We all know the auto industry is changing, has changed and will continue to change.
But lately, the pace is accelerating due to seven significant trends. What does this mean for dealers? To stay in the game, acquire new skills and strategies. First, a brief review of the trends.
Auto retail store consolidation. Soon, major markets will be dominated by groups. Large dealer groups can achieve greater operational and marketing efficiencies than single-point or small group.
Digital retailing. More of the car-buying process is moving online. At the National Automobile Dealers Assn. convention this year, the message was clear. Vendors are pushing digital retailing technology and dealers are buying it. Consumers can click “buy now” buttons, get potential trade-in vehicles appraised and obtain pre-approved credit – all without ever visiting a dealership.
The majority still want to visit a dealership to take a test drive and sign paperwork, but in coming years more customers will feel comfortable completing the entire transaction online.
Retail gross margins are compressing. In the last dozen years, the average gross profit margins on new vehicles has been slashed in half, from approximately 5% to 2.5%. It’s hard to imagine this can get squeezed much more, but other industries have learned to succeed with razor-blade margins.
F&I grosses are vulnerable. In the last few years, dealers have consistently increased the average amount of F&I revenue per vehicle. Indications are dealers have pushed this to the limit, meaning we’re at the maximum of what we can charge without upsetting the customer and ensuring we can still get vehicles financed.
Used-vehicle operations are growing in scale and sophistication. Due to the decline in new-vehicle margins, dealers are placing more emphasis on pre-owned. At the same time, data now can tell dealers which used vehicles to buy, how to price them and where to find them.
It used to be that dealers mainly acquired used vehicles through trade-ins and at local auctions. Now they have a variety of channels to choose from. Some dealers will adopt a motto similar to CarMax: Sell your vehicle to me, even if you’re not planning to buy from me.
Independent service businesses will become increasingly aggressive. Due to the recent spike in new-vehicle sales, the volume of vehicles older than seven years and still in operation is declining. This decline will continue until 2022, prompting chains to expand service offerings and launch aggressive marketing campaigns. Their prime target is customers with four- to six-years-old vehicles; the same customers that dealers like to target.
Shift to digital is causing marketing to be fragmented and specialized. Creating a single message and pushing it out over multiple marketing channels just doesn’t cut it these days. Messages must be targeted to individual needs and tailored for each channel. The number of channels keeps expanding too. It seems like my kids are always introducing me to new social-media platforms.
New Skills Needed
On the surface, these trends challenge dealers. But in every challenge lies an opportunity. To adapt and thrive in the years ahead, dealers will need to conduct business differently than before. Owners and senior management must focus on learning how to acquire and master the following skills:
Buy smart, price to market. Build your advantage through sourcing and pricing strategies designed to maximize product and customer value.
Focus on local markets. Identify high-value customers who live closest to your store. Focus information-gathering and marketing on their retention, as well as acquiring new customers like them.
Build meaningful local brand. Give customers a non-price reason to buy, and work with OEMs to strengthen brands through real standards.
Value customer data. Gather and leverage it at every touch point. Use insights to create a tailored dialogue with everyone you know.
Win the digital battle. Invest smartly, recognizing each digital element’s role. Provide the most complete digital experience with a focus on a smooth online-to-offline transition.
Maximize service. Alter operations to improve convenience and leverage information. Reduce barriers through the ownership lifecycle. Earn trust through transparency.
Drive efficiencies. Use technology and eliminate legacy costs inherent in a defunct operating model.
Running dealerships the same old way and expecting different results is a recipe for stagnation. As smaller dealers face the decision to sell or grow, and larger dealers work to increase efficiencies, they’ll all need new skills and strategies for a changing retail landscape.
Scot Eisenfelder is CEO of Affinitiv, a marketing technology company serving automakers and dealers.
