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Via: David Barkholz, Automotive News.
Brian Benstock pushes the use of equity-mining software at Paragon Honda because each time it succeeds in getting a leased vehicle back early, nearly every department in the store benefits, especially finance and insurance.
Equity-mining software, sometimes called data-mining software, enables dealerships to spot current customers who are in a good position to get out of the vehicle they have and into a new one for about the same monthly payment.
The software looks at a number of factors to determine good prospects, including the amount of equity in their vehicle, interest rates, new factory incentives and residual values.
Those prospects are then prominently flagged for sales staff so customers can be called, sent an offer or tagged in the service lane when they come in for maintenance or repairs.
In an unscientific online survey by Automotive News, 59 percent of dealership respondents said their store uses equity-mining software, and 47 percent rated the results as "good" or "very good."
Benstock, general manager of Paragon Honda, said that at his store, the software is a gold mine for finding lease customers.
Those customers are going to need a different car in a few months at most, Benstock said. So if they can be brought in early, sometimes before they've even begun shopping, that sets off a chain reaction of revenue for nearly every department of the store, he said.
The first profit opportunity is the sale or lease of a new car. Second, the early trade-in vehicle almost surely will qualify for certified pre-owned status, making it a valuable product. The vehicle will have to be prepared for resale and possibly have parts replaced, feeding service and parts.
Then, Benstock said, there's perhaps the biggest winner of all: FandI.
If the new car is leased, Honda gets the sale, its captive gets the financing and the dealership earns up to a $300 flat fee for initiating the lease, he said.
On that new vehicle, the FandI staff has the opportunity to sell the full line of ancillary products, including extended service contracts, prepaid maintenance, tire-and-wheel coverage and other items.
The same applies when that certified pre-owned vehicle that was turned in early gets bought, Benstock said.
That buyer will be offered an array of FandI products to purchase, and if the CPO vehicle is financed, that provides a dealer reserve payoff for the store, he said.
Also, preparing the used car for resale is worth about $1,800 to the service department for reconditioning and certifying the vehicle, he said.
"Every transaction is worth a lot of money," Benstock said.
He should know. Paragon Honda in New York City sold 3,200 used vehicles last year, 95 percent of which were CPO, he said.
A good portion of those CPO vehicles that came into the store's possession were found via equity mining.
Benstock estimates that of the 500 new vehicles the store sells every month on average, equity-mining software finds 200 of the customers.
The bulk of those customers are lease customers who trade in their typically low-mileage lease vehicles for quick turnaround to a CPO listing, Benstock said.
In all, Paragon Honda leases 63 percent of the new vehicles sold every month, he said.
Benstock is so bullish on equity mining that he uses two vendors: AutoAlert and Driving Loyalty. They tend to pull up slightly different customers from the store's database of existing customers, he said.
Tony Rhoades, AutoAlert's vice president of product, said it's not unusual for the software to spot a customer two years into a three-year lease who can be switched into a new vehicle at about the same monthly payment.
But that's not the only reason customers want to switch, he said. Many have changes in their lives, such as kids, necessitating a move into a different vehicle.
There are multiple advantages of finding those customers before they are off lease.
First, obtaining vehicles from existing customers has minimal marketing costs because the customers can be identified by the software and either called or emailed, Benstock said.
Rhoades said buying the vehicles straight from the consumer also saves a couple of points in price over buying them at auction or elsewhere.
'Why not tell them?'
Tom Castriota, dealer principal of Castriota Chevrolet in Hudson, Fla., near Tampa, said the beauty of equity mining is that it is an instant conversation starter with a customer.
Whether it's sending a note to a customer or approaching one in service, salespeople have a reason to offer a deal for a new vehicle that often doesn't raise the monthly payment, he said.
Castriota Chevrolet, which sold just shy of 900 new vehicles last year, uses the equity-mining software of its dealer management system vendor, CDK Global.
If customers have equity in their cars, Castriota said, "why not tell them about it?"