How Do Car Dealers Keep Pace In An Everchanging Market?

Your Turn To Drive asks How Do Car Dealers Keep Pace In An Everchanging Market?  Vinadvisor CEO Jim Dykstra, Shawn Ryder of D2C Media and Kristy Elliot of Sunshine Chevy discuss how dealers could best brace themselves for the change taking over car dealerships.

Jim: How do dealers keep pace with this changing market? The Federal Reserve’s decision to raise the prime rate by 25 basis points this morning (Thursday March 16, 2017) is a shot across your bow. We’ve seen record sales and strong profits over the last few years, but the truth is that without big grosses from F&I most dealerships have challenges they need to address immediately to insure a profitable 2017.
Whether it’s a rise in interest rates or slower job growth, even a small dip in the economy will quickly remind all of us how easy it is for consumers defer buying a new car. A dip in sales drives up new car inventory and just then all those off lease cars we’ve been hearing about for 2 years will cause a traffic jam in your local auction shuts. Down go used car prices and profits. Black may be the new orange, but black ink that turns red is painful.
 
So where do you start? New and used car inventories. What’s your days supply of each? How does your total days supply of new compare to the other same make dealers in your district, zone and region? Getting a handle on the mix is critical as tomorrow’s dealer trades can wind up making a big difference to you as soon as next month! Any water on the used car lot? Time to get lean. I sat in lots of statements with many a dealer but never heard one yell about too much cash. Getting a head start on new car inventory means reassessing your front end gross strategy because you can’t run new cars through the chutes. Being low on new car inventory when everyone else is long gives you options and control. Worse case, your district manager will love you because he’ll be long on cars and short on buyers.     
 
Shawn: Visiting dealers and talking about day to day business, must say that I hear "know we need to change" but often the actions are slower moving than the statement.
 
There is now technology for every aspect of the dealership - including looking for wholesales buyers of a vehicle before even bringing it on trade. Have a buyer for a customer vehicle before even closing the sale, take pictures, post on an app and have a dealer buy before the customer picks up their new ride.
 
When it comes to marketing - the key is measuring results, but not with page views on the VDP. The key is to measure how much a lead costs to acquire - but ultimately, how much an internet leads costs per sale. While some spend on traditional marketing - TV, Radio and Print - all great for awareness, but now customer begin the process online and using marketing dollars allows for measurable results, while keeping all parties honest. Dealers know how much cost per lead when working with Vendors, but even if leads are generated and the cost of sale is not in line with trends - dealers know their sales process may need a review as well.
 
Kristy
First – focus on the basics….people and processes.  If you have great people working for you who follow the strict processes that you have in place – for example, as mentioned by Jim, a strict used and new car aging process -  then you are prepared for practically any fluctuation in the market.  
 
Jim: There is an old saying about technology’s impact on business, “it’s impact is overrated in the short run and underrated in the long-run.” How do you keep pace today? You lead. Where do you start? With the number not on your operating report that drives every other number on it, salesperson turnover. Over the last 3 record years of new car sales, salesperson turnover in new car dealerships has averaged an unstainable 60%. No need to brainstorm about who to hire until you address the time it takes to sell a car. Salespeople average 10-11 cars/ month because it takes 3+ hours to sell a car. Until your salespeople can average 15+ cars per month, churn won’t improve much. No way to average 15 cars/month at 3+ hours per sale. Time to spend less on leads and more on a purchase experience that makes it easier to buy.
Ask yourself why 50% to 60% of your leads never respond to your calls, emails or texts. Consumers don’t fill out lead forms, they ask questions. How many questions do you answer? Response time means nothing if you don’t answer the question. Consumers buy a car every 3 to 5 years, but they buy online all the time. Amazon’s 30m prime members pay $99/year specifically to avoid lead forms, emails and phone calls. They find sites that inform so they can buy. Amazon.com is designed to make it easy to buy, new car dealer sites are designed to generate leads…in 2017. Hmmm. Want to lead in 2017? Do the unthinkable, make your site more transparent to make it easier for consumers to buy from your dealership.
Is it really time? If this sounds like nothing more than semantics, ask yourself this, “if you were booking a trip online, clicked to buy a ticket, and instead of a confirmation number like you expect, you get a message saying “a representative will call you shortly,” what would you do? You’d go dark, just like all those leads. Where to start? How offering a Car Buyer’s Checklist to your web site? Give consumers a tool that saves them time and money and you’ll be rewarded.    
 
Shawn: Average spending on incentives by automakers rose to $3,600 in February from $3,000 in January. General Motors accounted for the highest amount spent among big automakers with an average spend of $5,125 per unit (with 91 day average on inventory).
This shows that the OEM is really focusing on moving metal as opposed to generating profit for the dealership - meaning, sales is key once the customer hits the dealership. This can include offering additional services to the customer once they have agreed to purchase the vehicle - warranty, insurance and other ways to protect their investment.
The online process is streamlining the purchasing of vehicles - customers have done their homework, apply for the financing to have in place before arriving and then just need to take the vehicle for a spin to finalize the purchase.
The sales equation is based on people - however we need to remember that people begin the process online, so make it easy and ensure they can become excited about the vehicles you have on your lot.
 
Kristy
Secondly, expense control by spending as if in a recession and questioning every expense.  For example, is a marketing product really working for your dealership or do you even know how to evaluate it?  As our business continues to evolve and compress our ability to earn gross, we have to continue to take expense out of our business and now is the time to do it.  It is easy to cut expenses in good times when you have the cushion of time to evaluate every dollar you spend.  Can you renegotiate contracts with your floorpan provider and other longstanding vendors?  Should you examine your pay plans and make changes now?  Look at your advertising spend.  Are you holding onto too much tv, radio and print because it feels good even though we all know that today’s “foot traffic” exists primarily in the digital space?  Now is the time to evaluate your expenses across the board.   While times are good.  When – not if – we have the next downturn, dealers that have already “cut the fat” will be in the best positions to not only withstand a downturn, but actually excel during it.