"And Round And Round We Go"

 

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. 

Author Bill Cosgrove
DealerNet Services

Grow your business within your market area- from within your organization

 

The problem I see in the Automotive Industry is that the large corporations, who are trying to take control of the Vertical landscape from B2B wholesaling to the classified car sites to inventory control and marketing, find it easier to market in a one style fits all approach. This may work well for them but it is a trap you don’t want to fall into.

 

The tighter The Commoditization Trap is on a company or an industry, the more that company must look outside – to its customers and prospects to find, and, more importantly, understand the unique concerns that affect them.  Companies must engage their customers to know what adds value for them.  If you want to avoid or escape The Commoditization Trap you must find ways to add value (something people are willing to pay for) before the product becomes an issue.

One of the rules of value creation is:  if your actions don’t create value, then your actions decrease value.  If your sales presentation does not increase the perceived value of your products or services, it decreases the value your customers or prospects perceive they get from you.

 

You can only add value by competing within your market area which can easily be done by drilling down and extracting the vast resources you already have to create campaigns and make in house adjustments that will capitalize on those campaigns. 

First I want to thank Jim Ziegler and Manny Luna and others for their due dilegence in the Autogate affair that is currently unravelling and have made it possible for me to get some attention on a topic close to my heart.

I want to take advantage and seize the moment concerning all the controversy surrounding Cars, com among others with hints of more to come.

Why? Because I hope that finally YOU the dealer who is following this mantra will come out of the ether and realize that the medicine that the giant classified Ad and Services Companies have been prescribing Dealers is showing its nasty side effects and is WRONG.

Let’s take a look at some numbers to see just how much these churn and burn marketing strategies can affect Dealers. One side effect of this strategy is that you are always chasing inventory to sell more to make less money – who does that benefit?  

Another side effect is management and salespeople are working harder to make the same or less money and if you have worked at a dealership in the past few years these guys have more responsibilities than ever before. This leaves the possibility of losing conversions and inventory purchasing errors. Plus, you are probably spending more money to drive that traffic to churn those cars and - who do you think benefits from that.

Another side effect is that you start taxing you facilities ability to do the MPI (Multipoint Inspections) reconditioning e.t. and unless you spend more to fill the gap you chance having other problems with Inventory presentation. WHO DO YOU THINK THIS AFFECTS?

Sure there are dealers that sell for one take or leave it price and do well but how long do you think it would be when this becomes the rule and not the exception. There will be more consolidation and small and medium size dealers will be put out of business by the churn and burn stores that need to gobble up more and more market area to survive. And who do you think this will benefit? –

I am not a conspiracy theorist by you can’t help but see the correlation here especially with what has been surfacing over the past couple of weeks.

According to FirstLook, total sales in April climbed 0.7 percent vs. year ago to 3,819,127 units. vs. 3,792,604, transaction prices across all three channels were down 6.46 percent to $8,928 from $9,545 in 2012 excluding aftermarket product.

So let’s do the math.

$9,545.00- $8,928.00 = $617.00. Let’s say on the average you sell 50 pre-owned units per month. Let’s say you could have sold just 25 of those 50 units and grossed $309.00 more per unit.

$309.00

X 25 units

$7,725.00

Let’s say that you could have made another $800.00 dollars per unit on the back end.

$800.00

X 25

$20,000.00 Let’s add it up

 

You just made at $27,725.00 more in gross that in a year adds up to $332,700.00 plus what you have just saved on all the added costs of churning and burning units and the costs of potential Presentation of inventory and inventory purchasing errors, losing conversions in the rush to churn e.t. in the rush to churn.

 

Let’s say that you sell an additional 10 cars a month with the churn and burn method. Using $1200.00 as an average gross and gross $800.00 on the back end you would have grossed $20,000.00 Dollars or $240,000.00.

 

$332,700.00

$240,000.00

($92,000.00)

 

You grossed ($92,000.00) less plus all the additional overhead it took to Market, Buy, Prep and sell them. -Who is does this benefit?

If you need to go outside your market area to gain market share and have the population density within you geographic market area for growth YOU need to look inside not outside and fix the problems  within- Who will benefit from this?

If you set your goal of growing within your market area the benefits are greater and put those additional resources you are using to draw in people from outside your market area you will be better for it. People who purchase from outside your market are price buyers only because you have no value to offer them.

So think about it and do what you think is the right path for you to take. For most of you-you will realize the only ones that are getting feed are the Dragons.

One of the rules of value creation is: if your actions don’t create value, then your actions decrease value. If your sales or marketing presentation does not increase the perceived value of your products or services, it decreases the value your customers or prospects perceive they get from you.

Author Bill Cogrove
DealerNet Services

If you the Dealer think you could or should be doing better, you need an experienced independent Consultant.

 

If you the Marketing Company are putting your reputation on the line and driving traffic to a Dealer who is not prepared to sell them you need  an Independent Consultant in there first.

 

Remember you as the Dealer or Marketer are in the Driver’s Seat So Take the Wheel -When you’re going straight ahead-you get there faster-and safer so take control and win the race. If you are not committed and prepared 1000% It is time to GET OFF THE TRACK.

The blame always lies with you. Before you blame your vendor or (presumably) competent staff- look in the mirror- maybe they are not the incompetent ones.

 

Customer Acquisition Cost (CAC) is determined by customer visits. Your bottom line lives or dies by IT- BOTTOM LINE.  And it is crutical to design your marketing campaigns and structure your staff to do what works best for YOU at YOUR location in YOUR geographic area.

 

If you're not Marketing to the Latino/Hispanic market-YOUR LOSING A LOT OF MONEY. The Latino/Hispanic population of the US is the 20th largest economy in the world so is not to be ignored. Please go to the more section above and follow the link "ENGAGING THE US LATINO MARKET" at Autospeak (Engaging the US Latino Market) to get a better understanding of impact this market segment represents.

 

 

  If someone isn't willing to tell you this to your face- Get another Consultant.

  If you didn't already know all of this -YOU BETTER GET A CONSULTANT

 

        Bad Medicine-Who's Really Getting Better?                                             Posted By Bill Cosgrove    DealerNetServices

In my last post “Bad Management It’s Also Just Plain bad for Business“ At Dealerelite.net, David Ruggles brought up a good point when responding to a comment made by Steve Richards.

Steve stated that "The retail culture incubates mediocrity and as gross profits continue their downward spiral good luck attracting quality sales personnel. Can you name another product that sells for $30K and pays a $100 commission?”

David replied that “Gross profits continue their downward spiral because the previous asymmetry in information has become more balanced, creating a more efficient market. While that might sound good to consumers, an efficient market leads to disintermediation.  For those not familiar with this term of economics, it means cutting out the middle man while the product becomes a commodity.  Can you name us another product that sells for $30K, where consumers expect to know our base costs, and 10% is considered to be an obscene profit by industry outsiders and many "insiders?”

My mission to get Dealers to improve their business model goes back to 2010 when I started discussing what I saw as a growing movement, which was a perfect time to execute due the pain caused by the recession,  in the Industry to commoditize the Automobile Industry and that is that I saw the Giants in this Industry buying up the vertical and convincing Dealers that they need to sell for one price and buy for another and our way of marketing is the right way. That is that in order to compete and move product you need to turn more product at a lower price to survive in today’s Marketplace. This plays right into the hands of the Mega Dealers who’s Business model is based on churning out more and more numbers at low marigins.

To do this they need more and more territory to churn those higher numbers to make their business model work. Where is that territory coming from? I think you know the answer to that.

Automobile Manufactures mandate Dealers to selling numbers which is the most basic contradiction in the Franchise model for the Dealer. The Manufacturer doesn’t really care where those numbers come from as long as they are met. After all the Manufacturers profit is built in and booked as soon as it leaves the factory to its destination.

You saw what happened to True Cars when they tried to reach into the pockets of the Manufacturer but who is looking out for the Independent Dealer? No One.

Between the Manufacturers and the Giants of the Industry owning or controlling the vertical from Inventory to marketing whose mission is churning higher and higher numbers you wonder if commoditization it is inevitable.

And believe me. If this takes place the Independent Dealer is not the only one that will be affected. All of us from Marketing firms to Consultants to any Vendor in the Industry will be fighting for less and less dollars as our customer base will shrink

Where do you think the Industry is headed? Right now Franchise Laws as David stated "By law, franchise laws in every state, a new vehicle can only be purchased from a franchised dealer.” Is this being circumvented by the creation of Mega Dealers? Will Franchises as they exist today become non-exisitent in the future?

Is the only way for the Independent to fight back to start running their businesses more effectively and efficiently. This is a topic that needs to be discussed because all of this it is already happening whether you want to open your eyes to it or not.

By Bill Cosgrove

http://dealernetservicesonline.biz