I had the privilege of attending my first National Independent Automobile Dealers Association (NIADA) convention [earlier this month] in Las Vegas.
Quite honestly, I wasn’t sure what to expect, but I was pleased to discover many similarities with my experiences at 47 National Automobile Dealers Association (NADA) conventions for franchise dealers.
First, many of the dealers I met are as astute and keen about their business as many franchise dealers. They understand the wholesale and retail marketplaces are changing fast, and they are wisely seeking new ideas, tools and ways to make their businesses more profitable and successful.
Second, like many franchise dealers, the independent dealers are deeply committed to their businesses. It’s their money on the line every day. They are hands-on, pragmatic operators, some of whom are likely to pick up a wrench or a chamois cloth to get a car ready for retail.
Third, I was struck by the family nature of the event itself. I met dealers, their wives and their children on the NIADA floor — a reminder that many, if not most, dealers of all types are, by their nature a family affair.
Finally, I was pleased to be a part of Cox Automotive’s impressive presence on the NIADA floor — a testimony to our commitment to serve independent dealers as we collectively transform the way the world buys and sells cars.
My hat’s off to NIADA’s Steve Jordan, CEO, and Joe Lescota, director of dealer development, for hosting an enlightening, productive and well-run event.
This year’s NIADA convention may have been my first, but it most definitely won’t be my last.
Editor's Note: Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column was published on his website,www.dalepollak.com, on June 18.
Most dealers would agree that you make your money in used vehicles when you acquire a car.
If you pay too much for an auction or trade-in vehicle, you’ve shrunk the spread between your costs to acquire and recondition the unit, and its retail selling point. Conversely, if you “steal” a car, you’ve widened the spread, and set the stage for a healthy front-end gross.
I’ve been thinking about this age-old axiom of our business as I hear and read about declining used-vehicle profitability.
This past spring, public dealer groups reported front-end gross profits on used vehicles declined $100 or more on a per-unit basis compared to the prior year. The drop runs consistent with the results I hear from private dealers. Even worse, the diminished profitability comes in spite of dealers buying and retailing more expensive used vehicles.
Astute dealers know the decline in used-vehicle profitability isn’t just a one-off occurrence. It’s been a persistent feature of used vehicles for the past several years, thanks to the rise of Internet-driven transparency and increased competition.
Given this backdrop, I thought it would be useful to revisit Ground Zero for used-vehicle profitability — the moment when you own an auction or trade-in vehicle. I asked several top-performing dealers to share how they make their money when they acquire a vehicle. They offered five pointers:
A clear view of the “right” cars.
The “right” cars are different for every dealer, given individual objectives for profit and inventory turns, and local market conditions. Dealers say it’s imperative to know, with exacting precision, the cars that are “right” for you, and to prioritize your auction and trade-in purchases around them.
“When we go to auction, we don’t buy 50 cars because we sold 50 cars,” says the general sales manager for a Southwest Toyota store. “That’s how we used to do it. Now, it’s always about the ‘right’ car. We’re sticklers for the right equipment, color, condition and mileage. We’ll sometimes pay more than we’d like for the ‘right’ car, but we’ll do it because it’s the ‘right’ car and know it’ll sell in our market.”
Exit strategy-minded acquisitions.
The sharpest dealers use technology and tools to know each vehicle’s opportunities and risks before they book a trade or buy at auction. They know their costs (the price of the car, reconditioning, a pack, transportation/other costs). They compare those costs to prevailing retail values to determine a vehicle’s front-end profit potential. They evaluate each vehicle’s market days supply to determine how long it will take to retail the unit.
A Southeast Chrysler dealer summarizes his exit-minded acquisition strategy this way: “Before I buy a vehicle, I know what I can make, and how long I have to retail it before it’s a break-even unit. From there, it’s a question of retailing the car quickly to maximize our gross and minimize a potential loss.”
Accountability.
Dealers say they’re holding appraisers, buyers and managers more accountable for buying vehicles “on the money.” For example, a Northeast Honda dealer expects appraisers and auction buyers to purchase vehicles at or near a respective cost to market ratio of 80 percent and 85 percent. “If they land above the benchmark, there’s always a conversation,” the dealer says. “The market’s too competitive and our margins are too thin to give up our profit potential unnecessarily.”
Wider reach.
For wholesale vehicles, dealers are tapping a larger, more diverse group of online and physical auctions than in the past. “Given the competition, you almost have to have eyes everywhere to get the cars at the prices you need,” says the used-vehicle director for a Midwest dealer group. More and more, dealers rely on technology and tools to minimize the time required to find and evaluate vehicles, enabling them to focus on buying the “right” ones on the money.
An opportunistic eye.
As students of the market, the dealers each noted that they keep their eyes open for opportunities to stock and retail vehicles they don’t typically sell. “I try to keep about 20 percent of my auction purchases for stuff I wouldn’t normally stock,” says the general sales manager at the Southwest Toyota store. “I won’t really know if a vehicle doesn’t work unless I try it.” To minimize the risk, he pursues vehicles with a relatively low market days supply (70 or less), and aims to purchase them at/near an 85 percent cost to market ratio.
In my next article, we’ll examine how dealers can preserve and protect used vehicle profitability after they’ve acquired the “right” cars on the money.
Editor's Note: Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column was published on his website,www.dalepollak.com, on June 14.
You won’t find newspaper ads, radio spots or TV commercials promoting Cardinale Automotive Group.
The 19-store group, headquartered on the Monterey Peninsula in California, ditched traditional advertising in 2010 as it began its transformation to become an all-digital retailer.
Since then, the group has made incredible progress. This year, Cardinale ranks second on the Ward’s e-Dealer 100 list, retailing a combined 14,182 new/used vehicles via the internet. In 2013, the group ranked seventh with a combined 5,431 new/used internet sales.
I caught up recently with Erich K. Gail, COO of the Cardinale Group of Companies, to better understand the how’s and why’s behind their automotive group’s impressive achievement. The conversation revealed an organization that left no stone unturned as it climbed from near-bankruptcy in 2009 to become one of our industry’s top digitally focused dealer groups.
“The bottom line is when we looked at ourselves financially back then, we should not have survived,” Gail says. “It is truly by the grace of God that we are here today.”
Cardinale’s rebirth included several strategic initiatives:
Brand promise: Cardinale companies center on a singular commitment, known as the CardinaleWay: “We Develop Outstanding Relationships Where Everybody Wins.” This brand promise “guides every single decision we make, in everything we do, every single day,” Gail says. The organization-wide commitment to the CardinaleWay translates to daily expectations for leaders, managers and associates to coach, mentor and train to provide consistently positive experiences for their guests, communities, manufacturer partners as well as each other.
Management- vs. market-driven culture. “Throughout the entirety of this organization, which was founded in 1979, up and through 2009, we were market-driven,” Gail says. “If the market was up, we needed more people. We needed more stuff. We needed more locations. Life is great, the market is up and we need to grow.”
“Yet management-driven is the complete opposite,” he continues. “It says, ‘We don’t care what the market is doing, and whether it’s up or down.’ We will determine our goals and objectives. We define our growth and performance goals every month, every quarter and every year based upon specific objectives. If you are disciplined enough to do it, you will remove the condition of market subjectivity. You will not chase market share at a future cost or erosion of disciplines. You will not bloat your operation to an unsustainable level if the market turns. And you will manage around your worst month.”
Non-negotiables: Cardinale Automotive Group has established a minimum water-line of 20 percent net to gross profit ratio across all rooftops. To achieve this goal, Gail and other leaders established what they term as “non-negotiables” for performance in five key areas: CRM (the “center-nucleus of retail operations,” as Gail calls it); inventory management (with specific Cost to Market, inventory turn and merchandising disciplines); phone skill mastery (with real-time monitoring by managers); daily training (including three daily, one-on-one meetings between in-store managers and department associates), and a strict commitment to ZERO MOMENT Retail (where the emphasis is targeting in-Market vehicle buyers as opposed to just shoppers).
I asked Gail to dive in a little deeper on their commitment to the ZERO MOMENT Retail philosophy. It’s born, he says, from science that details specific shopper behaviors that signal shifts from initial stimulus, consideration and product research to an ‘I want it now’ buyer mindset.
“Our truth, from both an operational and investment standpoint, is that we target in-Market buyers who are 12 days or less from purchasing a vehicle. We’re not on the ‘hope-plan’ that chases someone who is 30 days, 60 days or 90 days out. They’re not at their ZERO MOMENT,” Gail says. “The ZERO MOMENT, or in-Market buyers, have done their research. They know what they want, and why they want it. As a direct result, they select their dealer of choice with every emotional trigger and intention to make a purchase provided they receive an Xperiential retail moment.”
Extending the reach of this ZERO MOMENT Retail science, the Cardinale Group developed a dealer to dealer investment management and retail performance company, ZMOT Auto. The company, which serves dealers in the United States, Canada and Mexico with regional exclusivity, combines business intelligence and Cardinale retail process disciplines to integrate a dealer’s digital retail strategy to target, identify and serve in-Market buyers.
“With proper integration, all of our digital retail environments communicate together,” Gail says. “We can see that someone is looking at a specific pre-owned Accord at one of our dealerships. Further, we can see specific behavior within our digital footprint, such as reading our reviews. We can see they watched 46 seconds of a video in either English or Spanish and, four hours later, watched the entire video and forwarded it to someone. Based upon these and many other actions undertaken by in-Market buyers, should they not have engaged our stores or brands in what we consider an attributable direct-action (telephone call, chat, sms text or form-fill), we initiate a dealer-branded call to action to drive the needed direct-action engagement.”
Gail says this inMarket-buyer-focused digital retail strategy and process yields several positives for their automotive group. The average duration from initial contact-to-sold is 9.7 days, compared to a 50.3 day average for the industry. Additionally, the average direct-investment for advertising or marketing per unit sold runs less than $200 for Cardinale, compared to $600-plus for other dealers, according to National Automobile Dealers Association data.
“The Xperiential shift in our culture is that we don’t just sell cars, we help people buy cars,” Gail says. “We know exactly what our in-Market buyers want, and we serve them to fulfill their specific intentions. It’s just a shift in focus. But that’s the world we now live in. If we’re serving you as a guest in our home as opposed to just ‘one-and-done’ selling, we need to be gracious, convincing and ensure our entire culture and the experience you receive is persuasive about why our family-team represents great value for you.”
This precision-focused approach also advances Gail’s responsibility to efficiently and wisely manage not only the Cardinale investments, but those of the external dealers served through ZMOT Auto. “As dealers, we have finite resources, and we are 100 percent responsible for determining how to invest these resources every month to produce the best return,” he says. “We have chosen to invest all of our resources into what we know we can measure with attribution, as opposed to the old adage that says, ‘I know half my marketing is working I just can’t tell you which half.’”
In our conversation, Gail referred to Cardinale as a “laser-focused digital retailer.” The term seems fitting, both as a description for the way they operate and as an explanation for their rapid rise as a formidable e-focused dealer group.
Editor's Note: Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column was published on his website,www.dalepollak.com, on June 3.
It’s sometimes startling to see the disparity in the ways dealers manage their new- and used-vehicle inventories.
As a dealer recently put it, “I have $1.4 million in used-vehicle inventory, and we pay attention to it every day. We track VDPs (vehicle detail pages), our price position and our merchandising. But I have $13 million in new-vehicle inventory that I don’t look at much at all.”
The dealer’s approach to new-vehicle inventory management is fairly common — particularly in times when sales are strong. Traditionally, dealers don’t believe that new vehicles depreciate, and factory floor plan assistance can help ease the cost of carrying older-age units.
But here’s the question: How much better off would dealers be doing, in terms of new car sales and profitability, if they took a more proactive approach to managing their new-vehicle inventories to sell more vehicles in less time?
To answer the question, let’s consider the following new car inventory data points:
- According to the National Automobile Dealers Association (NADA), the average dealer sells 87.5 new vehicles a month. AutoData reports the average days supply of dealers’ new-car inventories runs near 70 days, which translates to roughly 200 units on the ground.
- Industry data also shows that nearly half (48 percent, or 96 units) of the average dealer’s new vehicle inventory is older than 90 days.
- NADA also reports the average dealer earned $143 in floor plan assistance per retail unit last year, or about $151,000.
To me, the most troubling data point above is the number of aged units. It suggests that dealers do a decent job retailing vehicles their customers want, and a less-than-acceptable job with less-desirable cars. Further, the aged units also underscore the cost of new-vehicle inventory inattention — fewer sales, less gross profit, and less benefit from factory floor plan assistance and other below-the-line programs.
Dealers should tackle the aged new cars head-on, aiming to reduce the percentage of aged units by 10 percent, if not more. For many dealers, this operational goal will require more astute, buyer- and market-minded management of their new vehicle inventories and pricing.
Here are three best practices to help you get there:
- Know each vehicle’s market “sweet spot.” A growing number of dealers are using technology and tools to fully understand how many in-/off-brand vehicles compete with their new cars, the prevailing asking prices in the market and buyer interest in their vehicles. Dealers who proactively apply these competitive insights to their new vehicle inventory and pricing decisions often find opportunities to ask for more gross, and to know the specific units they should price aggressively to increase turns and optimize their inventory mix.
- Price with greater transparency. Today’s buyers prefer to see new vehicles listed online with transaction-like prices that include all relevant incentives. They view listings with “call for price” or “Get Your Internet” price as signs of the traditional car-buying shell game. By contrast, dealers who adopt transparency-focused pricing strategies typically benefit from increased buyer interest, more showroom traffic and more profitable sales.
- Avoid the “lazy” mistakes. Dealers who adopt more proactive, market-focused new vehicle inventory management practices quickly identify two trouble spots. First, they discover that they often trade some of their best cars to other dealers. Second, they find a pattern of selling their freshest vehicles first, even though they’ve had the same car in stock for weeks or months. “I didn’t realize we had a problem,” says a Midwest Ford dealer. “We were simply trading or selling the cars closest to the showroom. These were stupid, lazy mistakes that cost me money every month.”
I would encourage dealers to adopt and follow these best practices as soon as possible. The outlook for new vehicles is decidedly less rosy than it was a year ago. Analysts are calling for sales to plateau, if not drop off.
When this market shift occurs, the true costs of a dealer’s inattention to new vehicle inventory management will become painfully evident — which is all the more reason to start paying attention today.
Editor's Note: Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column was published on his website,www.dalepollak.com, on May 18.
I had the privilege of hearing Roger Penske, head of Penske Automotive Group, share his perspective on the car business today during a Q&A session with Cox Automotive president Sandy Schwartz.
The session is part of a Cox leadership team meeting this week in Fort Lauderdale, where we’re gathered to sharpen our knowledge and understanding of the challenges and opportunities facing dealers.
Now, in the interest of full disclosure, I should note that I hold a great deal of admiration and respect for Penske and his organization.
I’ve visited thousands of dealerships across the country over the years and, simply put, you can always tell when you’re in a Penske store. The facilities are consistently pristine, and every team member contributes to an unmistakable air of process, productivity and purpose in the dealerships.
Based on these experiences, I’ve never been surprised as the Penske organization continues to build on its long track record of success and reputation as a top-performing dealer group.
In the Q&A session, Penske covered a lot of ground, but there were four key take-aways that struck me as instructive and relevant for every dealer:
- The power of people. It’s clear to me that Penske and his organization put their people first. They place a high priority on recruiting, hiring and training people who fit well in their organization. They expect accountability, and they reward good performance with the additional opportunities and responsibilities good employees expect. As Penske shared his perspective, I couldn’t help but think that behind every great team, there’s a leader who views employees as assets, and champions the cause of proper human capital management.
- Facility cost friction. Penske shared how his group has invested more than $2 billion in facility renovations and upgrades in the past few years. Penske wasn’t complaining; he astutely views the investments as part of a franchise dealer’s responsibility to maintain mutually beneficial relationships with factory partners. But Penske also noted the car business’ ever-accelerating shift toward digitally driven retailing. He openly wondered whether a dealer might be equally, if not more, successful in the future with just an “internet connection and a warehouse.” Ultimately, Penske’s observation points to what I’d call a growing gap between factory expectations for physical facilities, and the front-line realities dealers face with e-minded customers.
- A customer trifecta. I liked how Penske framed today’s new/used vehicle buyers. You’ve got older customers, who buy at expected intervals and call “Charlie” when it’s time to make a vehicle purchase. There’s a second “hybrid”-like customer, who goes online and comes to the dealership armed with as much, if not more, information than sales associates. Millennials make up the third group, and their expectations require dealers to develop a meaningful and relevant presence in social media. Penske captured the key challenge and opportunity for dealers—how to serve each of these customer groups effectively, efficiently and equally well.
- A “buffer” in tougher times. Penske touched on the cyclical nature of retail sales, noting that dealers will inevitably face tougher times ahead. His plan: Continue to build on the 42 percent of dealership gross profits that come from his service and parts departments. This emphasis on fixed operations performance and profitability creates a “buffer” that helps dealers weather more turbulent times in new and used vehicle sales. Penske’s correct, of course, and his point got me thinking: I wonder how many dealers will someday wish that they’d done a better job building their own “buffer” today, when times were good?
As Penske finished the session, I felt grateful for the opportunity to learn from one of the best in our business.
Editor's Note: Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column was published on his website, www.dalepollak.com, on April 27.
If you ask dealers for their top complaint about the used car business, many will say it’s difficult, if not impossible, to acquire wholesale vehicles “on the money.”
Dig a little deeper, and the root of the complaint becomes clear — dealers believe they can’t make the gross profit they would like to see in their used vehicle department, particularly on units they acquire from auction.
Part of the complaint owes to market conditions. Front-end grosses on most used vehicles simply aren’t what they used to be, thanks to increased price transparency. National Automobile Dealers Association data shows that the front-end gross profit as a percentage of the sales price of used vehicles has declined 20 percent over the last several years and, judging from recent industry reports, the downward trend continues.
But I would submit that the real reason dealers find auction cars profit-problematic owes to the ways they identify, purchase and manage these vehicles as part of their broader inventory management strategy.
Let’s take a closer look at each:
—Identify: It used to be OK to just go to the auction and buy some cars. Not anymore. The market’s too competitive, transparent and volatile for such gut-driven guesswork. The best dealers today know exactly what they plan to buy before they spend any time in the lanes or online. They are extremely precise, as well, placing the highest priority on cars that meet the color-, condition-, equipment-, mileage- and profit-parameters that fit their market. Most use technology and tools to achieve this level of precision, purpose and specificity with their auction buy lists. It shouldn’t be too surprising that dealers who operate in a less sophisticated manner often have the most difficulty finding the right cars.
—Purchase: Today’s best dealers approach the purchase of an auction unit the same way. It’s a dispassionate, stone-cold analysis. They assess whether they can buy the car they need on the money, with precise knowledge of the profit to expect, given how much they’ll pay for the car and put into it. They use technology and tools to estimate all the cost inputs—acquisition price, packs, post-sale inspections, transportation, and other fees, and determine their potential gross before the bidding starts. Likewise, these dealers are disciplined. They rarely purchase outside their pre-set parameters and, when they do, they have a very good reason.
—Manage: Top-performing dealers know that, in today’s market, auction cars represent their most costly and risky used vehicle investments. This understanding drives the care and precision they apply to consistently knowing the right cars and buying them on the money. But this understanding carries further—to each day and every stage the dealer owns this more costly and risky investment. Auction cars get more attention and scrutiny in reconditioning, in online merchandising and in the ongoing reviews of asking prices compared to trade-in vehicles.
This level of extra-scrupulous management oversight is necessary to maximize profit and minimize risk. As one dealer put it, “I don’t like to have any over-age vehicles in my inventory, but I absolutely hate it when we let auction vehicles age. More often than not, we end up with a loss we could have avoided.”
Dealers who strive to heed these three best practices will typically find improvements in their front-end gross profits. Such gains stand to reason: They’ve got the right cars, they bought them correctly and they’ve done everything they can to maximize each unit’s return on investment.
These dealers may still believe that front-end gross profits aren’t what they should be for auction-sourced inventory.
But this belief is more of a commentary on current market conditions, and the all-points effort that’s now required to optimize used vehicle performance and profitability. These dealers understand there’s money to be made with auction vehicles if you have the fortitude and know-how to make it.
Dale Pollak is the founder of vAuto. This column can be found at www.dalepollak.com.
The blessing is that auction cars are always available — offering a way for dealers to acquire inventory they need that they can’t get through trade-ins. For most dealers, auction cars make up 30 percent or more of their used-vehicle inventory.
But auction cars also carry a curse. In general, auction cars cost more to acquire than trade-ins. Their profit potential is leaner from Day 1. In addition, auction cars often have a higher market days supply metric than trade-ins, given the frequency of off-fleet/program cars in the lanes.
With less inherent market appeal and profit potential, auction cars are, by their nature, more challenging as retail units for dealers than trade-ins. This reality explains why auction-purchased vehicles are often chief contributors to inventory aging problems.
But I’ve come to understand that auction cars themselves aren’t the problem. The problem is the way many dealers acquire auction cars. Simply put, they aren’t as efficient, precise and sophisticated as they should be to pinpoint the vehicles they need and bring them home on the money, time and time again.
The following are four operational imperatives I recommend to help dealers do a better job sourcing auction cars:
1. Know exactly what to buy. Many dealers and their buyers believe they know the exact cars that will best advance their used-vehicle objectives. Some take pride in being “in the know,” and not doing any homework before they arrive at an auction. Yet, the cars they purchase end up being aged units, month after month. What gives? The problem is the variety and number of available auction cars, and today’s ever-changing retail market.
It’s impossible, without the help of technology and tools, to know how a specific vehicle’s color, equipment, mileage, ownership history and trim level will play against competing cars. Dealers who reinvent their acquisition strategies use this car-specific precision to build auction shopping lists that include alternative choices if they can’t get the cars they want the most.
2. Know where to buy. With increased competition to acquire auction cars, many dealers recognize they need to expand their sourcing efforts beyond the local auction. The challenge then becomes how to easily and efficiently determine the auctions where the cars that best fit your retailing objectives are available.
The most proficient dealers and buyers rely on technology to tell them where the cars they want reside. They also use technology to facilitate the transfer of the purchased units back to the dealership. The end result: They are more efficient and productive buyers every time they go to an auction to supplement their inventories.
3. Buy at the right price. Dealers who reinvent their auction sourcing efforts eliminate the guesswork that once guided their bidding on auction cars. Today, they know the maximum they can afford to pay on every vehicle. How? They use technology and tools to calculate each unit’s profit potential (accounting for the costs of acquisition, transportation, reconditioning, a pack, etc.) before they make a first bid. Of course, it takes discipline to stick to these parameters in the lanes, particularly if you’re frustrated by losing cars you really wanted. But the bidding precision, and accompanying discipline, are critical to ensure you make your margin when you acquire an auction car.
4. Do it all faster. With technology, dealers and used vehicle managers can prepare for auctions in minutes, not hours. They eliminate trips to auctions where the cars they need weren’t there in the first place. They waste no time bidding on the wrong cars. In an effort to gain even more efficiency and speed as they acquire auction cars, some dealers now rely solely on online sources, a time-saving shift that improves showroom efficiency; managers are in the dealership, working deals and managing their teams.
The good news for all dealers is that the effort needed to achieve these operational imperatives won’t be as daunting as it may seem. In fact, I’m excited that there now is a technology solution that, almost with the flip of a switch, will help dealers achieve a higher level of auction sourcing efficiency and proficiency than previously possible.
As I look ahead, the used-vehicle market won’t get any easier, and auction cars will continue to play a critical role in helping dealers achieve their sales and profit objectives. It stands to reason that dealers who reinvent the way they source auction vehicles will gain advantage over those who prefer the inefficiencies of the status quo.
Dale Pollak is the founder of vAuto. This column can be found at www.dalepollak.com.
It’s been a little more than a month since American Honda Motor Company told its Acura/Honda dealers to stop selling used vehicles affected by the airbag-related recall.
In that time, Honda has informed dealers how it plans to make up for the disruption the “stop-sale” will create in their used-vehicle businesses.
As I’ve talked to Acura and Honda dealers, I’ve been struck by three things.
First, while the dealers may not be happy about the unprecedented nature of the stop-sale order and the as-yet unknown financial risks it will create, they aren’t uniformly railing against their factory partner.
“You can’t be a fair weather dealer,” a Northeast Acura/Honda dealer says. “You’ve got to be in for a penny and a pound with the manufacturer. Sometimes these things are going to happen. We all wish it wouldn’t happen. But if a Honda dealer doesn’t like it, they could always sell their franchise.”
Second, it seems to me that Honda has done a fairly decent job thinking through how to make things right with their dealers. The stop-sale affects an estimated 10 percent to 15 percent of used-vehicle inventory for Honda dealers, and up to 40 percent of inventory for Acura dealers.
Honda has articulated plans to provide financial assistance. The plan appears to account for the costs of dealers’ capital tied up in used vehicles they can’t sell, as well as the costs of depreciation, potential “lot rot” and storage for the vehicles until replacement parts become available.
As one Honda dealer says, “It’s better than nothing, but there’s really no way to know if it will go far enough.”
In particular, some dealers are really and rightly worried about how Honda plans to account for the depreciation of vehicles that might sit for six, nine or even 12 months. The current plans calls for capturing a vehicle’s Black Book wholesale value on the day it gets parked, and its wholesale value 60 days after the vehicle gets fixed and goes back on the market.
This approach sounds good on paper, but I share the concern of some dealers that it won’t be enough. Think about it: If replacement parts and repairs occur at roughly the same time, Honda dealers will see a six-, nine- or even 12-month supply of used vehicles entering the market at exactly the same time.
The spike, which a West Coast Honda dealer likened to a rogue wave, will likely cause wholesale values (and retail prices) to drop like a stone in the water, with a corresponding upward spiral of market days supply.
I share the belief of some Honda dealers that it could reasonably take four to five months for the market to normalize after these vehicles return as retail units — a reality that Honda’s current plans to account for depreciation don’t seem to sufficiently capture. It may serve the interests of Honda and its dealers to devise some type of retail-focused incentive that would further iron out the market volatility and financial risk for dealers.
My third takeaway is that every franchised dealer has a stake in the current Honda predicament.
To me, the Honda stop-sale order is really a sign of things to come. We operate in an era of ever-more complex and technology-filled vehicles, where recalls seem to only grow in number and scope, and the National Highway Transportation Safety Administration wants everyone to do a better job on behalf of vehicle owners.
It’s not inconceivable that some other factory, and their dealer partners, will find themselves in Honda’s shoes. When that happens, they’ll look at past precedent to determine how to proceed.
I sincerely hope that they take a cue from Honda’s example, and craft an earnest, if not perfect, plan to help their dealer partners avoid undue harm.
Dale Pollak is the founder of vAuto. This column can be found at www.dalepollak.com.
Almost every auto dealer that I consult for or speak with admits that they would like to capitalize on the motorist demand for detailing services to make their in-house detail department a profit-center.
At the same time, they also admit that they have a very difficult time getting their in-house work done, let alone adding more retail work. Sound familiar? There may be a solution.
Express maintenance detailing services
The answer lies in the title of this subhead. What are they, and how do they differ from what you know as detailing?
To understand express detailing services requires that you understand what has happened to the detail service that, for years, has been the exclusive domain of the automobile industry and auto dealers, more specifically.
Since the early 1980s auto detailing has been moving steadily from a “back-alley” wholesale service, done by or for the auto dealer, to an in-demand retail automotive service.
This move was sparked by a number of factors:
- Rising cost of automobiles
- Extended length of financing contracts
- Increasing length of vehicle ownership
In short, people are paying more for their automobiles, owning them longer and recognizing the need to take better care of them to maintain their value.
Unrelated to, but definitely affecting this rise in the popularity of auto detailing, is the consumer’s obsession with protecting leisure time.
Husbands and wives are both working and have less time for leisure; they have the disposable income to protect leisure time and have found that cosmetic car care (car washing and auto detailing) is not something they want to do on a weekend anymore. Especially if there is someone who can do it better and faster than they can.
Restoration and maintenance detailing
As mentioned, detailing traditionally was done by or for auto dealers to get used cars ready for resale. As such, it was a complete and thorough job that included engine-clean; wheels; trunk clean and shampoo; carpet and upholstery shampoo; and paint polish and wax. These services are better called “restoration” detailing services.
These services are typically performed on older vehicles or vehicles that have not been taken care of cosmetically. In most cases, both the interior and exterior, including engine and trunk, are in need of extensive restoration to get that “new-car” look again.
Restoration services require a commitment to space (usually two or three bays minimum), advanced equipment, an array of cleaning chemicals and relatively skilled personnel.
But today, there is also another side to detailing. It is called express “maintenance” detailing services. These are just what the words connote, detailing services that are done to maintain the vehicle, which can be completed quickly.
To clarify, late-model vehicles or vehicles that have been taken care of do not need what we describe as restoration detailing. They do, however, need to be maintained cosmetically. This would include regular washing, but also a periodic paint sealant or wax on the paint finish and periodic cleaning and shampooing of the floor mats and carpets. These are professional services, performed by knowledgeable personnel, but they are different than restoration in that you are only maintaining those vehicles in good condition.
These services can be performed in less than 30 minutes by one person, or less, if done by two people. They are easy, can be done almost anywhere you have electricity and can be reasonably priced.
Best of all they can be added to the repair order and completed when the customer picks up the car, or even while they wait.
Why will it work for a dealership service department?
First and foremost, it is an in-demand service. In fact, cosmetic appearance is actually more important to them than mechanical, because they can see the benefit. So, if you offer express detailing services, the motorist will purchase them if you market, promote and sell correctly.
Second, you have an established customer base that respects and trusts you. And, because they want convenience, if you offered the services, it would be convenient for them to purchase.
Third, it is an impulse purchase if it will not take any more time to do this service, at best 30 minutes.
Fourth, like the car wash operator, the dealer has numbers. Many dealers write 50 to 100 repair orders per day. Just think what that would mean in added revenues if you sold only 10 percent of these cars an express service at an average price of $40. That is over $200 per day or almost $5,000 per month. And that is a conservative number. Car washes have proven you can sell as much as 20 percent to 25 percent of your customers.
What does it take?
As discussed, these are maintenance services that would include, at most, an express wax and/or an express carpet shampoo. Remember these are offered to vehicles in good condition that only need a maintenance wax protection or a light carpet shampoo, similar to what you have done on your own dealership carpets to keep them clean.
The services can be performed by one person in about 30 minutes, and with two people, less than 20 minutes. The going rate is $39.95 for either the wax or carpet shampoo with a car wash. That is, if you have an automatic car wash. If you have to hand wash the car you should charge $49.95 for either service. Should the customer opt to purchase both you give them a $10 discount on the second service.
Personnel: Remember these are maintenance services and don’t require a lot of equipment or skilled labor. You could probably teach a porter or lot worker to do these services in a few hours. Or, they could be offered through the detail department where they would be viewed as not much more than a “new-car make ready”.
Equipment: At the most you would need an extractor for the carpets and an orbital waxer to apply the wax. There are self-contained portable express detailing units used by car washes that contain everything needed to perform these services.
Chemicals: All you need is an extractor shampoo; carpet and upholstery shampoo; wax, or one-step product.
Supplies: Towels, brushes and applicator pads are about all you need in the way of supplies.
Selling express services
This is a “no brainer.” All the service adviser has to do after writing the repair order is offer the services to the customer, being sure that the vehicle paint is not severely oxidized or scratched and the carpets are not too dirty and stained.
If you are interested in learning more about express detailing services and how you can incorporate them into your dealership fell free to contact me at (800) 284-0123 or email me at: buda@detailplus.com.
Maybe it’s the sub-zero temperatures or forecasts of heavy snow across the country. Or maybe dealers are getting smarter.
Either way, there’s a bit of cold, hard reality in the air.
More analysts and dealers are recognizing that while 2016 should be a decent year, it won’t be as good as 2015 or the previous couple years. There’s growing doubt that we’ll see another consecutive year when new-vehicle sales volumes climb by 1 million or more units.
It’s curious that, in the span of a few weeks, the outlook has shifted from rosy to reserved.
The key question for dealers, of course, is how to sustain the prior year’s performance and profitability in new vehicles at a time when sales volumes plateau and market forces continue to compress dealer margins.
The answer lies in achieving greater efficiencies in your new-vehicle operations and providing greater ease to the customers you sell and serve.
Here are three areas where current inefficiencies offer opportunity for dealers to profitably power through a new-vehicle sales plateau:
Increased transparency
The big losers in a less robust new-vehicle market will be dealers who continue to resist the more market- and transaction-transparent pricing new-vehicle buyers want to see.
Industry stats show that dealers who adopt a new-vehicle pricing strategy that accounts for the competition, available incentives and their own discounts see more engagement with potential buyers (e.g., vehicle details page (VDP) views, completed forms, e-mail leads) than those who don’t.
The prospective buyer’s desire for increased transparency also extends to the online marketing and merchandising of the vehicle. It’s all too common to see new vehicles posted online with stock photos, ho-hum descriptions and poorly thought placements on classified sites and landing pages.
Dealers would do well to put themselves in the buyer’s shoes: Would you be more likely to lock in or look past a new-car listing that raises more questions than it answers?
Online deal-making
Today, most dealers have some type of interactive tool on their websites that’s meant to help customers put themselves in a new vehicle. Instant messaging. Payment calculators. Trade-in evaluation tools.
But here’s the puzzler: Why is it that only 30 percent of prospective new-vehicle buyers actually use these tools? The answer can’t be that buyers don’t want the information. We know they do.
To some degree or another, they always have.
The problem is that dealers typically don’t use these tools to truly give buyers the information they want. Instead, the tools serve the dealer’s appointment-setting and lead-generation efforts. They exist to capture customer information and drive showroom visits rather than address questions and provide credible answers.
The important take-away is that dealers should recognize the efficiency (and online technology investment) gains they’d achieve by using tools to facilitate at least part of a transaction online.
Large public dealer groups, and many progressive dealers, have made online deal-making a strategic priority in the coming year for two reasons.
First, it builds credibility and trust with buyers. They understand when dealers are trying to make the job of purchasing a vehicle easier on their behalf.
Second, it increases the efficiency of their sales operations. If buyers can work out key terms of a deal online, sales associates can spend less time working deals with managers and more time satisfying the customer’s desire to get to know and test drive the vehicle, and take delivery.
Showroom reinvention
Dealers who address the first two inefficiencies are best poised to take full advantage of the third opportunity —making the customer’s time in the showroom more easy and efficient.
It seems as if dealers have a hard time believing, or even understanding, that a customer really is largely “sold” on a vehicle by the time they arrive at the showroom, thanks to all their effort and research online.
In most showrooms, the sales process hasn’t changed much in at least 20 years. Today’s buyers really don’t like the typical cat-and-mouse deal-making. They have a number in mind, if not in hand, for the vehicle’s purchase price and, if applicable, their monthly payment.
When dealers come to terms with this reality, they find that it’s both possible and prudent to complete transactions in 60 to 90 minutes or less.
In turn, customers are more satisfied and receptive to options that allow them to personalize their new vehicle or protect its long-term value.
Dealers who have already addressed these inefficiencies aren’t worried too much that new-vehicle sales volumes will plateau in the coming year.
In fact, they welcome it as an opportunity to distance themselves from the closest competitor as they both race to meet the needs of today’s customers.
Dale Pollak is the founder of vAuto. These entries and Pollak’s entire blog can be found at www.dalepollak.com.
