As car dealers have faced headwinds from many directions since the COVID pandemic began three years ago, adjusting to a changed industry is essential but maybe not always easy or obvious.
Industry executives who participated in a panel discussion on the latest trends at Industry Summit 2022 shared their tips on the best ways to address a wide variety of issues dealerships are navigating. Much of their advice centered on both adjusting to new realities and relying on time-tested fundamentals.
Whatever happens, panelist Mickey Quinn of industry consultancy Vanguard Dealer Services said dealerships and other automotive professionals will be just fine.
“Our clients are among the most resilient on the planet,” he said, citing their collective resolve during the pandemic. “They figured out how to sell cars out their back doors. Whatever you throw at these people, they’re ready.”
From the get-go, industry professionals must face altered conditions head-on, panelists said. Some of those changes resulted from the pandemic, others from the evolving sensibilities of the information age. Either way, the industry should adapt rather than sticking with traditional approaches or even the habits it developed during the pandemic.
One change that might be hard to let go of is the high vehicle sticker prices that pandemic-era inventory shortages have afforded dealers.
“It’s been a good ride,” pointed out panelist Benjamin Wren of product provider Wise F&I. Nevertheless, he said, dealerships should focus on the long term. “There are two types of dealers out there. There are dealers pricing cars over MSRP or at MSRP. … Do we want to erode our customer base or price them fairly?”
Panelist Paul McCarthy of F&I product provider Protective Asset Protection said dealerships should justify the prices they charge.
A related issue is the fact that salespeople who’ve spent most of their time in the industry during the pandemic have grown accustomed to vehicles practically selling themselves due to lack of availability.
“We’re going to have to go back to actually selling cars again,” McCarthy said. “Training will be important.”
As consumers have adapted to a transformed car-buying experience, they’ve also become savvier, panelists said.
That means that partly by necessity and partly by preference, they’ve taken much of their car shopping online instead of spending a day or two browsing showrooms and talking to salespeople.
“We’ve always known we have a more informed customer base, and even more so now,” said McCarthy, who quoted a survey that showed that for nearly 100% of vehicle transactions, consumers were conducting part of the process online.
“You must make sure your website is up to the task for the vehicle purchase and vehicle protection products for customers to be able to make decisions before they come into the dealership. … With so many websites, this information is not there.”
Wren and Quinn agreed, the latter saying consumers don’t want to spend several hours at a dealership when they could transfer much of that time spent to their homes.
“The tools are there for the dealers to do it today,” said Quinn, who added that shoppers ultimately value working with dealers they can trust. “The fear that if people don’t show up at the dealership, you can’t make money off of them is unfounded … You’ll be more profitable the more convenient you make the process.”
McCarthy echoed Quinn’s point about trust, emphasizing that dealerships must put a premium on being as transparent as possible with customers now.
“We’ve had a lot of virtual transactions where we didn’t have the customer in front of us in a 10- by-10 space,” he said. “We had to be transparent because there was no other way to present things. There was no closing. Stick to that – we have found that hopefully when you explain things properly to the customer, they are interested in these products.”
BEYOND THE NEW-CAR SMELL
Panelists kept returning to the value of selling more than cars in order to keep customers coming back to the dealership and developing loyalty to it.
Leveraging preloads can go a long way toward doing just that, Wren said.
“You’ve got to be a hunter and a farmer” he said. “We’re seeing a lot of dealers add in value-added products – diminished-value protection, for instance. It will not only tie the customer to the dealership; it’s a way to retain customers for future sales and capture more trade-ins to remarket.”
The number of products sold per customer is an especially important one, McCarthy said. “I’m a big proponent of the finance department having a marketing budget. It doesn’t have to be huge, just invest in F&I products.”
Quinn agreed. “If you want to retain that customer, make sure that the dealer is doing everything they can to sell to the consumer who did not buy a service contract at the time of sale,” he said. “For us and our dealers, it’s been absolutely fantastic.”
He went further to say that dealers and carmakers are engaged in a war for the consumer and that manufacturers appear to be distancing themselves from the franchised dealer model.
“The manufacturer is trying to steal your customer. In the business office, you have to be acutely aware of the products that will retain the customer. The manufacturer does not care if half the dealers in the U.S. went away tomorrow.”
THE BOTTOM LINE
Two issues that can make a difference in dealership profit levels also need some attention, panelists said: chargebacks and profit participation.
Chargebacks, or refunds to consumers for products partially utilized or not used at all, can be the bane of dealerships and demand closer attention to prevent profit erosion, they said.
One method involves simply learning customers’ needs ahead of time, Quinn said. That translates to the business manager interviewing each buyer to fit product offerings to their individual circumstances.
Wren said it’s also important to build strong relationships with the dealership’s service team.
Profit participation, or reinsurance, is more than worth considering and works well for the majority of dealers, Quinn said. “All profit-participation programs provide thousands, if not millions, of new revenue for car dealers.”
Wren said he tells dealers reinsurance is “like a 401(k).”
Hannah Mitchell is executive editor at F&I and Showroom.
See all comments