Scot Eisenfelder shares why conquesting through service is the key to future profitability.

CEO & Executive Chairman for Affinitiv Scot Eisenfelder shares why recalls aren't going away and why dealers should pay attention to them.

Many dealers struggle with getting customers to bring their vehicles in to take care of recall issues. The fact that the average recall completion rate is around 75 percent, tells us that standard recall marketing campaigns aren't as effective as they could be.

Your customers either aren't getting the message, or they set it aside and forget about it, or they just don't feel a sense of urgency to get the repair done.

Yet it's worth the time and effort to actively pursue recall work. Our data shows that the average recall RO is $695, more than double the average RO of $335.

One way to increase recall response rates is to expand marketing channels from email and mail to include social media, call campaigns and display advertising.

It's also helpful to think outside the box and leverage your data to find more recall work. Try these three strategies to generate more recall ROs.

1) Upsell the recall, not additional services

Most of the time when customers bring in their vehicles for a recall, service advisors attempt to upsell them to additional services. The problem here is, many consumers aren't motivated to bring in their vehicle in the first place.

If you can't convince the customer that a recall issue is urgent, use reverse logic to get them in for a needed repair, then upsell the recall.

First, identify VINs with known recalls and investigate likely issues the customer is having based on their vehicle history and miles driven. For example, if you know that a BMW with 50,000 miles needs new brake pads, create an offer for that customer. If other vehicles in this group are due for 30,000-mile maintenance, create a compelling offer for them.

You can afford to make these offers very competitive because you know that once the customer comes in, they'll likely agree to take care of the recall issue while there. Because the value of these recall customers is so high, consider offering pick-up/drop-off service or a free loaner.

The most cost-effective methods for delivering such highly targeted offers to individuals is via customized social media ads and/or call campaigns.

2) Find VINs in sellers' hands

Many vehicles with open recalls are in the hands of other sellers, such as local independent dealers, Carmax, or sitting on an auction lot.

To find these recall VINs, use screen-scraping tools to extract data (such as VINs) from other sellers' websites. Once you've identified the vehicles with open VINs, approach the seller and offer to pick the vehicles up, do the repairs and return them to be sold at the end of the day.

The sellers should be motivated to get the issue taken care of purely from a liability standpoint. In today's litigious world, sellers should be concerned about selling a vehicle with a known issue to a consumer. If the seller doesn't appear to be motivated, sweeten the deal by paying them $50 per vehicle to allow you to do the recall repair.

3) Use recall as a conquest platform

Many dealers calculate the ROI of a recall marketing campaign as dollars returned from that campaign only. This is short-term thinking. Recalls should be pursued aggressively as a productive means to re-engage customers with far greater long-term value than the profit from one campaign.

Your recall campaign might reach a first owner who has stopped servicing with you, or a second owner who's unfamiliar with your brand. Here is a chance to build or re-build that relationship. What is that opportunity worth to you?

When a recall customer schedules an appointment, think about ways to optimize their experience so that you can win their business for the long-term. It could be with an additional, compelling offer or a free loaner car.

Let's face it, many of these vehicles are older and in the hands of second owners, so the price expectations are different. This may require heavier discounting as dealers are competing directly with aftermarket alternatives.

This requires a shift in mindset from "How much money can I make from this recall?" to "How much am I willing to invest in this opportunity to create a loyal customer?"

When the customer comes in, invest in a thorough multi-point inspection (MPI) to document all the vehicles' needs. Follow up with targeted offers for those repairs, and don't forget to promote your brand's value proposition.

The first two strategies should help you find and obtain more recall repair business, while the third strategy will help to re-frame how you measure ROI from your recall marketing campaigns. Recall repairs can be lucrative, but their real value lies in the opportunity to service these customers for years to come.

CEO & Executive Chairman Scot Eisenfelder shares his views on autonomous vehicles and their impact in this short video blog.

As front-end margins continue their decline, dealers are more reliant than ever on fixed ops revenue. Fortunately, the opportunity to maximize service revenue has never been greater for dealerships.

In the last decade auto sales have boomed. Factory maintenance programs are driving more initial service visits. Increased CPO sales are creating more reconditioning and used vehicle service business. High recall rates are driving many customers back to franchise dealers.

So why do dealerships capture less than half of all potential service revenue from the vehicles in their service lanes? It comes down to inconsistent processes and the inability to meet customer expectations.

In a mobile-first world, customers want pricing transparency for standard services and they want to schedule appointments online. The drop-off, communications and pick-up processes are inconsistent at most dealerships. Why is it that a customer can order and track a pizza being made and delivered to them on their phone, but they have to call your dealership several times to check on the status of their vehicle—and then wait in line to pay at a cashier?

To maximize revenue potential, focus on improving these five key service processes with technology and best practices.

Schedule

According to the 2017 JD Power CSI survey, only 13 percent of customers scheduled their vehicle service online. This is despite the fact that nearly all dealerships have an online scheduler and most service reminders are digital.

One issue with online scheduling is that many dealers are afraid of competitive shopping, so they don't post prices online. It's unrealistic to expect a customer to schedule an appointment for a 30,000-mile maintenance when they don't know the price.

A service scheduling platform should be transparent, easy and convenient. Look for a platform that integrates with your DMS so that all customer information, vehicle history and other data is available, whether the customer schedules online, with a BDC or direct with a service advisor.

Write

An efficient, mobile write-up process increases repair order (RO) revenue and improves the customer experience. Start with in-lane tablets to assist with customer reception and conduct a thorough and effective vehicle walk-around.

Look for a system that integrates with both your DMS and your manufacturer, so recall information and other data is easily accessible. Also look for integrations with your other third-party vendors; such as loaner program or tire program partners.

Inspect

An electronic multi-point inspection (MPI) process uncovers new vehicle needs and drives more RO lines. Additionally, it creates a professional and consistent customer presentation. An effective MPI process has four steps:

·        Identify all the work that needs to be done

·        Have a quality conversation with the customer about the recommended services

·        If the customer declines, identify the reason. Is it trust, timing or affordability?

·        Offer a solution for the reason. If it’s trust, show visual proof of the repair with photos or videos, if at all possible. If it’s timing, offer a free loaner car. If it’s affordability, offer a payment solution.

One of the most important reasons to capture MPI data with an electronic tablet is so that you can use that data effectively downstream. This allows you to follow-up with the customer so you can re-capture unsold service recommendations, and also to market to customers shortly after their visits.

Track

The ability to text customers and keep track of conversations is critical if you want to keep customers informed. Look for a compliant texting platform that offers the ability to text throughout the customer's appointment.

Also, make sure your texting platform has a management dashboard that allows you to view all text messages between your employees and customers. To add convenience for the customer, introduce flexible online invoicing and payment options that can be accessed via embedded links within the texts.

Retain

To drive more second and third service appointments, use customer data and technology to build loyalty. Leverage your manufacturer's owner retention program (ORP) and explore options to enhance it with digital marketing.

Adding display ads, search engine marketing (SEM) and social media campaigns to your service marketing program will significantly increase reach, frequency and response rates.

If current trends continue, fixed operations revenue will continue to grow as a percentage of dealership gross profits. Many dealers underinvest in service lane technology and marketing, compared to what they spend in sales. Improving these processes will increase efficiencies and drive more revenue.

Forget autonomous vehicles; the impact of these trends is being felt today

Chicago, IL- January 14, 2018- Affinitiv CEO Scot Eisenfelder is shining a spotlight on five industry trends that have the potential to negatively impact auto dealership operations in 2019, unless dealers take immediate action. Although disruptors such as autonomous vehicles, ride sharing and alternative powertrain vehicles dominate today's headlines, these trends are several years away from having a direct impact on dealership operations.

Five trends that Eisenfelder has identified as having more immediate impact include declining front-end margins, improved product quality, more onboard technology, aging units-in-operation (UIO) and consumer expectations.

"While the news is full of major disruptors, there are more practical realities shaping auto retail today," said Scot Eisenfelder, CEO of Affinitiv. "Virtually all of these trends will force dealerships to rely more on fixed ops as a source of future profit."

Declining Front-End Margins. New vehicle gross margins have declined significantly in the last seven years, from 4.0% in 2011 to 2.2% in 2018. The same pricing transparency that drove down new-vehicle per vehicle retail (PVR) is likely to drive down F&I PVR in the next few years.

To combat this trend, dealers will be forced to shift their business strategy to a razor and razor-blade model, whereby products are sold cheaply and all the profit is made on the back end.

"This requires a shift in operational mindset," said Eisenfelder. "If you can't make a killing off the first sale, how do you manage the customer relationship going forward?"

Dealers should invest in service marketing designed to increase customer loyalty, and in technologies designed to improve the customer experience in the service department.

Improved Product Quality. Available work per unit is declining as quality improves, service intervals lengthen and work shifts from repair to replace.

"Dealers can no longer count on substantial warranty work and in-warranty customer pay business from new vehicle sales as a way to feed steady business to their service departments," said Eisenfelder. "Additionally, the average service interval length has increased from every 3,000 miles years ago, to nearly 10,000 miles today."

To address this, dealers need to maximize Revenue per Units-in-Operation ($/UIO). Today's franchise dealers only capture 20 to 25 percent of revenue potential from their UIO, and less than half the work needed on vehicles that enter their service lanes. To increase service yield, dealers should focus on providing complete vehicle care to current customers.

This requires the ability to identify, communicate and capture all service needs, which may require modernizations to the write-up, multi-point inspection (MPI) and service recommendation processes.  

More Onboard Technology. This trend favors dealerships, giving them a competitive advantage over independent repair facilities (IRF) based on technician knowledge. To leverage this advantage, dealers need to move beyond an oil change mentality and send relevant, targeted offers based on customer data, vehicle mileage and service history. This requires the ability to leverage data contained in the DMS/CRM.

Aging UIO. Most industry analysts predict a flat to declining new vehicle market through 2021. This means fewer one- to three- year old vehicles to service, with a corresponding increase in four- to six- year old vehicles.

Number of Units-in-Operation Change Since 2017*

*Automotive News: Scrappage not removed; assumes 2018-2020 sales of 305K units.

"In this environment, sales conquest becomes brutally competitive and essentially a zero-sum game," said Eisenfelder. "In fact, it's pretty common to see incremental marketing costs exceed gross margin net of commissions."

Additionally, dealers are facing increased competition from IRFs that have seen a decrease in seven- to ten- year old vehicles to service, which are their traditional bread and butter. As a result, IRFs are aggressively targeting the four- to six- year old market.

To combat this trend, dealers will need to shift marketing spend into service conquest, which delivers better ROI at an average $40 to $80 per customer acquisition, compared to the average $1,200 to $1,600 per customer acquisition in sales. Conquest efforts should focus on finding and servicing second owners of four- to six- year old vehicles. Dealers also need to do better at retaining current customers through post warranty.

Consumer Expectations. Today’s consumers expect a transparent, modern and convenience-driven experience, which traditional dealer processes and systems are ill-equipped to deliver.

"It's truly baffling because a person can track a pizza being made and delivered to them, but they must call your dealership several times to check on the status of their car, then wait in line to pay at a cashier," said Eisenfelder.

Dealers need to improve service pricing transparency and invest in technologies and amenities that modernize the customer experience.

For more information on Affinitiv, visit booth #2139S at the NADA Convention and Expo in San Francisco, CA. Schedule a demo at http://bit.ly/Affinitivdemo

About Affinitiv:

Affinitiv is a leading marketing technology company serving automotive manufacturers (OEMs), dealership groups, and individual dealers. Affinitiv’s Connectiv1 Platform is designed to provide a 360° view of customer, vehicle, dealership and marketing campaign effectiveness all in one place. It makes it easy for auto dealerships to leverage data and target customers with the right message at the right time on the right communication channel.

Affinitiv enables dealerships to produce, manage, measure and optimize omni-channel communications to drive brand loyalty and increase revenue. Affinitiv’s digital and analytic capabilities support a consistent customer experience through the entire ownership lifecycle. Affinitiv was formed in 2016 and is headquartered in Chicago, IL.

CEO & Executive Chairman Scot Eisenfelder shares how data can increase revenue in the service drive in this video blog.

After an unprecedented period of sales volume growth, the prediction for a flat Seasonally Adjusted Annual Rate (SAAR) in the coming years has significant implications for dealerships. As competition for new vehicles heats up, front-end margins will continue to decline, forcing more dealers to focus on back end profitability.

One of the biggest obstacles dealers face in boosting service profitability is increased competition from independent repair facilities (IRFs).

Traditionally the 7- to 12-year-old vehicle market has been the bread and butter for IRFs. Due to recent sales trends, the number of units in operation in this vehicle segment has dropped in the last couple years. As a result, IRFs looking for growth have become more aggressive in their search for new customers, primarily in the 4- to 6- year old vehicle market.

Meanwhile the same sales trends indicate that for dealers, service opportunities in the 1- to 3-year-old segment are declining. In order to grow revenue, dealers must also set their sights on servicing the 4- to 6-year-old vehicle market.

In the next few years, the battle for this lucrative vehicle segment promises to be intense. To successfully conquest these 4- to 6-year old vehicles, dealers need to be proactive in the following areas:

Find Active Owners

Most 1- to 3-year-old vehicles are in the hands of the first owner, thus contact information is still in the DMS and easy to find. As vehicles age, more vehicles are in the hands of second owners. Third-party lists vary in quality, and increasing marketing spend to reach all potential customers in your primary market area can prohibitively raise the cost per RO.

Before paying for outside data, mine your lost souls and CRM “no sales” to find new service prospects. These customers considered doing business with you in the past and might be willing to give you another try. Messaging should address why they need to defect from your local competitor; in particular, issues of trust, convenience and service quality are more successful motivators than purely price.

Social media channels, in particular Facebook and Instagram, are also very cost-effective channels to address these consumers.

If your store is part of an auto group, sharing customer data is a critical part of this equation. Most automotive groups fail to effectively cross-sell service. Customers who buy a pre-owned Honda at a Toyota store are unlikely to take that vehicle back for service. However, they might be looking for a Honda dealership. Is there a Honda store in your group? Is the CPO Honda buyer data from other stores shared with that Honda store? Is that Honda store able to target those customers with offers based on individual vehicle service history and current needs?

Another source of customers in the 4- to 6-year-old market is recalls. Recalls offer a tremendous opportunity to create loyal customers. An effective MPI process is integral to this process and must be carefully managed so as not to alienate the customer. Transparency and communication are key to building relationships with recall customers that will translate to future revenue.

Nurture Relationships

Most dealers have room for improvement when it comes to maintaining customer relationships, especially through the transition from warranty to post-warranty. Extended warranty and other attractive loyalty offers can help.

What really needs to change however, is the mindset of most service personnel. Variable pay plans in service reward transactions rather than relationships. Service personnel should be rewarded when customers return for service, rather than on gross sold. The latter incents employees to favor immediate gratification, which risks alienating customers.  

The Right Offer

Dealers need to move beyond the “oil change” mentality. From a consumer perspective, there is little value incentive to having oil changed at a dealership versus an independent repair shop. However, when it comes to post-warranty end services and major repair items, the dealerships’ value proposition strengthens. Technician certifications, genuine OEM parts, loaner vehicles and other amenities are all strategies that dealers can use to attract new service customers.

Additionally, pre-paid maintenance programs and extended warranty offers are attractive to a percentage of the 4- to 6-year-old vehicle owners.

Currently dealers face a number of headwinds when it comes to growing service revenue. One of the greatest opportunities for growth lies in servicing the lucrative 4- to 6-year-old vehicle segment. However, to attract and retain these customers will require a new mindset and new best practices until the wind shifts again to our backs.

In this video blog, Affinitiv CEO & Executive Chairman Scot Eisenfelder shares his opinion on why consumers choose franchise dealers for service over independents.

There’s a lot of buzz around subscriptions as a new ownership model, with various industry pundits forecasting major disruptions for dealers. I see things differently.

I believe there are several major barriers to subscription growth for non-dealers, and opportunities for dealers to thrive, should subscriptions break through as a significant ownership model. Let’s review the two types of subscription models emerging.

Pool Models

In a pool model, consumers purchase access to a pool of vehicles and can switch vehicles depending on the availability of vehicles in the pool. This model resembles a daily rental fleet where the pool owner absorbs the asset utilization and remarketing risk, albeit with less frequent remarketing events, since there is no need to remarket after each owner.

The pool model appeals to consumers who have very divergent vehicle needs, e.g. small commuter car during the week and large pick up on the weekend to pull the boat.

OEM subscription models such as Access by BMW, Book by Cadillac, and Porsche Passport are pool models. Dealers launching subscription models are also pool models.

It’s difficult to find the details of how these pool models work, but OEMs would likely be much more strict on mileage and age restrictions. Dealers, on the other hand, would likely be willing to keep vehicles in the pool longer. For example, an OEM might keep vehicles in the pool up to two years and 24k miles, whereas a dealer might keep vehicles in the pool up to four years or 48k miles. 

I envision a world with luxury and non-luxury tiers…but also nearly-new and aged tiers. Less expensive tiers could offer vehicles that are three- to six-years old with up to 70k mile vehicles.

Serial Ownership 

The second subscription model is serial ownership, which is a speed dating version of leasing. Consumers can swap out their vehicle every few months for another vehicle offered by the fleet operator. The fleet operator absorbs the risk of finding a new owner for that vehicle either within its subscriber base or elsewhere.

The only company I know pursuing the serial ownership model is Fair, Scott Painter’s new venture. Fair is basically a flexible, used vehicle lease. The payment on Fair actually goes down over time, encouraging consumers to stay in the vehicles longer. This makes a lot of sense with the lower depreciation curve, switching costs and remarketing costs.

At end of ‘lease’, Fair sends the vehicle back to a dealer for a regular lease remarketing cycle. Dealer has first right to purchase before upstream and downstream remarketing. 

Barriers

The primary barrier for the pool model is driving utilization; actively finding subscription holders or consumers to utilize idle vehicles.

For serial ownership, the primary barrier is the high remarketing cost associated with frequent vehicle turns. For example, in traditional leasing the vehicles turn in 36 months, so the associated $1200 hard and soft remarketing costs amounts to less than $40 per month and can usually be recovered in the next vehicle sale.

If under a subscription model, vehicles turn every three months and similar remarketing techniques are used that would amount to over $400 per month, reducing subscriptions to a “rich person’s toy”, as Edmunds rightly stated.

Dealer Preparation

Under either scenario, dealers can take steps immediately to strengthen their capabilities in four areas that will be critical for subscription success.

1. One-to-One Relationships. Dealers need to proactively match buyers and sellers every time a vehicle changes or becomes idle to replace traditional marketing costs or stimulate utilization. To do this, dealers need to expand their contacts beyond subscribers and active customers to others in their PMAs who may be interested in available vehicles.

2. Loaner Fleet Management. Most dealers do not efficiently manage their loaner fleets, with vehicles poorly matched to service completion. Few dealers have the infrastructure to efficiently handle consumers signing in and signing out vehicles like daily rental companies. Integrating loaner and subscription fleets would be one way to solve utilization and remarketing costs.

3. Diversifying Used Vehicle Sales.  Increased used-to-new ratio, particularly CPO and previous loaner vehicles, provides more internal remarketing options, reducing outside expenses and providing opportunities to recapture potential subscription losses through future sales on the same asset. Expanding used vehicle sales broadens the dealership appeal, more precisely satisfying the needs of existing customer while attracting new prospects.

4. Update Service Model. Subscription models will place a premium on managing unscheduled down time, allowing maximum revenue generation from each unit through expanded service hours and a stronger throughput focus. While consumers do not explicitly measure unscheduled down time cost, the associated inconvenience is a large service venue selection driver.

Implications for Dealers

Serial ownership is the most likely model to emerge at scale. It is unclear how a pool model is going to improve on the existing daily rental model and places the availability risk on the consumer, undermining the core value proposition.

However, many studies indicate consumers would like to churn vehicles more frequently but are prevented by economics and an unpleasant sales experience. While serial ownership does not inherently fix the economic challenges, it encourages OEMs and dealers to collaborate on finding a solution and does facilitate a frictionless vehicle transfer from the consumer perspective.

Should serial ownership subscription emerge as a viable ownership model, we see dealers, particularly multi-franchised groups, advantaged to provide the service.

First, dealers have more options to drive remarketing costs and utilization by integrating subscription fleets into their used vehicle inventory and loaner fleets. Secondly, multi-franchise dealers can offer subscribers the broadest possible vehicle access. Finally, dealers have the infrastructure to cost effectively service the vehicles over and between subscription terms.

While we see many hurdles to overcome before subscriptions go mainstream, dealers can invest in the core capabilities to succeed should that time come, and doing so will reap more immediate rewards today.