|It’s a new year, and with each dawning year, dealers tie turning the calendar to planning and forecasting. Where do we go from here? Where shall we spend time, energy and money in 2006 to insure a profitable year? Those are some of the questions many dealers are asking as they head into 2006. They are complicated questions due to the complexities of the various profit centers in the dealership as well as the influences of the new vehicle market.|
While the average domestic franchise dealer continues losing money in their new vehicle department, they will continue looking under any rock to find profit opportunities for their other profit centers. Their goal will be “Repair and sell anything for a profit.”
Used Vehicle Department
“Most domestic franchise dealers can’t take their factory allocations now,” said Wayne Phillips, a NADA 20 group consultant. “But they want more used vehicles.” Used vehicle sales will most likely be the area that gets the most attention in 2006. Recently, a dealer asked Phillips if he knew the difference in a new 2005 Suburban, a new 2006 Suburban, and a used 2005 Suburban with 3000 miles on it. The answer was $20,000. That difference is where dealers have profit potential that they will never have in new vehicle sales. Dealers will have to have a strong used vehicle department in 2006 to capture a sustainable amount of gross profit.
Technology will likely play a bigger role in the used vehicle department in the coming year. Steve Donaghy, vice president, sales and marketing for American Auto Exchange, a subsidiary of JM Family Enterprises, Inc. comments, “Without a doubt, technology continues to propel savvy dealers into areas where they haven’t been accustomed to going. The pre-owned area of the dealership is in the midst of a revolution not unlike what the fixed operations area underwent many years ago; complexity and technology are the reasons. The used car department may just be the last frontier of the dealership to benefit from technology.” The ability to shop for necessary used vehicle inventory online through the various auctions has never been easier, and more dealers will utilize this service to reduce cost further.
Finance and Special Finance Departments
According to Phillips, 42 percent of customers who have a vehicle financed are in a negative equity position and up to 70 percent of all customers have a credit blemish. That combination is the treasure chest of opportunity for dealership Special Finance & Finance offices. What dealer wants to exclude 70 percent of the population from purchasing with them? The answer is none. “Special Finance departments that are staffed and properly trained will continue to be strong sources of revenue for dealers in 2006,” said Special Finance Trainer, Greg Goebel. Conventional finance departments will add additional revenue with products which are ethically sold. Dealers will continue training finance personnel in an effort to increase profits while reducing legal liabilities.
The fastest growing department in the dealership is the Internet department, which can directly influence the new vehicle, used vehicle, special finance and finance departments depending on how the department is structured. "For 2006, dealers can expect consumers to continue to drive changes in the market as they did in 2005. The single most important enhancement dealers can make for 2006 is to continually adjust to consumer demand. Consumers are not only changing the way they purchase vehicles but they are also doing it more frequently, which dealers will need to take into account. Right now, the Internet is enabling consumers to find cars, dealers and marketplaces more efficiently but finding them is just the beginning of the car buying process – communication, feedback and ease of transactions allow the consumer to feel much more at ease with the online process. And that is where consumers will continue to head in 2006 as they become more and more comfortable with the Internet," states Rob Chesney, senior director of vehicles for eBay Motors. Progressive dealers will spend more resources in maximizing the online sales process to increase their market reach and profits.
“Dealers who continue to provide customers with the highest level of service will do fine in service operations in the coming year,” said Don Reed, CEO of AutoMax Service Solutions. “Warranty revenues will continue to decline and dealers must continue to be aggressive in pursuing maintenance business for the long term.” To drive business back to the dealership from the quick-lube and other independent repair facilities dealers must offer more. More may be convenience, pricing or just a better experience - regardless the dealership has to isolate what drives their customers to their competitors for service after the sale and meet those demands to reach the next level in 2006.
“Expense control will finally get a long hard look that it hasn’t seen in many years,” said Phillips. As profits erode dealers have to adjust to what they can sustain in an on-going basis, not just what they can justify during the good months. Phillips added, “Personnel productivity in each department will have to be measured based on the bottom line,” How much gross profit does each salesperson contribute? Each finance manager? Each technician? Each service advisor? Every position in the dealership will have to be evaluated.
A tough exercise suggested by Phillips is for the dealer to ask every manager for the name of one person that their department could live without. Every manager has to have an answer. If the dealer determines later that a cut in personnel is justified based on the personnel productivity of each department, the dealer is then able to make a sound decision.
Advertising and Marketing
“While many dealers realize the fundamental efficiencies of advertising their vehicles and specials online, there are still many who invest heavily in traditional mass reach media. In 2006, we’ll see more dealers follow their consumer audiences online by using third party sites, creating their own Web sites and generally putting more time, attention and dollars towards online advertising,” stated Chip Perry, president and CEO of AutoTrader.com. Dealers, who do not do an exceptional job of tracking their prospects from a lead source, will find themselves with a much lighter checkbook at the end of the year due to excessive advertising cost. Every dealer will have to determine, through proper tracking, exactly what drives customers to their dealership and invest in that. The proliferation of internet usage during pre-dealership shopping mandates that dealers invest marketing and advertising dollars there. “The proven high conversion rate of dealer Web site inquiries, combined with the relatively low cost will sway even the most skeptical dealers to invest in search engine marketing,” says Todd Swickard, CEO of Auto Dealer Traffic.
With dealers directly competing for search engine placement will the third party lead providers be affected? Not according to Dean Evans, vice president of marketing, Dealix Corporation. “There will always be a segment of the buying public that will prefer to do their research on non-dealership car buying sites, which means the third party lead provider market will remain strong for many years,” states Evans.
Another area of significant focus in the coming year will be the dealer’s customer database, more clearly defined as precise, targeted marketing to previous customers. “Even after the incredible success of Employee Pricing and the like, the factories are struggling, dealers are struggling and all of the subordinate businesses, banks, suppliers and vendors are starting to feel the pain,” said Craig Colendar, national sales director for ProResponse. “Advances in technology have enabled dealers to change and improve. Dealerships that realize that their ultimate success or failure lies within their own customer base and their ability to communicate with it will be the winners.” Phillips agrees with Colendar that there is huge untapped potential for dealers in this area. “Only a small percentage of dealers are doing a great job of working their customer database through a consistent CRM process.” Every dealer knows that the list is the most important piece of any direct mail campaign, and there is no better list than the one you already have of customers who have previously purchased from you.
After the basic personnel cost and advertising expenses, dealers will need to take it one step further and zero in on all expense accounts. To keep it from becoming an overwhelming task, Phillips suggests that dealers focus on three or four expense accounts at a time. Choose a few expense accounts and ask your office manager or controller to give you a detailed accounting of all expenditures. Compare your total expenses in those areas to other industry research data. 20 groups are a great source for this. Is the percentage that you spend on this item too high? If so sit down with the individual or individuals that contribute to those expenses and ask them how much they feel they can cut? You might be surprised by both how much they feel can be cut and by how creative they can become in searching for savings.
So you now have the answers to where to spend your time, energy and money in 2006. As stated from many industry leaders, the three key factors for 2006 are control expenses, exceed customer expectations and make it convenient to purchase a vehicle. Dealers who focus on these items are most likely to achieve all their dealership goals in 2006.
Volume 3, Issue 1
Lending Tree’s most recent auto finance snapshot finds originations, amounts financed, and monthly payments all accelerated in 2018.