From our CBT Automotive Studios, Brian Finkelmeyer, Director of Conquest at vAuto, is joined by Chad Kirchhoff, Director of Operations with Tom Wood Auto Group. They discuss a variety of industry trends including new and used vehicle sales, sales growth and how Chad and team are driving success throughout all seventeen of their dealer franchises.
Brian: So let’s get right into it. So in terms of growth, I mean is your auto group, what is sort of a realistic outlook in terms of sales growth for the entire auto group?
Chad: Well for our auto group we have 17 different franchises and when we take a look at that, we had a record year last year. We’re looking to increase on that a little bit this year. Overall, we’re gonna be a little bit up and new and up about five percent in used, so continued growth and still looking for a record year coming up in 2018.
Brian: You know Chad, when you work with your dealerships across those 17 franchises, what are some of the big challenges you’re facing on the new card side of the business today?
Chad: Well with the new car side obviously the compressed margins. They’re not what they used to be and they’re not coming back so trying to find new ways to squeeze more juice out of the orange as we’re going through the day. And then on top of that we’ve been able to do a good job of increasing our gross as a group over the last three or four years. We’re trying to find a way to cut down on some of those expenses. So able to take more of it to the bottom line. So got a few priorities ahead of us for this year.
Brian: So when you talk about margin compression, but then I’m hearing you say you’re actually having some success growing your gross. Is that brand specific or is that sort of new strategy overall that’s bearing fruit?
Well we’ve grown our sales quite a bit. Since 2008 we haven’t quite doubled, but pretty close to doubled so we keep setting record year. So it’s the amount of volume that we’re putting through that’s increasing the gross. Now it’s just a matter of trying to keep the expenses in line so that way we retain more of it to the bottom line.
Brian: You know one of the big things we’re hearing when it comes to expense is that the Fed is likely to continue increasing interest rates. We believe that’s probably gonna have some impact on dealer’s floor plan expense. In fact, I saw NADA reported in 2017 floor plan income is down over 50% from just over two years ago. What are you guys doing to manage your inventory more efficiently to sort of keep that floor plan source as an income generator versus and expense line?
Chad: Well that’s one of our key metrics for the year to try and tackle the floor plan expense. What we’re looking at is more gap analysis and also the turn rate we have on new and used cars. So it, usually that’s pretty common on the used car market, but we’re trying to do more of that on the new card side. Some of that is through the Conquest Program and some of that is just through better inventory management. But trying to really focus on any units that’s aging out on new and setting some timetables up there as well like you do with a used car. You might have a 60 day policy or 45 or a 90 policy. Trying to set some of those policies in place on the new card side. As you turn those quicker you’re gonna get more PDI. You’re gonna get more turns. You’re gonna get more UIO. And really realizing the cost per day and the holding cost is gonna be a key factor in 2018 for profitability. Our holding cost per store ranges anywhere from $25.00 to $71.00 per day. And as we continue to drive that number down, we’re gonna get better return on our investment.
Brian: This year I believe the combined forecast of each of the car companies in the United States is upwards of 20 million cars, but you and I both know that the market’s probably gonna retail close to 16.5 to 17 million. So there’s a production issue there at a lot of brands where there’s more supply than there’s demand. I’m just curious, how’s your dealer group kind of managing that from a, you know, how much you take and how much you looking to stock? Do you guys have certain guidelines of what a reasonable day supply is at your stores?
Chad: Yeah, on the used car side it’s, you know, your 45, max at 60. And then on your new card side we’re looking at a 90 day supply. So we try to manage down to that and some of our stores are under 60 and some of our brands, like our Lexus brand, you’re getting under the 30 day to the 25 day, which they’re trying to manage nationally. So depending on manufacturer it changes quite a bit, but when we take a look at it as a group we try to really target those stores to stay under 90 days.
Brian: That’s great. So Chad, with today’s online shoppers spending the vast majority of their time researching vehicles online, could you talk a little bit about Tom Wood’s digital marketing strategy?
Chad: Sure. The traditional model is pretty much going away. I’ve had some experience on the EOM side and working with some of the tier two marketing out there. And when you look at the traditional side there are a couple factors out there that’s a little bit more expense. Actually a lot more expensive and it’s tough for a dealership group to do and do effectively. So we switched probably 65 to 80% of our dollars depending on the store over to the digital platform. And as we’re taking a look at that we’re trying to hit the customers at the Z Mot or the Zero Moment of Truth when they’re truly in the market, have the tier one and tier two messages carried on the bigger platforms. But then when you get out on the digital where you can have a rifle approach really target in on that specific customer and then follow them through their buying cycle and purchase cycle to make sure that we could deliver on their expectations. So really trying to rifle in on that customer when they’re in market.
Brian: We’re seeing that the average cost per new vehicle sold in terms of advertising expense continues to climb. NADA reported last year it was close to $650.00 per car. What are some of things you guys are doing to try to work on, you mentioned earlier expense control in 2018. Is advertising efficiency a big focus for you guys in 2018?
Chad:It really is. Again, moving over to digital from your traditional models has helped out quite a bit. You take a look at the cost of a TV ad verus what you do for a campaign on digital and you can target the customers a little bit better, significantly better. And then you could also hit the customers that are in market so you’re not wasting your marketing dollar. So very specific, very in tune with where the customers are entering and leaving the market by their buying signals and really trying to focus in on that.
We also noticed that your cord and cutters, you look at 2016 that was about 16.7 million. It’s up to 22 million. New reports are showing there’s a millionish cutting every month. And more important than just the cord cutters are the never subscribers. So as new customers are coming up, graduating from college and joining the marketplace, they’ve just never subscribed to the traditional models so you’re having to reach them through alternative methods, digital platforms, pre-rolls and trying to find the customer where they’re at and not where they used to be.
Brian: So, you know, I’m hearing you say that a lot of your focus and emphasis is on digital. I’m just curious, I mean is there any piece of your marketing allocation that’s still on radio, print or television?
Chad: We do, do some group branding. Again, we have multiple franchises so we do an overall brand campaign for the Tom Wood Group just to keep the name out there and awareness. Having that brand halo, is a much smaller percent than it used to be. But having that also does create the awareness that when a customer is in the market to drive them organically to our websites, which is a cheaper cost to market.
Brian: That makes sense. So Chad, as you look across your whole group of stores, is there any brands or dealerships in your portfolio that you’re particularly bullish about this year?
Chad: Well with the 17 plus millions, are bullish on all of them actually. When we take a look at the different brands out there on the domestic side, the full size SUV and pickup trucks are on fire. I could see that continuing. When you look on the luxury side, there’s so many new entry levels coming in. For example, Lexus has so many entries coming in this year you’re gonna see that brand really take a boost up from where they’ve been for the last year or two. And then as the market continues to change you have brands like Nissan that are just so quick to react to the market that you’re gonna see that one just continue to thrive.
So I think as you look across, I don’t see any brand that has a significant downturn ahead of it. So we’re bullish on all of them.
Brian: That’s great. Well Chad, I got one final question for you. I know managing people is one of the biggest challenges in operating dealerships today and I was wondering if you had any advice for the Indianapolis Colts there in Indianapolis to help them find a coach?
Stay patient. The right person will come. And if it’s not the right fit and if he wasn’t wholehearted into it, we’ve got no issues finding somebody else who’s fully committed to the Colts.