For small to medium-sized dealers, making decent money retailing cars is tough and it’s getting tougher. GP is getting squeezed from every angle possible.
Look at most dealer financial accounts and you will see that they have a net profit around the one per cent mark. When you consider the amount of work this involves you might be inclined to think your money is better off in the bank.
How to increase your Gross Profit overnight
14 August 18
The market is tough and getting tougher
For small to medium-sized dealers, making decent money retailing cars is tough and it’s getting tougher. GP is getting squeezed from every angle possible. Look at most dealer financial accounts and you will see that they have a net profit around the one per cent mark. When you consider the amount of work this involves you might be inclined to think your money is better off in the bank.
Will it get better? In short, the answer is No! Why?
- Manufacturers will continue to dictate and control the retail prices of new cars.
- There is increased competition on used car sales with new online providers now established in the market. (A Trustpilot survey*, carried out by YouGov, found that more than a third (36%) of millennials are willing to buy a car online compared to 25% of all respondents).
- Increasingly more Service/Workshop providers have entered the market offering lower hourly rates, and in some cases, superior quality.
- Then there is what I call the “Millennial Factor”.
The Millennial Factor
As Millennials become the predominant buyer group, dealer footfall is going to reduce dramatically. Think about it, most buyers nowadays (81%) do most of their research online. They only visit a dealer maybe 1-2 times (compared with 6-7 times in the past). They only go to the dealer because they have to in order to finalise the purchase.
Don’t make the mistake of thinking you can just “ride out the millennial storm”. No, this group is here to stay, and they are going to be your customer base for the next 50 years or so.
Logic dictates that the manufacturers and dealer groups with the vast resources to change and adapt their business models to cater for millennials will be the likely winners. Or will they?
The Millennial Buyer (MB)
Let’s start by looking at the Millennial Buyer (MB). These people are turning the motor industry on its head because they represent the biggest single change in buyer behaviour we have ever experienced. These people think differently, act differently, live differently. They have a completely different outlook on life so ignore them at your peril.
Here is a profile of the people we are talking about:
• Male/Female, 18-36
• Serial Multi-taskers, always on the move with a short attention span
• Tech savvy and constantly connected to their “tribe” via social media
• Value experiences rather than material possessions
• Want instant gratification and recognition
• Value and trust peer advice rather than so-called experts
• Seek work-life balance and flexibility
• Value collaboration and transparency
• Family and friend centric with a desire to share information and experiences
• Achievement and team-oriented
MB’s are looking for something special. Something special in the past was turning up to take delivery of your car and finding it wrapped in a large bow with a set of free mats and a bunch of flowers and a box of chocolates for the wife.
Millennials want an altogether different, more gratifying experience.
The Art of Winning
I am often asked by small/medium-sized dealers what they can possibly do to compete with larger groups. It seems such an uneven playing field, with all the odds stacked against them. How can they possibly win?
I often use football analogies when it comes to simply solving automotive problems. For example, if your opponent is quicker than you, don’t engage in a running battle because you will lose. By contrast, if your opponent is physically stronger, don’t get involved in a war because there will only be one outcome.
You have to find your USP (unique selling point) for millennial buyers which will give you the edge. For smaller dealers the only area where they can win nowadays is “agility”. The ability to think, move and change quickly is the one playing field where a smaller dealer can beat the big boys – to be intellectually smarter, more switched on and creative at making money.
Remember when Iceland beat England? I do, I was there. On paper it should have been no contest. England were superior in every department. Except one – the ability to tactically out-think their opponent. Iceland knew this and came up with a plan. They found a way to win.
So where do you start? ….. Agility Wins
1. Lead & Lag
Successful smaller dealers understand one critical performance concept: “Lead & Lag”.
Lag indicators are typically “output” oriented, easy to measure but hard to improve or influence.
Lead indicators are typically input oriented, hard to measure and easy to influence.
An example of a Lag Indicator is Used Car ROI. However, this is influenced by many Lead Indicators such as: Days in stock; part-ex appraisal; re-con costs; daily stock monitoring; effective and prompt marketing on social media/website etc. etc.
Many large dealer groups focus heavily on managing the lag indicators – mostly because it’s easier and more tangible. However, it means when it comes to changing course, it’s a bit like getting a large tanker to move direction. By contrast, smaller dealers see an obstacle up ahead and if they’re smart can steer around it.
If you don’t immediately understand where I’m heading with this then maybe this is a lead indicator that you need some support, as this is fundamental to the Art of Winning.
2. Online Ratings
Millennial Buyers operate online. They will listen to and trust their peers about where to buy and check out review sites. So, make sure your ratings are exceptional. Why not google your own dealership and see what pops up? (A recent Trustpilot survey*, carried out by YouGov, found that Millennials value word of mouth recommendations with 81% believing them to be valuable).
A small, agile dealer group can win here provided they are invest time and energy ensuring their online presence and image is right. Remember your ratings are what I term “lag indicators”. They are the outcome of other underlying factors – “lead indicators”. You need to get to the bottom of what factors in your dealership will produce fantastic ratings online and work meticulously as a team to apply them.In my experience large dealer groups are so focused on the lag indicators i.e. CSI, that they don’t put sufficient time and resource into the inputs that create this figure. It can take too much time and staff development. So, they constantly try to squeeze out slight increases rather than addressing the root causes that really make a difference.
3. The Purchase Experience
MB’s want someone who will help them to purchase a car, not sell them one. If your staff don’t adopt this approach or are not active on social media, then they are unlikely to be interested in them.
Instead they want to deal with product experts who are high tech and fast. They respect people with high levels of social responsibility and ethics, so make sure you are employing like-minded people with similar values who can communicate on their level.
They are motivated by value and experience and will renew their car NOT with your dealership, but with these individuals because they put the relationship before the sale. They don’t need selling to – they’ve already bought. They are now looking for someone who makes buying an entertaining experience which involves them and recognises their lifestyle.
Millennials are incredibly loyal to people but also incredibly fickle to businesses. Once they meet someone who offers them the above they will ditch you and go with them.
Smaller dealers can win here by changing their recruitment and staff development approach. They are much more agile than larger dealers and can employ the right staff who can engage with MB’s. The more personal the service, the more MB’s will like it and come back for more.
Many large dealer groups are still stuck in the past using traditional methods to attract buyers. They are surviving now because of their size but unless they change, their pool of new prospects and renewals will rapidly diminish. Some have realised this, but many haven’t. They are still trapped in “it won’t happen to me” syndrome.
4. Re-engineer your Sales Process
Millennials are time poor with a low attention span. There is so much happening in their lives that they are not the slightest bit interested in the traditional car sales process. It doesn’t engage them, it bores them. So, don’t inflict it on them.
Small dealers can make the purchase simple, easy and quick. Invest time and energy by looking at your sales process through the eyes of the MB. Re-engineer it with the MB in mind to ensure it is a completely buyer-driven process. This may require some big changes and some existing staff won’t be able to handle the transition, but it is critical that you do it for your future survival.
Larger dealer groups can really struggle with this. They take the easy route by still retaining their existing process, but maybe try to soften it by kidding themselves that it’s in the buyer’s best interest. Believe me, MB’s will vote with their feet more than any other group you have ever known.
5. Control your Composite
Having worked with many larger dealers, I’ve noticed that the management of their dealer composite is a real weakness for some. In some cases, the Composite is inaccurate – the wrong figures have been inputted, thus rendering it pretty much useless and a navigational tool.
Many managers within the business either don’t have sight of the composite, or if they do, are unsure how to interpret it properly. Even those that do interpret the figures are often focused on the lag indicators, rather than the lead indicators which is where they should be looking.
If you train all your staff to understand and marginally influence the lead indicators in your composite you can significantly increase your GP almost overnight.
Too many large dealers put energy into lag indicators such as PPU (Profit Per Unit) and try to influence this headline figure by squeezing the pips out, rather than putting focus on the lead indicators, the root influencers, which can easily affect it such as:
• Showing staff how to add monetary value through intangibles during the purchase experience and not give GP away.
• Understanding how and why millennial buyers will pay substantially more for convenience, provided the personal service is right.
I don’t know where to start?
In the first instance, you need an independent view – someone to look at your dealership completely through the eyes of a millennial buyer. How much will all this cost?
Very little, compared to the impact it can have on the profitability of your business.