Factories build cars and dealers sell them. But dealers make far more in the service department than they do in the showroom, and electric vehicles threaten to reduce or even derail that revenue stream.
This should be of particular concern to dealers whose marketing, sales, and F&I processes are already outdated, according to Paula Tompkins, CEO and founder of ChannelNet and a 30-year digital industry veteran. Auto Dealer Today sat down with Tompkins to ask how widespread adoption of disruptive vehicle technology will change auto retail and what dealers can do to prepare.
ADT: Paula, considering all the challenges auto dealers face right now, why should electric vehicles keep them up at night?
Tompkins: I look at this issue not only as an industry sales and marketing veteran but as someone who has owned and driven a Tesla Model S for two years. As Californians, my husband and I are very interested in preserving the environment. We care. But that was only one of the reasons we bought a Tesla.
When we set out to do our shopping, we went to dealerships representing five luxury manufacturers and quickly found it was the same old labor-intensive process: going online, going to different showrooms, doing test drives, with no follow-up afterward — if we didn’t buy right then and there, they didn’t care. They’ll sell a vehicle to the next customer that walks through the door
My husband said, “Let’s look at a Tesla.” Normally I would say no. But I wanted to see how Tesla sold cars and what they were all about. I became a student of their sales process. I saved every email and communication. Everything was done online, via email, via the phone, via text message, other than the test drive.
I eventually took my learning and tried to convince OEMs to adapt Tesla’s process to accommodate dealers. Unfortunately, that was an uphill battle and I eventually gave up.
Meanwhile, we have yet to take our Tesla in for service. We did get a recall on it, just last week. But there’s no oil, no nothing. Eventually I guess they will have to rotate the tires and replace the windshield wipers. But really, what else is there? This is a major problem for dealers. They don’t make money selling vehicles. They make money selling service, accessories, financing, and insurance plans.
ADT: And at the moment, they are probably doing pretty well.
Tompkins: Yet we know every manufacturer has a plan to move very aggressively into electric vehicles. Lee Iacocca once said that, if you want to know about manufacturing vehicles, go to Detroit, and if you want to understand the future of vehicles and what people are going to buy, go to California. I live in Marin County, north of San Francisco, and there are at least a half dozen Teslas on our street. It is going to have an effect on how dealers make their money.
The factories today are putting a tremendous amount of downward profitability pressure on dealers. They want huge, new, beautiful showrooms. A dealer that carries the Volvo brand just told me he sat down with their representative and said, “I can’t afford to build this facility for you. There are not enough sales to warrant it.” They’re going to cut 3% off his back-end money.
ADT: That’s harsh!
Tompkins: Every time dealers turn around, they’re getting fined, clipped, or punished. Before too long, I think we are going to see the dealers really rise up. The brands are going to need to address their heavy-handedness, or they’re going to lose their outlets.
ADT: Or the manufacturers could convince themselves they don’t need the dealers.
Tompkins: But how many times has Ford gone out and purchased dealerships and tried to manage them themselves? Quite frankly, they weren’t very good at it. In fact, they failed. The brands don’t understand the last mile.
ADT: They could feel emboldened by Tesla.
Tompkins: We’ve seen how hard it is for Tesla to scale that model. No doubt there is going to be change, but the brands need dealers more than they recognize or realize. Putting them in a position where they can’t make money is not an answer.
ADT: Do you expect the resistance to come from factory dealer councils or the big dealer associations?
Tompkins: I think you’re going to get it from the individual heavy influencers. We have already seen Sonic push back on demands from manufacturers. The 20 Groups are very powerful. We have seen it recently with what went on between Hyundai and their dealers over the Genesis brand.
ADT: Do you mean mandating that dealers build standalone Genesis stores after promising they wouldn’t?
Tompkins: Originally Hyundai picked out select Hyundai dealers that would also have Genesis. Then there was a change in strategy. The brand now wants to keep a small cadre of existing dealers and recruit other luxury-brand dealers. The dealers who are left out are saying, “Hey, we helped you get Genesis out there. We took you at your word, and now look.”
Trust is breaking down. Transparency is breaking down. All the orders from Detroit, Japan, South Korea or Germany dictating that you will do this or that or else is just not working — I think there has got to be a better balance. A partnership cannot exist without trust.
ADT: Is it a coincidence this is happening as manufacturers see Tesla succeeding, to whatever degree?
Tompkins: I think the brands have become, in their own minds, more powerful. H. Ross Perot tried to get General Motors’ directors to understand the importance of the quality of vehicles until they finally booted him off the board. And what he foretold was true, GM eventually went bankrupt. A lot of the factory people are living in their own, perfect worlds, and are not empathetic to customers or dealers — or suppliers, for that matter.
ADT: Assuming they know as much about their businesses as we do, would they not have to be purposely ignorant?
Tompkins: Well, remember, there are not a lot of old industry war horses around. I’m referring to the people who understand that, when the economy tanks and manufacturers are stacking vehicles against the fences to keep the doors open, they turn to the dealers. We haven’t had that kind of catastrophe since 2008, and there seems to have been a huge movement to push people out who aren’t millennials or otherwise “hip.”
The other thing I hear a lot from industry veterans is that the OEMs are focused on what’s fun, not what they need to do. It’s more fun to play around with Silicon Valley and autonomy and mobility than to worry about next month’s car sales.
ADT: What can the dealer do to shift their priorities?
Tompkins: They need to find likeminded dealers and organize. They need to write letters to the factories and to their local and state government officials and get on social media. But I think a lot of them are afraid of the manufacturers. They’re afraid to speak up. They’ll tell me things, and I’ll ask if they would repeat that publicly —
ADT: They won’t do it.
Tompkins: They won’t do it. They’re in a tough spot. It’s their livelihood. I just met with a dealer who gets $20,000 per month back in co-op, leaving him with $60,000 in marketing and advertising expenses. He sells 180 new and used vehicles a month. His cost per acquisition of a new customer is $306. That’s a lot of money. That kind of calculation can be much worse for some dealers.
For brands, any kind of advertising done by dealers is reviewed by a compliance specialist. If you get to 100% compliance, they will pay money owed. Recently a dealer told me he was 98.7% compliant and they wrote him a letter that said, “You missed the 100% goal and therefore we are not going to pay any of your advertising spend this year.” He had to get on the phone and rant and rave.
ADT: Did he get it reversed?
Tompkins: He’s working on it. But he was saying, “What are they thinking? Who would allow a letter like this to go out?” He runs a family business that’s been there for 100 years. This is what it comes to?
Dealers are under the gun. Some of them are very, very concerned and searching for answers. Some have their heads in the sand and think things won’t change. I remember when I first mentioned Tesla to auto industry executives. They laughed and said, “They won’t survive.” And maybe they won’t. But they certainly have driven a way of thinking and an approach that has had an impact.
ADT: How are you addressing these issues at ChannelNet?
Tompkins: For many years, we were a supplier exclusively to Tier 1 manufacturers. I kept telling them we really need to help the dealers build stronger relationships with customers. They’re local, active in the community, with universities, charities, with all those things that are very important to their customers. I recommend that they provide tools to their dealers that are branded for the dealer and meet their needs.
For example, we provide a mobile app for dealers that allows them to take a photo of the customer the minute they purchase a vehicle. It is the first touchpoint in a long-term relationship. That photo gets pushed out to the customer’s Facebook page to share with friends and relatives. That is the start of a digital dialogue that lasts across the ownership cycle. We include, recalls, inequity offers, satisfaction surveys, service reminders, and thank yous, referrals of friends and relatives and new models being launched — everything at the local level, under the banner of the dealer.
ADT: And you believe maintaining that relationship will help make the dealer irreplaceable.
Tompkins: Yes. How many times have you heard OEM say it’s their customer? They need to get real. It’s the dealership’s customer.
ADT: My friend Scot Eisenfelder at Affinitiv would agree, and he would say it’s also important to consider them as the dealer group’s customer.
Tompkins: Absolutely. If I’ve got six points, 20 points, all different brands, and a Chevy customer needs a truck, and their kid who is going to college needs a high-quality used BMW, the opportunities are limitless. But nobody’s exploring any of that. Nobody’s asking those questions. Nobody’s trying to stay in touch with every customer, keep them informed and educated, and understand their life phases and issues.
ADT: Entrepreneurial salespeople are. I have interviewed many. I ask them what their secret is. It’s always the same: “Follow-up.”
Tompkins: We take what that expert does — and he probably represents the crème de la crème of salespeople — and we ask ourselves: How do you build that relationship and augment it digitally? How do you do it so the salespeople who don’t have that natural ability will build it using digital? These are the kinds of things we’re trying to do.