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The Future Is Now

After consulting the experts, the editor remains optimistic about the changing relationship between dealers and today’s Internet shopper.

March 11, 2014

What a difference five years makes. I mean, the last time I was in New Orleans for the National Automobile Dealers Association (NADA)’s annual convention, the talk was about how bad things would get as the economy slipped further into the Great Recession. We’re obviously coming out the other side, but everyone I talked to seemed to be looking beyond what this year holds.

Yes, hitting that 16 million-unit mark will be nice, but our discussions centered on the future of auto retail. And just about everyone expects 2014 to be a year of major change.

“In terms of what could be an inflexion point … I would say I’d be shocked if it wasn’t 2015,” says Raj Sundaram, executive vice president and group president of Dealertrack’s Dealer Solution business unit. “But mark my words, 2014 might surprise us with respect to some of this stuff.”

I asked Sundaram whether we had reached a point at which dealers would embrace the change today’s plugged-in, hypereducated Internet shopper is driving. But before I get into that any further, let me update the status of our recovery.

Let’s start with the NADA’s new chief economist, Steve Szakaly. He lists rising home values, residential housing construction and employment as proof the economy has found its footing. Those indicators double as factors driving his prediction of 16.4 million new-vehicle sales for 2014.
Melinda Zabritski, senior director of auto finance for Experian Automotive, believes there’s plenty of evidence that the auto finance industry has recovered. But what really has her convinced is what she sees happening outside of the prime segment.

“The biggest thing I tend to look at is the percentage of subprime financing. And as a category, yes, we’re there,” she says. “And the biggest growth driver outside of prime is what we classify as ‘nonprime’ — the lower risk portion of subprime.”

Annual depreciation is Black Book’s Ricky Beggs’ recovery indicator of choice, and, unfortunately, it’s showing that we’re not quite there yet. Last year, annual depreciation for two- to six-year-old cars came in at 12.8%, up from 12.4% in 2012 and 7.7% in 2011. This year, he expects annual depreciation to be around 13.5%, which isn’t too far off from the prerecession level of 15%.

“We’re going in the right direction,” Beggs says, noting that vehicles coming back as trade-ins reveals that consumers are beginning to return to normal trade cycles. “But getting into 2015 and the early part of 2016, I think we’ll be at that full 15%.”

Beggs also believes that inventory levels for those subprime-geared, eight- to 11-year-old vehicles are beginning to recover from the government’s Cash for Clunkers program, which removed about 750,000 of those vehicles from the market. It also turned those $2,000 wholesale vehicles that were huge players in that segment into $4,000 or $5,000 units. Well, Beggs believes wholesale pricing for that vehicle segment should fall to about $3,000 to $3,500 this year.

Bottom line, we’re not there yet, but we’re close.

That wasn’t the last insight I gained from my visit to Black Book’s NADA booth. Before meeting with Beggs, I sat down for a chat with Mike McFall, president of the company’s Activator Division. We talked about a question that was spreading throughout the exhibit hall: Did AutoBytel’s purchase of AutoUSA in mid-January signal the death of the lead-generation business?

McFall described that theory as a “mischaracterization” of the situation. “I think it’s changing in a very interesting way, though. And I think what Autobytel is saying is, ‘We need to be more than just a lead provider; we need to be a marketing services provider.’” He believes that tech vendors and even dealers are realizing that the best source of leads in terms of conversion is a dealership’s own website.

And what companies like Black Book’s Activator Division, Autobytel and Dealertrack are aiming do is make your sites better lead converters by offering plug-ins and features designed to drive a better customer experience. In other words, simply allowing customers to search your inventory isn’t enough anymore, especially considering how much you already spend on search engine optimization and paid search to drive customers to your site.

“With the investments dealers are making in digital marketing, you need to have higher conversion rates,” Dealertrack’s Sundaram said. “We’re offering them tools that will help them drive that.”

Folks, there’s a lot going on right now. Change is happening, so keep your eyes and ears open. The good news is that it looks like vendors want that change to happen on your sites.

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