At NADA many exhibitors hyped their digital retailing solutions to support online vehicle transactions. While no one has cracked the code for a complete, seamless online transaction, there are several great solutions that provide enough functionality to meet consumer demands. After all, consumers are not asking for a 100% “digital process."

What consumers rely on most from a digital experience is to cut through the traditional 'shishcamunga' at auto dealerships, and to experience the same transparent, consumer-driven process they are accustomed to elsewhere.

I saw this at AutoNation years ago, where its call-center-enabled AutoNationDirect delivered amazing customer satisfaction, even when the process required pdf contracts and scheduled phone appointments. Most dealers have better technology today, but the question is, do they have the will to be truly transparent?

The major remaining hurdles to Digital Retailing are not technical, they are cultural. Many dealers still believe transparency and profitability are in conflict. So, they resist the business model changes—e.g. transparent pricing across the four-square and pay plan changes—required to enable scale digital retailing.

Without the ability to see real, market-based prices on the vehicle purchased and trade-in, consumers will not transact, regardless of how slick the UI is.

In addition, consumers will need better information about F&I products and pricing to purchase online. They will need unbiased guidance to navigate their many choices in a very complex transaction. What they don't want or need is advice steered by pay plan considerations.

Dealers first need to commit to transparency, then figure out a business model and technology that results in the highest profit from a transparent process. I believe that those dealers who embrace change the fastest, will be rewarded long-term in a new market.

Don’t take my word for it. “The Market” has already issued its initial verdict. What does “The Market” think about how digital retailing will unfold? I think the relative market value of Carvana and the leading public auto retailers tells an interesting story.

At the end of January Carvana’s market cap equaled nearly $6 billion, nearly the same as AutoNation and Penske combined. That suggests two things. First, “The Market” sees tremendous value creation potential from digital retailing—hence Carvana’s valuation. Second, “The Market” does not believe today’s auto sales leaders will lead the way—hence the gap with traditional retailers.

The key to closing that gap is not to focus on technology, but consumer experience. When the bath-robed Millennial from Carvana’s inaugural ads, said “that didn’t suck” he was referring to the overall experience, not solely the digital UI/UX.

Every dealer has the capacity to close the gap, but it starts with a commitment to transparency, because technology-driven opacity will still “suck."

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.

Connectiv Prospect update doubles social media impressions & decreases Cost Per Vehicle Sold, at no additional cost to dealers

Chicago, IL- January 7, 2018- Affinitiv has added Instagram social ads to Connectiv Prospect, its conquest campaign marketing solution for auto dealerships. In a 30-day pilot at Cullman Chrysler-Dodge-Jeep-Ram dealership in Alabama, the Instagram update more than doubled the number of social impressions compared to Facebook ads alone, from 20,019 impressions in September 2018 to 45,878 impressions in October 2018.

After four months on Connectiv Prospect, Cullman CDJR decreased its Cost per Vehicle Sold (CPVS) from $250 to $167. For auto dealers, CPVS is a key metric used to determine the return on investment of conquest marketing campaigns. In general, a CPVS of $300 or less is considered a desirable ROI.

"Marketing to car shoppers via traditional channels such as television, radio and direct mail drives the CPVS up," said Eisenfelder. "Digital marketing, with the power of predictive analytics behind it, allows dealers to target only in-market shoppers."

Affinitiv campaign data shows an average 77 percent increase in reach when social media advertising is added to a traditional marketing plan. The reason is simple; social media is where consumer attention is focused. On average, people spend more than three hours per day on mobile devices, and one in five mobile minutes are spent on Facebook or Instagram.

Instagram has 700 million active monthly users, eight million business profiles and over one million active advertisers. The platform reaches a large segment of consumers who are not active on Facebook. According to Instagram internal data:

• 80% of Instagram users follow a business on Instagram
• 60% of users learn about a product or service through Instagram
• 75% of users take action after being inspired by a post
• 78% of adults age 18-24 use Instagram

Using Facebook and Instagram platforms together have proven to be a more cost-effective solution than running a standalone campaign on either platform.

Connectiv Prospect is a digital-only marketing solution designed for auto dealer conquest campaigns in both sales and service. Several packages are available based on a dealership’s needs, with strategies that include email, social media advertising, display advertising and optional geo-fencing.

In service, Connectiv Prospect is often used in conjunction with a dealership’s existing manufacturer owner retention program (ORP). The addition of digital marketing is proven to significantly improve key fixed ops metrics including RO count, customer pay dollars per RO and service revenue.

Affinitiv identifies in-market car shoppers and service prospects by analyzing data from multiple sources, including 200+ million auto owners with 175+ lifestyle demographic options and independent repair facility service records.

Additional targets include Super Responders, consumers driven by life-changing events that often precede the purchase of a new vehicle; including newlyweds, new parents, parents with teen drivers, college bound students, divorcees and recently moved.

This data is combined with analysis from consumers' online behavior to accurately identify in-market prospects. Affinitiv has the industry’s largest auto intender file containing data from buyers who have confirmed they will purchase or lease within 120 days.

The Instagram update is available to auto dealers using Connectiv Prospect at no additional cost.

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

For more information on Affinitiv, visit www.affinitiv.com.

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.

Read the headlines and you see it everywhere: online used vehicle sales are booming.

Carvana is expanding into dozens of new markets and although it has yet to turn a profit, its vehicle unit sales more than doubled and gross profit nearly tripled in Q3 2018. The retailer just announced $2 billion in financing from Ally Financial.

Large dealer groups have recognized the opportunity and are jumping on the bandwagon. AutoNation has invested in Vroom and Lithia Motors has invested in Shift.

But assuming you're not a huge dealer group with millions of dollars to invest, how can you compete with online used vehicle retailers? Carvana certainly doesn't offer the lowest prices, so what attracts consumers to their brand, as well as other brands?

The answer is simple. Customer experience. What consumers want more than anything in a shopping experience is information and pricing transparency. When dealers withhold these items, many people choose to shop elsewhere.

In virtually every other industry, retailers post prices online and give information freely. Consumers expect similar transparency in the auto industry but many dealerships are still reluctant to give customers what they want.

But the way consumers shop today is never going to change. The Internet has changed that forever.

Years ago, when my wife and I were looking for a new house, we filled up a Manila envelope with information about desirable neighborhoods, school districts and proximity to venues, restaurants and other places that we thought we might frequent. Ninety percent of the shopping was done before we called a realtor. When it was time, all we had to do was find a house in our price range in the neighborhood we liked.

Of course, today's consumers don't use Manila envelopes to store research. Everything is done online, but it's the same concept. They know what they want and the last step is to call a dealership to get the final pieces of information they need in order to make a decision.

This information includes:

• The real, final price on the vehicle that includes all taxes and fees
• Value of their trade-in
• Financing options and monthly payments
• Aftermarket product options and pricing

When a car shopper has this information on two or three vehicles in consideration, it's easy to make a final decision.

Once that decision is made, the consumer is more than willing to visit the dealership to see the vehicle, do a test drive, validate the trade-in and finalize paperwork. Ideally this final part of the process should take no more than one hour.

So, back to the original question. How can individual franchises and smaller dealer groups compete with online used vehicle retailers?

Be transparent. Invest in technology that gets your customers 90 percent of the way through the purchase transaction. Several affordable technology options exist so it doesn't require a huge up-front investment.

And don't forget what you can offer these pre-owned customers that Carvana and other online used vehicle retailers can't. Service. In fact, the four- to six- year old vehicle market is a prime target for dealerships looking to grow service revenue.

If you're worried whether pricing transparency will erode your used-vehicle margins in the same way that it has affected new vehicle margins, you're worrying about the wrong thing.

When you create a transparent and customer-friendly used-vehicle purchasing process, you create more opportunities to service those vehicles and build lasting customer relationships. That's where the real, long-term profit potential lies.

When we are no longer able to change a situation, we are challenged to change ourselves – Viktor Frankl

The news is full of major disruptors; if you follow the headlines you might think that a world filled with autonomous vehicles is imminent (it isn't), or that new owner and retail models will soon put dealers out of business (they won't).

However, there are changes happening in the auto industry that do impact retail auto sales, and that dealers should be worried about.

The most significant in my opinion is the long-established trend of eroding 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.

In response to this challenge, many dealers have focused on growing F&I revenue to make up for lost profits. This worked for a while, but I don't this trend as sustainable. For one, we have maxed out what we can reasonably charge customers for F&I packages.

Additionally, the same transparency that drove down new-vehicle per vehicle retail (PVR) is likely to drive down F&I PVR. F&I gross margins are also vulnerable to rising interest rates and increased regulation.

These trends all point to a continued decline in front-end margins. Can anything be done? Well, you could take out some costs, but that comes with the risk of negatively impacting customer satisfaction. The second option is to create a more enduring relationship with your customers.

In business this is called a razor and razor-blade model. Manufacturers of razors and printers sell their product cheap, because the real money is made on the back end, by selling razor blades and ink cartridges.

For dealers, this means the majority of profits in the future will be made servicing vehicles. This requires a shift in operational mindset. If you can't make a killing off the first sale, how do you manage the customer relationship going forward?

The traditional dealership model is not well suited to this mindset. Dealerships were set up to optimize each transaction. Even the sale of the vehicle is split into two different transactions: the sale and F&I. On top of that, you try to sell a pre-paid maintenance contract, which three different departments need to get paid on. Additionally, dealerships set up compensation structures to encourage different departments to compete against each other.

The consumer only has one bucket of money. They don't have three buckets of money, and asking them to contribute to all your buckets is pushing the boundaries if your goal is to establish a meaningful and ongoing relationship.

More important, when you try to sell all of these things up front, you have just undermined the effort to maximize the value of that customer on the back end.

To successfully operate in a razor and razor-blade business environment, dealers might want to think about making some operational changes. Here are some recommendations:

Consolidate

For auto groups, consolidate back office functions such as accounting and HR. Stop thinking of your stores as individual entities and treat them as a chain with more consistency. It's easier to maintain brand identity for a single chain than half a dozen stores.

Get to a one-transaction sale

Merge the sales and F&I functions. Have a product presenter and a deal manager. The presenter demos the vehicle and takes customers on test drives. The deal manager coordinates final pricing and takes on the F&I role.

Be more transparent with vehicle and F&I pricing

Increased transparency is inevitable and embracing this fact sooner rather than later will help to cement customer relationships.

Partly due to regulations, the markup on loans is becoming more fixed and less negotiable. Dealers who are transparent on this markup don't have a problem getting a reasonable markup. Have you ever bought a house? The mortgage broker made a point on that loan. That was the fee for helping you find the right mortgage. If you try to get three points, that won't work for consumers. Be happy with one point, and the customer will be happy too.

Also start thinking about what you want your deal manager to sell. If you can make $300 on an etch or $300 on a service contract, which is more valuable to you? Putting etch on a car doesn't bring that car back to you.

Change Pay Plans

The original concept of sales commissions was based on the idea that the gross margin was determined by the strength of the sales manager and salesperson's ability to negotiate. Salespeople today really don't have the opportunity to influence gross margin, so why are we still paying them on that basis?

The same goes for service. An advisor presents the customer with a list of three repairs that need to be made. Instead, they should present one repair as urgent, one as cautionary and one that can be done down the road. But the advisor is afraid the customer won't be back or that if they do come back, they (the advisor) won't be the one to make commission off the sale. Is this putting your customers' best interest first?

Variable pay plans are out of alignment with an optimal customer experience. They encourage the wrong things, period.

Let's develop less mercenary pay plans. Pay someone a minimal salary so they are not dependent on individual transactions in order to put food on the table. Bonus on metrics other than gross sales, such as repeat business and positive reviews.

Shift Spend to Service Marketing

With the razor and razor-blade business model, everything in the dealership is geared towards driving customers to service. So why do auto dealers still place so much emphasis on marketing the sales side of their business? They argue that sales feeds service, but I would argue equally that service feeds sales.

When it comes to service marketing, dealers need to think outside the box. Move away from the oil change mentality and stop going after coupon chasers. You offer an entirely different experience that customers are willing to pay for; including expertise, OEM parts, nice amenities and facilities, loaner cars and peace of mind, especially on more expensive repairs.

If all of these changes seem overwhelming, take baby steps. But start now, because the dealers who learn how to operate a razor and razor-blade business model will still be around when the headline-grabbing disruptors materialize in a few years.

CEO & Executive Chairman Scot Eisenfelder explains how leakage points in the service drive affect revenue in this video blog.

Chicago, IL- November 14, 2018- Affinitiv announced today it has completed all requirements to participate in the Digital Advertising Program under the GM Dealer Digital Solution. 

This allows dealers the opportunity to leverage in-Market Retail (iMR) funds to reimburse themselves for the cost of their Digital Advertising services.  Please refer to the iMR Dealer Program guidelines located at www.gmlam.com for further information.

Providers who are participating in the Digital Advertising Program provide advertising solutions that include:

Improved efficiency, coordinated spend and strategy across all tiers of advertising

Participation commitment for:

-Streamlined packages each offering full service solutions for sales and fixed ops

-A single, managed monthly fee with cap

-Performance accountability

-Day 1 Go-to-Market readiness

-Strategic and tactical advertising coordination with brands and LMAs

Dashboard for visibility into performance

If you have any questions about the benefits of Digital Advertising Program, contact Affinitiv at 888-865-3166 or via email at GMSupport@affinitiv.com

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.