Dealers are investing in new technology that claims to boost productivity, making artificial intelligence and digitalization all the rage.
Despite the investment, productivity as measured by sales per employee is stuck at 2014 levels, a recent report by McKinsey & Associates says.
The report”Boosting Auto Sales Productivity: A Playbook for Excellence” examines how to invest in and use technology more effectively to get over that hump.
Dealerships also need to focus on more mundane aspects such as employee compensation, Inga Maurer, a McKinsey senior partner and leader of North America dealer and aftermarket client service, tells WardsAuto.
“While technology is one of the points, it is not the be-all and end-all,” she says. “The goal of the report was to suggest what role technology can play to unlock sales productivity.”
If dealerships use technology more effectively across both customer-facing and back-office processes, McKinsey estimates they could improve sales per employee by 25% to 20 vehicles or more per year.
At the average U.S. dealership, every 1% rise in sales productivity is worth about $500,000 in revenues, McKinsey research shows.
Fast Test and Learn
To avoid being overwhelmed by the plethora of technology choices and wasting money on technology that isn’t providing a good return, Maurer suggests dealerships using off-the-shelf solutions adopt a “fast test and learn” strategy.
That means figuring out what solutions are the “best of breed,” testing them and then testing again 12 months later to determine what is getting results.
“Shut things down if they don’t work,” Maurer says.
That strategy works best for groups with between 15 and 75 locations, she says.
Failing to discontinue ineffective solutions is one factor behind the 8% rise in sales, general, and administrative (SG&A) costs at dealerships between 2014 and 2023. Between 2014 and 2024, sales productivity remained stagnant at 13 to 16 units annually, McKinsey finds.
Yet dealerships continue to pay for technology that isn’t having the desired effect. Inertia plays a role.
“Once people introduce a tool, they have a really hard time stopping it,” Maurer says.
She suggests dealerships “not get distracted by all the shiny toys.”
Dealerships need to determine what they are really good at – whether that is being a top community brand, a place someone can get a good deal or a place renowned for customer experience – and focus on technology that accentuates that strength or strengths.
Coaching Still Counts
With all the focus on software tools, dealers may lose sight on their most important asset: their people. A good compensation plan can also help boost employee productivity, Maurer says.
“You may have stacked (all the technology) up, but no one has said, ‘Here is a compensation plan that helps you get to 24 cars,’” she says.
A process that makes it clear as to who does what at what point and what employees are incentivized about is needed, Maurer says.
Coaching on how to be a better salesperson, and having a rigorous sales process, are also key, she says.
Many salespeople were hired during the COVID years when in-store sales weren’t happening, or during the period when new-car sales were roaring.
“They never learned to sell a car,” Maurer says. “There are many reasons why salespeople aren’t as productive as you want them to be.”
It may also be that an employee is simply not well-suited to the new reality of automotive retail.
Dealerships now need to meet customers where they want to do the transaction, be that online, offline or a combination. Customers also want a seamless online-to-offline experience when they come into a dealership.
Dealerships need to get salespeople “comfortable with different paces and types of customer interaction,” Maurer says, “and meeting customers where they want to engage.”
