NEW YORK — In cooperation with the National Automobile Dealers Association, global management consulting firm McKinsey & Company has released a new report on how dealers can drive performance in the digital age.
Average dealership net pretax profits have improved to 2.2% in 2014 from 1.5% in 2007, but the profitability of dealerships has been stagnant over the past three years. McKinsey found that the biggest shift in the industry, according to 84% of dealerships surveyed, is the highly-informed consumer.
“Compared with ten years ago, new-car buyers spend almost triple the amount of time online doing research,” the report read, in part. “They take full advantage of new online tools to evaluate vehicle technology, product features, pricing, and customer as well as third-party reviews.”
Because of this trend, 42% of dealers reported declined store traffic compared to five years ago. But 61% reported a rise in the conversion rate of store visitors in the past five years.
The study went on to recommend that dealers and manufacturers focus on two critical areas: operations and marketing spend. The firm observed a continued and significant performance variation of about five percentage points between the average and the top 10% of the U.S. dealer population. This gap, the report said, is more than 60% determined by operating practices, with the remainder based on less controllable factors, such as car brand and dealer location.
McKinsey also found that manufacturers and dealers jointly spend an average of nearly $8,500 over the first four years of vehicle ownership for consumer-facing programs, personnel, and other expenses. However, dealer perceptions of the value and effectiveness of that spending vary significantly — for instance, dealers didn’t think customer relationship management (CRM) and third-party lead generation were very valuable.
“The low levels of perceived effectiveness of the investment in digital media and CRM is especially concerning from a lead-generation perspective, given that more and more consumers rely on online sources of information to inform their decisions,” the report explained. “To make matters worse, manufacturer and dealer spending on broader media activities is often not well coordinated.”
The firm suggested that dealers and manufacturers synchronize their approach to marketing return on investment (ROI) and coordinate lead generation across all channels.
“Dealers and manufacturers have a wealth of customer data from many sources, including click data, names captured at sponsored events, and service experiences,” the reports said. “But these typically exist in different places, and dealers therefore cannot develop a complete picture of their customers’ decision journey. By using new smart interfaces to combine the data, each manufacturer and its dealers can generate a clear and unified view of the consumer’s journey across multiple touchpoints.”
Improving in this area could increase the average spending effectiveness by up to 67%, the firm concluded.