Part IV of A Business Model That’s Just Plain Bad For Business.

Do you want people who are going to tell you “What You Need To Hear” or do you want people who are going to tell you want you “What You Want to Hear?” If you are the later than you might as well stop right here because I am not here to stroke your ego, I’m here to make you money and make you proud of your business and of what your accomplishing.

There seems to be a great deal of commonality and consensus in the disconnect between the Sales Department and The BDC Department just to name two and problems within both. It almost seems to be the rule and not the exception that management has not fully embraced the impact of recent changes among them being Digital Marketing is having on the marketplace today.

The BDC department is too often viewed as a bunch of internet geeks that have no conception of the sales process and should not be talking to customers. The BDC often looks at the Sales Department as a bunch of knuckle dragging egotistical Neanderthals that inhibits them from fulfilling their mandate.

This among other organizational problems plaguing Dealers today is an age old problem but one that has been exacerbated by the rapid and momentous changes that are taking the Automotive Industry by storm.

I know that for Digital Marketing this will change if not for any reason than the younger generation who grew up in this technological world and who have been entering the Automotive Marketplace have already embrace it before they even enter the job market. But what is to be done now?

How long are dealers willing to wait before they take charge and make all the changes necessary to correct the problems that are plaguing them? For instance, when it takes days or a week or longer of calls and conversations just get the manager to give approval to the BDC or the BDC to make the call just to give approval to have their data polled-you know you have a problem.

We all know that this is just one of many issues facing many dealers. So when are they going to realize that they need to have a qualified professional from the outside looking in to pinpoint the problems and provide the solutions necessary to correct them.

Once they make that realization and retain someone and after discussing and agreeing on what is broken and how it may be resolved, you need to hope that something is actually done to implement those solutions unless you are directly involved in the implementation of those changes.

You may have the plan that could put them on the path to sustained and continued growth but if the infrastructure is not in place or put in place to utilize them- all has been for naught.

How have you made an impact on your clients in resolving these types of issues and have seen them come to fruition?

Posted by Bill Cosgrove
DealerNet Services

If you have read my blogs “Don’t Fall Into The Trap” or “Take Back Your Marketing” or the many comments I have made concerning this issue, you know that I have been against the large companies commoditizing approach they have been feeding dealer’s- And in particular I am referring to the small and medium size dealers- that you need change your business models and to sell more at a lower price to compete in today’s marketplace.

I am now starting to see a trend that is showing support for what I have been saying for a long time. I just read a white paper put out by firstLook which states that used car dealers and private party sales in April climbed 0.7 percent vs. year ago to 3,819,127 units. vs. 3,792,604,

Total Value of Used Cars sold, however, slipped 5.8 percent to $34.1 billion compared to last year's $36.2 billion because of lower transaction prices.

Transaction prices across all three channels were down 6.46 percent to $8,928 from $9,545. (Excludes aftermarket products, taxes, fees, etc.)

“• Buy­ers were kick­ing tires at five or six dif­fer­ent deal­er­ships years ago, and that’s now dropped to 1.8 in-person store vis­its.

• As the reces­sion slammed down hard, used car supply waned and commoditizing of the used car industry was born. Many dealers have sold inventory as cheap as possible, turning them as fast as possible for tiny mar­gins, then ran back to the auc­tions to scoop more sup­ply.

• The “velocity only” approach hasn’t gone so well. Gross prof­its have been eroded.

It doesn’t have to be that way if you can access both the tools and philosophy necessary to turn cars while achiev­ing high gross profits.”

“And anyone can stand in front of a room and tell you to price everything for dirt cheap and it will sell faster. The key is how you can achieve 85% Retail Sales Efficiency while maintaining high gross profits.

Some seemingly “progressive” thinkers have very simply stated that used cars are a commodity. The only way to be successful in today’s market is to sell cars really cheap at 96% of the market, turn them as fast as possible for tiny margins, and run back to the auction to scoop up more. And quite frankly…a lot of people drank that Kool-Aid. The hypothesis being that this approach will, allegedly, increase turn and volume, and with that volume you can make more money. A velocity only approach they call it.

Beyond being a gross oversimplification of the car business, the impact this has on the market is obvious – eroding gross profits. In fact, based on a recent dealer survey, this is the #1 concern for General Managers and Dealer Principals in 2013. “

The bottom line is…not all used cars are commodities, and we need to stop treating them that way. Just like in any retail business there are high margin products and low margin products. The key in the used car business is having the tools and philosophical approach necessary to identify the difference between the two."

Interestingly, a recent CarMax Consumer Study found that only 23% of people rank price as the most important factor in their buying decision. 77% rank VALUE (typically tied to some aspect of quality) as their top criteria.

I remember on one occasion at a dealership I was working at the used car Manager was telling the rep from Auto Trader that he wasn’t happy with the results he was getting. The Rep responded by telling the manager that he needed to lower his prices if he wanted better results.

That preowned manager did not listen to the rep and bucked the trend of lowering prices to compete online. - And guess what- average grosses in his department were much higher than the industry average and his total unit sales were improving. Number one that is why you have a “good” sales staff and “good” finance people for and number two you can always come down in price but I never heard a customer say a price was too low.

You can only add value by competing within your market area all of which can be done with offers in  CPO, service i.e. loaner cars, shuttles; specials; events and by extracting the vast resources you already have to create campaigns and make in house adjustments that will capitalize on those campaigns.

By having the right people that can produce “creative campaigns” and the right staff you can turn the tide and sell the VALUE not the PRICE.

Write your post hereI cut my teeth selling at an early age selling door to door. From delivering newspapers to Fuller Brush to Cash is Best, for which Ted Turner was a fugitive from the US holding offshore on his yacht in international waters for purporting a pyramid scheme, to selling the original wind up fire and burglar alarms for the home.

After having had my foot caught in the door many times I eventually found my way into Automobile sales. I was so excited to have this opportunity because here were people coming to me looking to buy what I had to sell.

I felt like a kid is a candy store and never looked back. This business allowed me to experience owning my own businesses but I always came back to what I always loved.

When I think of all the advice available to train a good salesperson I think of why salespeople would not all be superstars. After years of being around commissioned sales and salespeople both in and out of the Automotive industry it is apparent to me that the art of selling (and it is an art) is a talent that few people ever master.

I have seen so many techniques that salespeople use to make a sale that works very well for them but would never work for me. As a matter of fact, Some I could not even fathom how they even made so many sales with their “Style” of selling but it worked for them.

What worked for them would never work for me or you.. You can only observe and take those observations and find a “Style” that works for you and make it your own.

This “Style” for the fortunate ones something that comes naturally making selling for them almost effortless. Sales must be looked at as a challenge- the more difficult the sales is to make, the more satisfaction you get from the experience.

That challenge is something that the truly gifted crave, need and look forward to each and every day in every aspect of their lives. It is like a game of chess that

Here are some stats that Most of us already know and most Dealer Principles and GMs may already know. But let’s give it another read because this is important to your business.

Not all buyers use the same criteria to choose a dealer or are influenced by the same dealer experience and sales processes.

According to the Foresight Research 2013 Dealership Report, Taken from UCN News, based on a study of 7,543 recent U.S. new car and truck buyers, experience with a brand drives most purchases.

While 17 different automotive marketing communication channels are analyzed in this study, none are more influential to the purchase decisions of new car and truck buyers than the dealership experience with the exception of prior brand experience. Forty-nine percent of all buyers this past year report that their dealership experience was highly influential to their decision to purchase the vehicle they did. 

The average new-vehicle buyer today is older (nearly half are over age 55). They are also wealthier and experienced with the buying process. Dealer reputation and relationships are key to this group.

Younger buyers (many of them first-time buyers) bring a narrower set of expectations into their buying process. These buyers want and need dealer assistance, but one out of four say their dealership experience took too long. 

Buyers aged 35-54 (representing 37 percent of current buyers) reflect a mixture of their younger and older counterparts. Like younger buyers, they are very concerned with getting a good price/deal, and financing options. Yet like older buyers, they have high expectations of their dealer experience.

So let’s think about this. This means that the people on the front lines and by this I mean the salespeople, including those in the BDC department, Service Writers, Parts and Body Shop Departments. Now why did I just refer to all these people as salespeople?

Because they all better be. These are the people that are selling you, your services and products and if they don’t know how to sell and how to treat people-your losing a great deal of business.

So why do a lot of you think that you can get these people on the cheap and expect great results. You pay a lot for your marketing and other vendors services and hopefully they are doing the right things.

But these employees I just mentioned are your most valuable asset and you are not going to get or have the right people on the cheap. I showed in one of my last posts a dealer who was paying top dollar and getting top results. These stats just gave me the opportunity to maybe shed more light on my mission to prove my point.

You can hire consultants to train, train and do more training and give people all the tools in the world to do a job but if you don’t have the right people your just wasting your money. And by the way what are your managers doing?

You need consultants who know how to get the right people in right the positions first Which means consultants who have proven themselves on the front lines and in the trenches who can find right people you need. And again, what are your managers doing?

If you need to hire consultants, (And again what are your managers doing), find one who is going to weed out all the non-performers and who is hired by and who is looking out for you the owner and not the management that may be the root of your problems.

A lot of good salespeople and managers have already left the Automotive Industry because the good ones can perform in any Commission Sales Industry and are going where they can be rewarded for their talent.

There are those who would like to commoditize the Industry and have store clerks waiting on people. But I can tell you that if this happens there will no longer be room for the Small and Medium Size Franchise Dealer.

By having the right people you don’t need to train them because they’re professionals and are driven to perform. So if you take all that money you pay to train and get no return from and put the right people (Including Management) on the front lines- you will not only save most of the money you spend on consultants but realize that the ones on the front lines are your real ROI.

DealerNet Services

Bad management runs rampant in organizations. For my discussion I will focus on Automotive Sales and Finance Management. I say this because this is epidemic in many Industries and I don’t want to appear to be singling out Automotive Dealerships.

All emotions stem from insecurity and must be controlled because it has no place in a work Setting. It is a disease that will eat away at and hold back any organization.

A bad manager will not hold on to good people and staff does not want to go to upper management for fear of retribution. This has devastating effects on performance of the department. Always be suspect when a manager says “What goes on here stays here” or “It’s my way or the highway”.

I cannot stress enough the need for companies to have a consultant come in once a year to audit the operations and make recommendations on improvements that could be made to improve profitability. Even if operationally things are functioning well, someone on the outside looking in can always see things that the entrenched management cannot that could mean a significant improvement.

There are many different factors that define a bad manager. One kind of manager is the one who is inconsistent saying one thing and doing another without explaining his actions and who is arrogant in believing they are always right and makes sure everyone knows it. This type of manager is often egocentric and makes every issue about them, doesn’t listen to advice offered but ignores it before even considering it. This inhibits the staff from even mentioning any ideas they may have and leaves them feeling helpless and feeling that nothing will ever be done to improve on a bad situation.

These managers are also often self-centered and do not support, encourage or look out for their team. The worst are mean and abusive and make people feel bad for no reason.

Then there are managers who micro-manage and Refuse to delegate anything, despite what they say. This isolates them so they often don’t involve others in decisions and rarely look for ways to support or encourage the work of their team. This is often is caused by incompetence the lack of basic communication, intellectual, or emotional skills needed to for their role.

Then you have the complacent manager who is content with the way things are and is not open to change. They like things the way they are because they have become lazy or are thinking about other things. I once had a GSM that spent more time outside the dealership hobnobbing with hockey players from the Boston Bruins who were spokesman for the dealership.

I have also be part of organizations where a manager spent valuable company time in generating options as solutions to problem but the problem was created by this same manager. Incompetent managers create more problems than they solve and then waste time to solve the same problems they created in the first place.

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The traditional business model of the Automotive Dealership works against itself practically at every turn and is just plain bad for business and it is time to think about change.

With all the advances in technology over the years from Marketing to DMS, CRM and diagnostics for repairs the changes have been exponential. But yet the business model which has been flaw from the beginning has been overlooked and ignored.

There are two main points that I will touch on for this discussion but there are many other areas of concern which are fodder for other discussions to come.

1. Every department in a Dealership is a business upon itself with a budget and income expectations. This in itself causes a great deal of friction within the Dealership and most notably between the Pre-owned Department, the Service Department, the New Car Department and the BDC Departments.

A. At most Small and Medium size Dealerships any properly managed Pre-owned Department is  the Service Department´s largest customer.  

B. The Pre-owned Department pays close to the same labor rates as the average customer who has their vehicle serviced at the Dealership.

This causes constant in-fighting over costs of repairs, turnaround times and repairs that are not necessary. Also, repairs that were needed that were not performed before they were passed on to reconditioning and end up on the lot in disrepair.

C. The New Car management is constantly putting higher than called for numbers into trades (a subject for another discussion) to hit the benchmarks set by the Manufacturer to get that back end money and hit their bonus. (And yes I understand why this is done)

D. Then it is the responsibility of the pre-owned manager to sell at a loss or a small profit or eventually take it to auction to sell at a loss. This is the cause of being mandated by the Manufacturer to move vehicles by the numbers which is where this contradiction surfaces. (Inventory control - subject for another discussion).

E. The BDC department in a lot of cases thinks of the sales Department as a bunch of narrow minded Neanderthals and in turn the sales department thinks of the BDC staff as a bunch of Computer geeks that should not be engaging the leads.

All of these points in a lot of cases may be true caused, not by the lack of training, but by the lack of structure and proper management. Bottom line all of these things affect income potential resulting in loss of substantial amounts of profit. (a subject for another discussion)

2. Managements commission structure at most Dealership is based on the monthly numbers which is a big mistake but a necessary one at least for the new car Department. This propagates the undesired effect of pushes at the end of the month by management to put even more into trades and often sell vehicles way below their value and often times at losses to hit those numbers. Additionally, often times deals are back dated for days into the following month in order to hit those benchmarks set by the Dealership for the payment of bonuses.

A. You can see where this can lead to management looking out more for themselves to hit their bonuses than for the Dealership they are working for. You can also see where here again is another potential loss of profit for the Dealership.

There is a better way to structure the business model easily without having to reinvent the wheel. Dealerships simply need to take the profit from all Departments and combine them and the entire management team at the Dealership is compensated with their respective percentage.

But Dealerships also need to base the amount of managements  bonuses on the combined CSI of all Departments which will hold all accountable. This will foster more cooperation and force management to pay more attention to customer service at all levels and customer follow up.

This just covers the basic structure of the business model. There are other areas within this overall model that can be done to improve efficiencies and foster more cooperation and accountability. (Which is another subject for discussion)

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