before to generate data, and as easy as ever to claim that the data supports the conclusion the author wants it to. Over the past few months, I've plowed through over 1,000 pages of books and articles on social media. Much of the data I've encountered is simply not credible. However, separating the facts from the non-sense has long been my calling card in the auto industry. There is some good, solid research supporting the call for more attention to social media by auto dealers.

The recent study conducted by GfK Automotive and supported by Dealer.com and DriverSide has merit. A research friend of mine rightly brought up the fact that survey respondents don't always remember what influenced them in their shopping process. So when the research says 28% of Facebook users who bought new or late-model used vehicles said they saw a posting that caused them to add a dealership to their consideration set, that may not be the actual number. However, the penetration of Facebook among auto shoppers is so high that an influence rate of half this much would demand action. The statistical margin of error is not the relevant range for decision making. What is important is for dealers to recognize that the actions being recommended would be justified at influence rates far lower than those being uncovered, even at the outer edge of the margin of error.

It seems that every week brings a new round of vendor research designed to impact how dealers allocate their marketing resources. Most of this research deserves to be viewed with a suspicious eye. These studies are not funded by vendors as some kind of altruistic gesture. With that said, some vendor backed research is very useful and reliable. There are occasions where vendors believe their products would be the beneficiaries of truth. They distance themselves from the study design and data collection process and let the chips fall where they may. Kevin Root, recognized as an internet pioneer for his work at Parr Auto Group in the mid '90s, has been a very prolific source of this kind of research from the vendor side. His deep association with this study further adds to its credibility.

The study claims that 38% of new vehicle shoppers will use social media to research their next vehicle purchase. No matter how carefully the study was designed, that number may be off. But how big does the number need to be before your store realizes it needs to take social media seriously? Would 20% of your customer base be enough, because there is very little chance that the difference between intentions and actions can be that great.

We went through this same thing with the Automotive Internet Use (AIU) rate more than a decade ago. It didn't really matter whether the AIU rate was 40% or 50%, an AIU rate anywhere close to those levels meant dealers needed to have a website. The same sort of decision making is occurring with respect to social media. It is still difficult to know how many sales would not have taken place if the dealership did not have a website. After all, there is no shopping cart on most dealer websites; they buy their cars from the store. Today we hear the same arguments about social media. Those who don't use it say it doesn't sell cars because there is no "buy" button on Facebook or Twitter. Those who use it well are whistling all the way to the bank.

I'm looking forward to the complete study report coming out in November from the partnership of Dealer.com, DriverSide, and GfK Automotive. Will I then be able to confidently say precisely what influence social media has on auto shopping? No. Will I have enough evidence to confidently say any dealer with a good, honest operation should seriously consider a strong social media effort? I'm already there. And for the record, I don't sell social media services.