Digital retail has just had an unexpected growth spurt. While stay at home mandates disrupted worldwide economies, it has also forced many business and consumers to abandon technophobia and welcome digital retail solutions with open arms. Companies like Home Depot and Lowe’s utilized digital shopping early and actually saw business increase as a result of stay at home orders.

The auto industry has had to act fast as shutdowns and restrictions forced so many to make operational and process adjustments in order to remain profitable while at the same time forcing consumers to quickly become reliant on being able to complete transactions online for even the most basic necessities like groceries.

Consumers embraced digital retailing long before COVID-19. Digital retail was born the day a 74 year old woman ordered groceries from a television in 1984. Digital retail’s next big wave came with the adoption of mobile devices and payment methods, and now we find ourselves at the precipice of another significant time for digital retail in that social distancing and shutdowns have forced many new shoppers online. Now that more consumers are on board with digital retail, they are here to stay. Dealerships that have responded by embracing digital retailing products and services have been able to continue operations, while dealers that have been etching out their digital processes for years barely missed a beat during the sudden transition.

The newest factor in digital retail success is within demographics. Millennials and Generations Z and Y grew up using the internet for everything from school work to shopping to entertainment while Generation X and beyond have been more hesitant. Older demographics shopping and purchasing habits have changed permanently. Or Lenchner, CEO of Luminati Networks reports:

“Our online data collected in collaboration with our partners shows that older consumers are now embracing online retail and are currently using e-commerce at a rate 15 percent higher than the same time last year. With Britain’s average age now 40, this change is key. On average the over 40 demographic reports the highest levels of disposable income in the UK with their consumer spending clocking in at around £803.91 per week in 2019, far outstripping the spending of Millennial and Generation Z consumers.”

While digital retailing may have only accounted for around 2 percent of sales in the past, digital retail is expected to outperform retail earlier than expected and dealers need to be prepared as consumers are now going to be more likely to desire these types of services moving forward. Digital retail processes need to factor in that older people shopping online means new levels of user and customer expectations. User experience needs to consider more than simply appealing to younger more internet savvy users. Take advantage of digital retail solutions that have proven they can provide top tier user and customer experience to a range of generational shoppers. Offer services like a complete online trade vehicle inspection, online sales transactions, pick-up and delivery in service and even mobile service at a consumer’s house or job site. That way you can expect to retain members of many generations even while more and more businesses are reopening every day.

The worldwide COVID-19 pandemic forced many retail businesses to either shutdown or embrace automation, AI and digital retail solutions in order to continue to generate revenue. Almost immediately, artificial intelligence has gone from a niche concept to a one that many automotive dealers and businesses need to strongly consider even as many of us begin the re-opening process. While some people believe it could unlock a new golden age for humanity, some, including the late Stephen Hawking – think that it could plot out humanities doom…but are the robots really here to take jobs, or does AI need human intelligence to exist and be nuanced enough to really benefit retail?

Aside from the data scientists and programmers who work in the automation field, think about all the ordinary people who perform the tasks that AI’s aren’t equipped to handle, thereby helping to improve them, and vice versa.

To compare the combination of man and machine to the two parts of a brain, like Microsoft’s Dr. Hsiao-Wuen Hon, consider machines as the left side of the brain - the side responsible for logic and rationality, with humans being the right side - the side responsible for creativity and judgment and decisiveness. Together, they can form an ideal form of intelligence, which Dr. Hsiao-Wuen Hon expresses in the following equation: Artificial Intelligence (AI) + human intelligence (HI) = intelligence, or augmented intelligence.

Amazon’s Mechanical Turk is often described as “artificial intelligence” even though it uses a small army of workers to carry out micro-tasks like matching information in photographs – something machines aren't usually very good at. But this is changing as machines learn more over time. Mechanical Turk workers end up spending more time checking the work of algorithms, as opposed to filling in ability gaps for them.

Another example of how AI solutions need Human intelligence first can be found in the automotive vehicle inspection process. Over the course of 15 years, in North America there are over 22,000 body styles of vehicle produced. Each style can have up to 10 unique colors, creating hundreds of thousands of possible vehicle combinations. There are also over 1,000 combinations of types of damages and severity that AI would need to learn, detect and process. It would be almost impossible for AI to consistently detect the same damage and severity on each different body style and color, as every different variation affects how this damage can appear for AI vision. The AI would need to learn over 2,000,000 unique variations and combinations AND be able to learn and detect new variations as they come into existence.

In order to avoid this problem ideal AI solutions need to include Human Intelligence and cannot simply rely on AI to learn an impossible amount of data and execute nuanced functions that can take their human counterparts a short period of time to process in tandem and deliver more accurate results. While concerns about jobs being “lost to machines” may have some validity, new types of roles are popping up for people within the Artificial Intelligence Arena because AI needs a human touch in order to benefit retail and provide the kind of User Experience that retains customers and keeps growing business.

The retail car business in North America can be incredibly taxing on its employees. From 12-hour days to uncertain paychecks – salespeople can go from hero to zero quickly. As we all deal with this COVID-19 virus, many dealerships have experienced incredibly severe consequences. Some have had to close completely while under lockdown which, in some instances, has led to a complete layoff of staff or, at the very least, furloughs. Unemployment has skyrocketed in many areas with skilled and talented automotive professionals at home waiting to be able to go back to work.

I truly believe that one of the most effective use of time for any automotive professional stuck at home is to take this time for some professional development. It can be challenging to focus on training before or after a 12-hour day. Brains get fried and everyone needs downtime. This unprecedented world pandemic offers time that can be taken advantage of, however, to immerse in training.

There are many types of training available for automotive professionals. It doesn’t matter what position in the dealership they are in, there is something for everyone. The lucky employees may be provided with training by their dealerships that they can take advantage of. There are also many automotive industry trainers who hold online training through social media. Oftentimes, however, those may be sporadic and typically focus on a single topic. There are also plenty of virtual training schools out there. Many times, however, they require a monthly subscription which many people cannot afford in these tough times. There are, however, online training platforms that are free (or at little cost) that automotive people can access.

In addition, there are plenty of professionals offering tips and advice on automotive forums which afford automotive professionals the ability to read best practices, interact with their peers and ask questions that offer them professional growth. Of course, live training in which there is teacher-student interaction is the most effective. That is exactly why schools in the around the globe have gravitated towards online learning during these times.

Regardless of what someone wishes to learn, there is training material available. Automotive professionals don’t have to limit their education to automotive topics. This is also a great time to learn a new skill or get better at one. Topics like writing emails more effectively or outside industry best practices can introduce whole new levels of engagement and customer experience skills. Think of GMs relationship with the Disney Institute. There’s a reason that Disney has earned probably the highest level of brand loyalty in the world. Auto dealerships can improve as a whole but salespeople, service advisors and managers can also learn some tactics and skills that they may not otherwise be exposed to.

Take this time to step back and do some soul-searching. Many of us are waiting for the world to reopen and, in some instances, states are starting that process. This is the perfect time to take your skills to the next level and invest in yourself. There may not be opportunities like this in the future to truly dive into self-improvement – especially once everything is back to normal and people resume their 12-hour workdays. Now is the time to retake control and use time wisely. Don’t waste it.

In my last blog, I discussed the many consequences that the COVID-19 virus will bring to the auto industry. That list was not all inclusive and there is a factor that I did not include that will affect sales and inventory: consumers.

What do I mean by that? We all know that consumers in the United States have received Stimulus checks. In addition, with the tax return filing deadline extended and the U.S. government operating at a slower pace, there may still be plenty of people that will receive tax refunds. Typically, many dealers see a surge in car sales as this money from tax refunds hit consumer bank accounts but now, dealers will be seeing consumers who not only have those tax refunds but also stimulus checks and, in some cases, those could be pretty large. A family with 2 adults and 4 children that are under the income qualifications would receive $4,400. There will also be plenty of unemployed consumers who are receiving unemployment whether that was because they were furloughed or because their employment was terminated.

What does that mean for used car inventory? It means three things:

First, cars will be in demand. Typically, in these cases, the majority of these consumers looking to buy may be mid to low credit and searching for a “better” pre-owned vehicle. However, to complete the transaction, they may need to trade in a vehicle.

Second, as dealers and the market slowly level out, used vehicle valuations will be all over the place. Dealers will have a glut of inventory that they are trying to unload while, at the same time, being forced to take in a trade from a consumer to do so. Yet, because used vehicle values are all over the place, dealers will probably want to err on the side of caution while the consumers will want as much as possible for their vehicle.

And finally, because banks and lending institutions factor in many things in determining whether they want to finance a vehicle like COVID related items - credit, income and collateral – they will be tightening their lending criteria which could make it harder for these individuals to buy cars while, at the same time, creating a dilemma for the dealer. The more they give for a used vehicle value on trade, the better the LTV is which can influence lending decisions.

It's important for dealers to be prepared for these potential situations by having more accurate assessments of vehicle value through condition. Is this something that will need a lot of service work in recon prior to being retailable? Is this vehicle one that I would need to wholesale?

With consumers increasingly depending on online information, dealers need to ensure that they are providing the most accurate trade-in values that they are able to in order to win the sale, move a unit and take a trade-in right not only to create a better customer experience but also one that creates a situation that is more amenable to lending institutions in order to get those sales financed. 

There have only been a few times in automotive history that a disruption has caused so much harm to the world’s economy that has dramatically affected it. We are in one of those times right now.

Let us explore a few of the variables:

1. Dealer Inventory – Most dealers buy vehicles on credit (i.e. floor plans.) If dealerships pay off those individual cars within 30 days, they don’t necessarily accrue any interest. Inventory turn is very important. Because of COVID-19, however, not only are dealers holding used car inventory that could be 6+ months old but they are also holding NEW inventory that could end up being that old. Manufacturers will resume producing the next model year vehicles and expect dealers to take their allocations which presents a quandary. Dealers will be scrambling to get rid of their aged inventory while being encumbered by new inventory. It won’t be unheard of for some dealers to have three model year vehicles in stock.

2. The Race to the Bottom Accelerates – Once dealership sales departments reopen, Dealer Principals will be pressuring their sales staff to sell… sell… sell. If you thought automotive sales was hyper-competitive before, wait until every dealership is trying to offload inventory. As it stands, there is a glut of inventory sitting on dealership’s lots. What about all of those expired leases that consumers have not been able to return? Manufacturer finance companies are telling consumers that they need to coordinate those returns with the dealership while the dealerships are telling consumers they need to talk to the respective finance companies. An infinite loop that only irritates consumers.

3. Vehicle Values – Just like in any industry, supply and demand will definitely impact vehicle values. Dealers will find themselves in the precarious position of either taking a vehicle in on trade at a higher price than they could acquire at auction just to sell a unit. Valuations are going to become extremely trickier since there will have to be a balance between consumer expectations and transactions that are beneficial to the dealership. Dealerships will be forced to further decrease the small front-end grosses that existed pre-virus in order to move another unit thus resetting the floor plan clock. It’s almost like robbing Peter to pay Paul.

4. F&I Profit Will Decrease – Because of the race-to-the-bottom that existed even before COVID-19, dealers began relying on finance income in order to be profitable in sales through finance products like warranties, etc. but, most importantly, through finance reserve. No consumer with excellent credit is going to accept a marked-up interest rate when they can go with a manufacturer offer of 0% interest over 84 months unless they need the rebates to overcome negative equity. Dealers will not only have to acquire a trade-in (probably at a higher price than they could get the same vehicle at auction) but will have to have some great salespeople in finance in order to get any income whatsoever on the backend.

5. Digital Retailing Just Had a Growth Spurt – Consumers embraced digital retailing even prior to COVID-19. How do you think Amazon became the largest retailer in the world? Now, however, consumers have been stuck inside for months and have become even MORE reliant on being able to complete transactions online. Dealerships (or at least the ambitious ones) have responded by embracing digital retailing products and services in order to continue operations. While digital retailing may have only accounted for around 2 percent of sales in the past, consumers are now going to be more likely to desire these types of services moving forward. Services like a complete online sales transaction, pick-up and delivery in service and even mobile service at a consumer’s house or job site that are being offered right now will entice consumers into wanting those services moving forward.

This pandemic has not only created substantial lifestyle changes presently, it will also be a catalyst for the future of retail. In the automotive industry, it will no longer be acceptable to reply “just get them in” nor will a disparity in pricing or trade-in value be acceptable any longer. Consumers are going to not only expect but demand dealerships to adapt to their desires. Dealerships who do - and have the technology to do so – will flourish while those that believe that they can continue operating as they have for decades will find themselves either playing catch up or out of business. Is this harsh? Yes. But it’s meant to be a wake-up call. If you need some coffee. Drink it and read this again.

Until next time.