Dealer focus must be on customers, inventory and employees to speed ahead of the competition. BY JENN REID
According to the National Automobile Dealers Association’s Chief Economist, Steven Szakaly, automakers will likely sell nearly 17 million vehicles in 2015 – up 3.3 percent from 2014 predictions. While we have solidly returned to pre-recession levels, the cautionary tale in 2015 is don’t be fooled by the sales numbers. We cannot go back to the way we did business before the Great Recession.
Dealers will not thrive by simply “selling more.” Profitable dealerships will continue to look for ways to reduce operational inefficiencies and poor expense management, and those that continue to take a smart, holistic approach and optimize revenue from all areas will reap the benefits. Ultimately, the winners in 2015 will keep evolving their business models and efficiently maximize every area of their business – customers, inventory and employees – while putting customer experience and customer retention at the top of their priority list.
2015 Customers: Millennials, Commercial, Certified Pre-Owned
First, let’s look at the types of customers we’ll see this year. The “educated shopper” will continue to evolve, driven by increased transparency and customers shopping online versus in the dealership.
More sales will come from the millennial demographic as the job market improves. To effectively work this group, which has been “stunted” economically, dealers will need to deliver the right customer experience. This demographic does not respond well to “pressure” tactics and appreciates being given the information they need to make a purchase decision. Dealers will need to balance the expectations of this group with their older baby-boomer demographic that is likely downsizing and opting for reliable, practical transportation.
With continued improvement in the construction and building sector, we might also see increased demand for commercial vehicles, which will be a niche opportunity for dealers with truck lineups. The used vehicle market will also continue to be a great opportunity for dealers to grow their business and help offset new vehicle margin compression. As more companies focus on this segment, competitive pressures should increase for smaller dealers, which will drive the need to focus on customer retention.
Although used prices will likely remain strong compared to pre-recession levels, they might soften compared to 2013 and 2014 due to the large number of units going through auction lanes in 2015. Dealers must watch their inventory turn. Getting vehicles through the service department and listed online will be critical to achieving success. Many service and parts departments at both franchise and used dealerships will likely be dealing with limited parts supply and increased warranty work from recalls. Open communication around those limited parts can help prevent the purchase of vehicles that may eat up margin due to delayed reconditioning from waiting on parts. With the increase in several customer segments – millennials, commercial and CPO – 2015 should be a great year to look at marketing and retention plans in the service department to help recapture customers lost to the aftermarket shops.
In addition, continued CFPB activity will likely cause some quiet lender credit policy retrenching, meaning lenders will in turn continue building up dealer monitoring programs. The finance and insurance department will be at the crossroads of this monitoring, and one key area that all dealership owners should be stressing to their F&I managers is that accuracy is important when it comes to customer information.
This department is on the front lines of taking care of customers, ensuring they understand what they purchased and proactively working with the sales team to mitigate customer complaints. The key, however, is working with customers to find a resolution when there are concerns raised.
2015 may also be a year operators should consider F&I pay plans, and instead of compensating just around gross, look at options to compensate for dealership risk mitigation. For years, the F&I department has been one of the best revenue sources; however, it can now also be one of the greatest liabilities. Compensation drives behavior, so they should perhaps look at options to remove the pressure to “just deliver” and look at ways to empower F&I managers to deliver the right customer experience. This will also help mitigate fraud and prevent the dealership from being exposed to sophisticated fraud schemes.
With the increase of sales coming from millennials in 2015, F&I offices also need to ensure they have the right mix of lenders. Don’t “shot-gun” thin-file applications out to multiple lenders. This approach does not promote a good customer experience. F&I managers should put their lender relationship managers and credit underwriters to good use and promote education of their programs.
One final area that cannot be ignored is employee retention. As the economy continues to improve, dealership personnel will have more employment options open to them. Dealers need to continue to recognize that employees are the cornerstone of their business and look at increasing investment in the workplace to help employees maintain a quality of life balance. Dealers should also offer opportunities for career development, such as job shadowing and mentoring in other areas of the dealership, and training, which can be as simple as partnering with local associations.
Also important is showing employees the value they bring both to their customers and the community. Dealerships play a vital role in their communities, and 2015 needs to be the year to promote that. If dealer owners are unable to be active in their local and state associations, then consider nominating a representative and making it financially feasible for them to actively engage.
From a hiring perspective, look at segments such as recent college graduates. Providing graduates with well-paying jobs can, in turn, bring a fresh perspective to dealerships. Career centers at local universities and colleges can be a great way to connect, and dealers should consider summer internships. Another employment segment to consider is the long-term unemployed, which in many cases can bring great former experience.
2015 will certainly be a year of continued evolution and competition, and what dealers do over the next two years may help define what the next 20 years will look like. To succeed, dealers need to focus on the basics: customers, inventory and employees. Pay attention to all the details and you can take your dealership to the next level.