Finbarr O’Neill – Sales Predictions, Investing in Technology, Subscription Services, and A New Way of Selling

On today’s Power Lunch, Jim Fitzpatrick is joined by Finbarr O’Neill, one of the most well-respected individuals in the automotive industry. Finbarr has held leadership positions with Toyota, Mitsubishi, Hyundai, and has just retired as President and CEO of J.D. Power and Associates. Most recently, Finbarr joined the board of directors at APCO EasyCare.


Jim Fitzpatrick: Fin, thanks very much for joining us on Power Lunch on CBT News.

Finbarr O’Neill: It’s a pleasure to be here, Jim.

Jim Fitzpatrick: Yeah, sure. So, this is your understanding of retirement, huh? Right back at it.

Finbarr O’Neill: Right back at it, so to speak, yeah.

Jim Fitzpatrick: You retired in March and now you’re-

Finbarr O’Neill: I’ve been on the road for nine of the last 11 workdays, but it’ll slow down, I promise my wife that.

Jim Fitzpatrick: Well, we’re glad to have you here today. Let’s jump right in here. Some of the analysts out there are talking about a downturn in new car sales going into the summer and such. How do you see us shaking out for the year and what do you think we’ll end up at?

Finbarr O’Neill: Well, you know, there are various estimates. We’ll be around 17. I think the key for dealers is where’s retail, and retail should be about 14. It was a good March. From what I hear from dealers, there’s a fair amount of optimism, but there were also strong incentives in the market, so we’ll just have to see how the momentum goes through the summer.

Jim Fitzpatrick: Yeah. Speaking about the incentives put out there and these stair-step programs that OEMs are putting out there, there seems to be a lot of pushback by dealers nowadays that are saying that this is crazy. I think, last month, it came in at about an average of $4,400 in terms of incentives, which is a record high. Where do you think that’s headed?

Finbarr O’Neill: Well, unfortunately for the industry, it’s one of the levers the OEMs see, and whether they put it behind leases or cash or cash on the vehicle to the consumer or to the dealer. The problem is that they have this overhead called factory. They have to produce and they’re still profitable. So, they’ll squeeze their margins and see who cries uncle first. It doesn’t end well, as we know.

Jim Fitzpatrick: It doesn’t end well. It also is at a time when, in the last four or five years, you’ve heard so much discussion about compression of profit for dealers. That seems to be something that the NADA, who did this last year, was really the talk of the convention. What are we gonna do about this compression? You know, the OEMs expect us to build these huge mausoleums for dealerships and, of course, at the same time maintain high CSI scores, which is an area you know something about. It’s a tough gig out there for dealers in terms of profit, isn’t it?

Finbarr O’Neill: It is. It always shocked me that OEMs, even when I was on the OEM side, would ask for these huge palatial facilities because they wouldn’t pencil and it didn’t make sense. I think OEMs today should really be forward-looking and thinking, “What should the dealer be building for five or 10 years from now? Does it make sense to have huge service facilities in a high real estate expense area? How do we do this that helps manage the dealer’s overhead and at the same time is good for consumers?”

Jim Fitzpatrick: Yeah, sure. That’s something that dealers are constantly struggling with as well.

Finbarr O’Neill: Yeah. I mean, look. Dealers understand things are changing, but do you want to invest all your money in something that met the needs 10 or 15 years ago, or do you want to be investing in technology and facilities that will encourage consumers to continue to buy cars and come to dealers?

Jim Fitzpatrick: Right. I think the question out there, too, is … You just touched on it with technology, and I know that you’re a huge proponent of using technology to drive sales in dealerships. How relevant today is a big, huge mausoleum of a dealership or a Taj Mahal, so to speak, when you’ve got people that are now purchasing vehicles, and it looks like we’re heading to that down the road, where they’re doing the entire process online? How relevant is a huge showroom in a prime location when you’ve got so much of the transaction being done online?

Finbarr O’Neill: Well, candidly, I don’t think consumers want to pay for the marble on your walls. They want a facility that is attractive and comfortable, but they’re there to see the product and to test drive the product and conclude a deal as quickly as possible. My advice to OEMs, forget about enforcing facility standards. Let’s make sure the facilities are competitive, but let’s look forward to the future.

Jim Fitzpatrick: Yeah, for sure. Speaking about the future, how are we gonna handle these 3.5 million vehicles that come off of lease turn-ins and such? What kind of an impact will that have?

Finbarr O’Neill: It’s a tremendous opportunity, I think, for consumers. It’s going to impact new car sales. It’s gonna depress margins. These are very good vehicles coming off-lease, a lot of them will be sold as pre-owned, backed by a warranty or an extended contract. I see it as having an impact on new car sales and certainly margins, and a great deal for consumers because that’s plenty of great product.

Jim Fitzpatrick: Sure. Mike Jackson said, late last year, that car sales were actually up. It happened to be a month that it looked like it was a little bit of a downturn, he said, “No. The sales themselves are up because of the fact that we’re selling so many used cars at our locations.” So, it can be a good thing for the retail dealer, couldn’t it? Can it?

Finbarr O’Neill: I think so. Absolutely. I mean, the dealer looks at the business holistically, and certainly, new cars feeds the beast, as it were. But, at the end of the day, you have to look at, all right, we’ll get consumers. Can you put them in used cars? What other products you can sell them, whether it’s accessories, extended warranty, gap insurance, et cetera. And, of course, the fixed operations. We’ve all known, being through the down cycles, how important efficient and fixed operations are to the longevity of any dealership.

Jim Fitzpatrick: Yeah. That’s for sure. That’s for sure. Speaking of what’s important to the dealership, we’re trying to get our hands around this millennial market. Dealers are scratching their head and they’re nervous at the same time because they’ll hear conflicting reports. One report will say that they want to buy cars and another one will say that they’re attached to their app and they’ll just use Lyft or Uber to get around town. What’s your take on that?

Finbarr O’Neill: You know, you hear analysts say things like that. I think it’s scaremongering. Look, millennials, like other consumers of other age cohorts, like technology. They like to use technology increasingly, whether it’s using it just to do your banking. My wife’s 65 and she banks at home. Dealers really need to understand technology and how to use it. Now, especially with millennials … One thing we found at J.D. Powers, we looked at millennials across all of the consumer touchpoints, whether they were buying insurance or banking or hospitality as well as automotive. While they’ve been slower to adapt, say buying homes, they’re now getting there. Just a delay-

Jim Fitzpatrick: It just took a little bit longer.

Finbarr O’Neill: It took a little longer and some of it, in fact, was sort of the delayed start they got because of the Great Recession, I think.

Jim Fitzpatrick: Yeah. That’s a very good point. That’s a very good point. With technology playing such a powerful role in the sales process, what do you think that the millennials are looking for when it comes to shopping for a car?

Finbarr O’Neill: I think it’s incumbent upon any dealer to take advantage, as much as possible, right from the get-up. We certainly had the BDCs in the past, those have evolved. You gotta think of the sales process as taking place online, that first point of engagement. As you try to get the consumer to the dealership, when they show up, get them in the car, start talking about the features, functions. Use technology to do that. There are a variety of solutions, but it’s clear from the research that consumers who see you engage in technology, and especially … For example, you got a tablet and you can refer them to some third party on the tablet as you’re talking to them about products or a question they have. The trust builds. This higher level of trust.

Jim Fitzpatrick: Yeah, there is.

Finbarr O’Neill: That’s ultimately where you want to get. Certainly with millennials because of their facility with technology, but it does extend across generations.

Jim Fitzpatrick: Yeah. So much so that … I know that you’re, obviously, now as a board member with APCO and EasyCare. They’ve come out with a recent app that helps in that process.

Finbarr O’Neill: Yeah, they have. They have. So many of us go to the dealership and we have a vehicle in mind. Nowadays, consumers even look at inventory, so they have a expectation that they’re gonna see this vehicle. Can they find it? Or is the battery gonna be dead?

Jim Fitzpatrick: Which happens often.

Finbarr O’Neill: You know, what’s the situation? So, the key is to get them engaged with the vehicle and have the conversation about the vehicle right away and get them in the car. Using technology … One of the products that APCO has is SAVY, does just that. [inaudible 00:09:50] lot of other applications because it’s a dongle that plugs into the vehicle under the dashboard. If the consumer wants to keep it, it can be where does the teenager drive the car, it can help you with driving patterns. There are a variety of applications.

Finbarr O’Neill: But this is where technology is going and dealers need to think about it. They need to think all the way through the sales process, even on the backend. My wife went to pick up my Audi at a dealership and they had trouble finding the loaner car. We’re delighted with our vehicle and all, but these are things that can take the friction out of the process and make your team more efficient.

Jim Fitzpatrick: Yeah, for sure. Let’s switch gears a little bit and talk about the subscription programs that consumers are offered by a number of different OEMs and such that are coming out and pushing these. They seem to be a little bit pricey. One just announced, BMW said that their subscription is between $2,000 and $3,700 a month. They say, “Well, of course it includes insurance and maintenance,” but, I don’t know, that seems a little bit pricey to me for some flexibility.

Finbarr O’Neill: Well, there’s a lot of faddishness that goes along with … There was a book written one time about people who jump on fads, the fad surfers. Look, there is likely to be a part of the economy where people will want to share ownership. On the other hand, not everybody is gonna behave like someone who lives in Manhattan, who has a penalty for owning a car because it costs them the equivalent of their rent to park it, and their needs are occasionally to go out to the Hamptons on Long Island, and they can either take a train or rent a car.

Finbarr O’Neill: That’s a skewed view of the world. Most of the rest of us live in an environment where a car gives us freedom, it gives us the flexibility, and is an important part of our lives. I think it’s going to be there. I wouldn’t be very scared of it. I’d watch how these experiments go. This is a challenge for dealers. I know there are dealers who are thinking, “Can I get in this game? Can I tie up all that inventory? How would I market it? Will I get enough people who want to buy a slice of the car?” There’s a whole story about, “I’ve got convertibles, but is anybody gonna want to use those in winter time?”

Jim Fitzpatrick: That’s right. Yeah, that’s a good point. That’s a good point. The auto industry is going through some huge change right now, as you know. We’ve got a lot of disruptors out there that threaten today’s family-owned dealership. Looking down the road 10 years, in your opinion, will the family-run dealerships still exist as we know it today?

Finbarr O’Neill: Well, there’s always a question of scale, but I think so. I think there’s a place for the family-run dealership. I think you have to embrace the change that’s coming. So, those people who say that there will be change are absolutely right, but to say there’s not a place for the dealership … In the way that the distribution process works, the only sustainable economic model is to have points of distribution that are financed by dealers or financed by independent folks with the means to run a dealership. So, there’s a need. There’s nothing particularly unique … Believe me, I’ve worked for corporations. There’s not something particularly efficient about a corporation that couldn’t be duplicated in a family-owned dealership. We all know dealers who are very efficient.

Finbarr O’Neill: So, bottom line, no reason why they can’t, but they do have to adapt. They have to leverage technology, have to understand the consumer. Dealers who spent all these years understanding their consumers in their community, I think they should be open and already equipped to understand how they’re going and where they’re going and to make those adjustments. You don’t have to be on the bleeding edge. I think it’s okay to sort of lean in and be a fast follower.

Jim Fitzpatrick: Sure. We spoke to a dealer last week, and he’s got 22 dealerships. He said that he predicts that in the next 15 years, the retail automotive industry will be made up of 25 large groups and that’s it.

Finbarr O’Neill: Look, we’ve seen consolidation, but there was a rush of it during a period of time. Now, there are below the … Mr. Taylor is one. Sort of below the radar consolidators, right?

Jim Fitzpatrick: That’s right. Yeah, he sure is.

Finbarr O’Neill: Yeah. But generally speaking, no, I don’t think so. I don’t know that OEMs necessarily want the tail to wag the dog either. That was always a big concern. You remember initially-

Jim Fitzpatrick: Oh, yeah. Sure, with AutoNation.

Finbarr O’Neill: … when companies were going public?

Jim Fitzpatrick: Yeah.

Finbarr O’Neill: Yeah. The short answer is I don’t think so. Yeah, there’ll be more consolidation, but looking for this market to be in the hands of 25? No.

Jim Fitzpatrick: Yeah. We had the opportunity to interview Dale Pollak, as I know that you know him. He’s a great thought leader-

Finbarr O’Neill: He is.

Jim Fitzpatrick: … and well-respected in the industry. He made the comment to us that there’s not a good case to be made that a dealer’s franchise will never be worth more than what it is today. He thinks that the value of the dealerships have kind of peaked. In fact, he added to that and he said that not only is the industry in for a transformation, you’ve got to look at your dealer group now to say, “We’re either going to be an acquirer or an acquiree,” and to make up that decision here quickly, otherwise you may lose a big opportunity.

Finbarr O’Neill: Well, there are folks who obviously study this very closely. No one knows data more than Dale in this industry. He’s absolutely right when it comes to, say, there’s going to be change. It’s how you adjust to that. Can you get the scale? Okay, that means maybe you should have more than one dealership. You need to consolidate that overhead in a way so that it allocates out in an appropriate way. The problem I see is saying that, “Well, you don’t have value.” There’s going to be a need for dealerships. If you’ve got the passion for the business and the confidence in your capacity to adapt, why would you want to sell out now?

Finbarr O’Neill: Now, if it’s a generational thing and it’s a family business and someone in the next generation doesn’t want to step forward, that’s a completely personal decision. But if you have that and you are committed to the future, dealers are the last … In my view, and one of the reasons I had so much fun when I was in the OEM side … among the last great entrepreneurs in America. Are you gonna tell those guys that they can’t compete in a changing environment? I don’t think so. I think that they ought to have the confidence. Yeah, there’ll be winners and losers, but there are all the time.

Jim Fitzpatrick: Yeah. Sure, sure. Let’s switch gears a little bit and talk about this topic that frightens dealers a little bit, but digital retailing. They are thinking, “Are we prepared for it? What do we need to do to ramp up? Are consumers really gonna buy vehicles online?” Companies like Carvana have popped up. We’ve seen their funny ads where you bypass the dealership and buy a car right from your laptop or your desktop, or your phone, for that matter. What say you on that?

Finbarr O’Neill: You know, clearly there’s a trend to learning more about products and services online. The big-box retailers have learned, to their chagrin, that people are willing to shop through Amazon, but there are ways to adapt to that. I think you look at Best Buy as one way, where you take on the internet right there and say, “All right. You’ve got a price, we’ll meet or beat.” Right? And take that out. I think where you need to go is just to have that broader view of digital. A car’s too big, too important. You’re not gonna buy a house online, sight unseen. Very rare. Cars also, very big purchase. You want to inspect the merchandise and you want to see if the marketing and your understanding of what you’ve learned online is true. You want to validate, say, what your friends or other thought leaders have said about the product.

Finbarr O’Neill: There’s a place where you need to go to get that. I think dealers need to understand how they’re going to attract the customer, how they’re gonna keep them engaged, how they’re gonna convert them while they’re there. All of that, but there’s no reason why you can’t do it. We talk about SUVs, and then you remember station wagons. Function is the same. It’s a big change, but functionally the same. You think people want to come buy cars? Yeah, the change in the future will be dealers are using maybe fewer people, more technology, whatever, but there’s a need for it, right?

Jim Fitzpatrick: Yeah. For sure. For sure. Switching gears again, service retention. Dealers still struggle by getting those customers that they’ve sold and delivered vehicles to back into their service drive for service. What can be done about that? Less than 30% currently use the dealership for their service on the vehicles that they purchased.

Finbarr O’Neill: Yeah, there’s a tremendous fall off, especially after warranty. Some of that is pricing, and the pricing is often related to the high cost of the facility the dealer’s maintaining. There is a question of whether you can effectively do this. We’ve had those express drive-through solutions and any number of attempts to solve for this. Certainly, keeping contact with your customer base, not having so many lost souls. Use technology, use special offers, and make sure that the experience, that while they’re under warranty, is so positive. You can do that.

Finbarr O’Neill: There’s no reason why people have to come and thought their vehicle was ready and it’s not ready for two or three hours. Again, the technology is there to take that grief out of the process. Yeah, there may be a reason why it’s not ready, but the consumer can already be prepped for that and adjust their day accordingly. If you can get that kind of satisfaction and treatment, then your chances of getting them back to the dealership are higher. Now, certainly you have to market to them, don’t let them be lost souls, and then you have to figure out, “Okay. Now that they’re paying from their own wallet, what kind of a charged structure works for both my technicians and for the consumer?”

Jim Fitzpatrick: Right, right. I think the app that you had mentioned earlier, the SAVY app, has got a mechanism in there that also talks to the vehicle and the consumer to tell them when their vehicle’s ready for service.

Finbarr O’Neill: That’s right.

Jim Fitzpatrick: I mean, that’s-

Finbarr O’Neill: That’s right. This is one of the amazing things, and this is one of the reasons dealers ought to think, really, about selling this. You know, we imagine a future where all of this data comes from the vehicle. Well, right now, you can plug something in to the vehicle that really alerts the dealer and it can alert the consumer as well. Using technology to let them know where their vehicle is, not only if there’s something wrong with the vehicle and what needs to be done, but where they are in the cycle of maintenance, et cetera.

Finbarr O’Neill: The future is now. Yeah, we don’t have flying cars, but we have the technology to intersect the consumer, the vehicle, and the dealer. The chances of getting everybody on the same page about what needs to be done about the vehicle to enhance the ownership experience is right there. Take advantage of it. Really. The SAVY application is one of those things that, yes, not just about finding the car when they come to the lot, it’s also a solution to get them back in for service.

Jim Fitzpatrick: That’s really the challenge that dealers have and if you’ve got a cure for that today, then you’ve built a better mousetrap, that’s for sure.

Finbarr O’Neill: That’s right. If dealers want to succeed, these are the kinds of things they should be looking at for the future, if they can imagine what a dealership looks like five, 10, 15 years from now.

Jim Fitzpatrick: Sure, sure. Well, I know I don’t want to keep you all day here. I’d love to because we can touch on so many other subjects, but before I let you go, for dealers that are listening today that are concerned about the future of their family’s dealerships … I think you touched on a little bit ago … what are your words of wisdom from your perspective? I mean, you’ve been all over this industry, both on retail, wholesale, at J.D. Power. It’s a very unique perspective that you’ve got.

Finbarr O’Neill: First of all, the role of a dealer is, I think, going to survive. The question is, how do I, as a dealer, compete effectively in what I know will be a changed environment? If the dealer is willing to make those changes and make the appropriate adjustments both in terms of the tools that are used and the training of the people, why can’t you be successful? I would put it back to the dealer. Why can’t you be successful? There’s no reason because there’s gonna be a need for a place where people have to come to look at the product, test out the product, get it repaired, and to do that in a way that is very consumer friendly. There’s no reason why dealers can’t do that in the future. Why shouldn’t it be you? That’s what I would tell a dealer who asked me that.

Jim Fitzpatrick: Yeah. Why shouldn’t it be you? Yeah. They’ve got it now, they can take it from there.

Finbarr O’Neill: Yeah. Success not guaranteed. Adjustments have to be made. Be wary of the scaremongers. Be wary of the people who grab the headlines and say, “Woe is me, doom is near.” No. These are opportunities. The Chinese character for risk also includes the definition of opportunity. This is opportunity. If you’re positively acclimated, as I think most dealers are, and you don’t want to take no for an answer-

Jim Fitzpatrick: Oh, no they don’t. They’re a tough crowd.

Finbarr O’Neill: If you look at that, then there’s no reason why you can’t succeed. Forget about the doomsayers.

Jim Fitzpatrick: Yeah. I agree with you. Mr. Finbarr O’Neill, newly installed director of APCO and EasyCare, thank you so much for spending time with us.

Finbarr O’Neill: Jim, it was a pleasure to be here.

Jim Fitzpatrick: Yeah. Thanks again. Love to have you back.

Finbarr O’Neill: All right. Thank you.

Jim Fitzpatrick: Great.

Speaker 1: Thank you for watching Power Lunch on CBT News.