Having up to date and correct insight into industry trends and successful practices is half the battle when running a successful dealership. Joining Jim today to discuss dealer solutions and ways your dealership can become more profitable, is Tom Richards, vice president of NCM’s software solutions division, NCM labs.
Jim Fitzpatrick: Tom Richards of NCM Associates, welcome CBT News. So glad you could take the time out of your schedule, your busy schedule. I understand you flew in this morning from Utah, so thanks for being here.
Tom Richards: No problem. Thanks for having them.
Jim Fitzpatrick: Yeah. You guys did at NCM are really … you got your hands across the country as to what dealers are doing. Share with us some of the trends that you see and some of the insights that you’ve got about our industry these days.
Tom Richards: It’s interesting. There’s a lot of hot topics out there right now with dealers. Some of them are, as you can imagine as the industry probably already knows about. Employee turnover in the car business is always going to be a big concern. Compensation, variable compensation for their people. Are they paying them well enough to keep them around? You’ve obviously have margin compression being a big deal.
Jim Fitzpatrick: Probably at the top of every dealer’s list. How do I make any money on these new cars that the factory continues to send me?
Tom Richards: Right. Can you really sell them for more based on the transparency of the Internet? It makes it extremely difficult. Margin compression’s another one. Some of the OEM guidelines and rules that they’ve got to follow and still be profitable. In my mind, the underlying theme is just the uncertainty as to what happens to our business and our industry in the short run, meaning 0 to 3, 4 years, but also in the long-run. There’s a lot of uncertainty and there’s a lot of fear around uncertainty.
Jim Fitzpatrick: Probably, a lot of dealers that are wondering, is the industry going to be the same or the opportunity going to be the same for my children that may be in college today that it was for me when my father or mother turned the dealership over to me? What is the industry going to look like in just 15 or 20 years with, as we see, autonomous vehicles coming aboard and electric vehicles.
Tom Richards: Changes everything.
Jim Fitzpatrick: [Means 00:02:22] that are selling vehicles directly to consumers and bypassing the franchise system altogether.
Tom Richards: Shared ownership.
Jim Fitzpatrick: Shared ownership, subscription services.
Tom Richards: All that stuff.
Jim Fitzpatrick: Yeah. Let’s drill down on some of those a little bit. What is NCM telling their dealers as they come in about some of these issues?
Tom Richards: I think they’re right to be nervous, but at the same time NCM’s thoughts about it are that a dealership can be successful. You can have a successful dealer model regardless of the market conditions. I think the key really to it, what we encourage them is you have to be willing to evolve.
Jim Fitzpatrick: Yeah, that’s a good point.
Tom Richards: It’s evolution or extinction, one of the two. NCM has a lot of different things it can do to help the dealers and assist the dealers. From consulting the 20 groups and understanding what their peers are saying.
Jim Fitzpatrick: It’s huge. Huge.
Tom Richards: Enormous. Then we have NCMI, which is our our Institute, if you will. We have continuing education, always teaching how to read those tea leaves. Then the part that I’m excited about and what I do here at NCM is the software. What are the systems out there that make the most sense to help manager analytics. Benchmarking is another one that’s really data-driven. The couple of products that we’ve chosen to stand behind and really push and really recommend highly is Axcessa, which is big data analytics, day-to-day managing your business based on the numbers and the reporting that you should be looking at, and getting right down in the weeds like that.
Tom Richards: Then we have health check, which is a benchmarking tool. We take the best dealers within NCM, we create benchmarks and we give them, give access to the dealers. To be able to look at it and say, “Okay, based on where I’m located in the country, regionally based on who my OEM is and based on my size of dealership, what are the benchmarks? What should I be doing?
Jim Fitzpatrick: what do you say … we interviewed Dale Pollack at NADA back in March of this year. He said his feeling was, and I’m paraphrasing here, that there’s never a better time than right now for a dealer to get the most for their dealership if they’re going to sell. He just feels as though that the value is at an all-time high, and if anything they’re going to start to come back down. If you’re thinking about selling your dealership, now is the time to do it. You followed up by saying, “You’ve got to look at your dealership and say that you’re either going to be an acquiree or an acquirer. Do you think that a, do you think that the highest numbers for dealerships are in the rearview mirror?.
Tom Richards: You’re going to put me in a ring with Dale Pollack? Let me, yeah, let me go with him. I actually agree with Dale. I don’t know that if I agree with all of it. I think a lot of it is going to depend. Is there a better time to sell the dealership? If you’re tired of running it. If you don’t want to do what’s necessary to evolve to the next level, yeah, you probably need to think about selling it while the market’s good, because the value of the dealership is going to follow the success of the market if you think about it that way.
Jim Fitzpatrick: As we see that we see the public is growing and the conglomerates out there that are zapping up stores, what’s the future of the, I don’t want to say mom and pop but the smaller auto groups. The groups that maybe have one Toyota Store or one Chevy store or one or two GM stores, will they be around in 20 years?
Tom Richards: I think so. I think they will. I live in a little town north of Salt Lake City called Logan. It’s a smaller community up in a valley. There, we’ve had a couple of our local stores bought by bigger groups and things, but there are still stores that are individually family-owned and have been for a while. I think a lot of communities still like to have that feel. The relationship is important. I also think that as price … how do I word this? The difference between the high price of a vehicle, you would pay for a car, whether new or-
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Tom Richards: The Internet has pushed those margins down, that margin down. The average price is still going to be the average price of the car, but what’s changed mostly is the difference between the high and the low where it could have been a $4,000 price swing between highest and the lowest out there, it might only be a thousand price or less. Now, when price is negligible, how do people make their buying decisions at that point?
Jim Fitzpatrick: Right. Based on experience.
Tom Richards: Yeah, reputation and what they hear about their neighbors and family and friends and the dealership that treated them well. I think that that’s where those local relationships last. However, I would say that the bigger groups are getting really good about managing their cultures within their dealership. They’re becoming more customer-focused and understanding what the customer wants and putting forth a massive effort to meet those needs, so it’s good.
Jim Fitzpatrick: It is. Are your dealers coming to you with concerns about digital retailing and saying, “Hey! Where do we go with this?” The notion that a consumer is going to do their shopping online and then pick out the vehicle and then by the vehicle and then take delivery of the vehicle through some Docusign arrangement and either have the vehicle delivered to their home or go by the dealership just to pick up the keys and the car. Is that around the corner for us as an industry? Is that another 20 years?
Tom Richards: I think it is. I think it’s unavoidable. I think that the days of having to interact, that sales experience from the consumer side can be pretty uncomfortable, if you think about it, depending-
Jim Fitzpatrick: They say that [inaudible 00:08:22] ran a report. What they found that 1% enjoy the current way vehicles are sold at the dealership. 1%.
Tom Richards: 1% and that’s probably the brother of the GM that it gets that-
Jim Fitzpatrick: Could be.
Tom Richards: It isn’t handled normally.
Jim Fitzpatrick: It’s funny because we’ve spoken about it in the industry ad nauseam over the last 50 years or however long that, “Oh! We got to change the way that we take care of our customers.” But it hasn’t moved a whole lot has it? We’re doing better and we’re working at it as an industry, but if you ask most customers today they still don’t enjoy the experience.
Tom Richards: Yeah, but if you are to take today’s customers and put them in that same box 15 years ago they would freak out, think about that. It would be horribly painful. Their thoughts about the current process I think would be much more happy and joyful.
Jim Fitzpatrick: That’s a good point.
Tom Richards: I think that nobody wants to be pressured. I would tell dealers that anybody on the front line, my nephew in law just started selling cars for the first time and he’s 23, 24 and had never done it before. He asked me for a little piece of advice and I said, “Remember something. You’re not selling anybody a car, you’re helping them buy one. I know that sounds like a small nuance but there’s a big difference between how you’re going to approach it. You should be there to help do that buying process and be a little empathetic about the stress they’re feeling.
Jim Fitzpatrick: That’s a good advice that you gave to your nephew as he gets into the industry. I think there’s probably, in large part, that probably speaks volumes as to where the is headed as a whole, is that it’s really more about that customer experience that we’ve been talking about for so long or most recently in the last 10 or 15 years it’s all about the customer nowadays, isn’t it? They’re holding the key.
Tom Richards: Very educating customer. You think about that. That customer comes on the lot looking at a car. He knows more if it’s a used car. He probably knows more about the market, what’s out there, the different prices, the conditions of them-
Jim Fitzpatrick: Because he’s become an expert on just that car versus the salesperson having to know 200 in stock.
Tom Richards: That’s the only one. That’s exactly right.
Jim Fitzpatrick: Do you think it’s possible to take today’s managers at dealerships and make them data experts and know how to play the data game versus hiring new and a whole new skill set into dealerships to say, “Okay, it is a data play. We know that going in now and here’s how you manage that”? Some of my friends in the industry that are my age in their mid-50s-
Tom Richards: So young.
Jim Fitzpatrick: So young, exactly. They look at it and say, “How come we can’t just sell a car? We’ll use the Internet as a means to drive traffic and we get that”, but this notion that big data is going to run the industry and we need to be mining it what have you, do you see a shift in the skill set we’re looking for among the people entering the industry?
Tom Richards: I do, but I don’t think that negates the need to have good car sense, if you will. People that have been in the car business that understand it and they have the ability to look at a vehicle and get it, they get it. They know whether it’s special or whether it’s not special. I don’t think they should make their decisions of what they pay for that car or how they retail price it, but they still need to have that instinct. I do believe that the people that we’ve had in and the seniority and the knowledge been gained by these people is invaluable. However, it is a new, it’s a new game.
Jim Fitzpatrick: It is.
Tom Richards: Evolution is a must to get it. I would go back to putting the weight of that question on whether those people can get it or whether we need to just hire in from a different industry. I think they can get it, but they’re not going to get it without a little push from us, from ownership to say, “Hey look! We’re going to enroll you in this class. You need to learn something. We’re going to provide you with some software. As uncomfortable it is for you to figure out, you better figure it out. They say this ain’t critical, this is important.
Jim Fitzpatrick: From your perspective working with literally thousands of dealers across the country of all sizes and all brands, do you see a common challenge that they’re all faced with, that element that say, “If we could fix this, this one thing, we’d be off and running in our dealership or in our market, whatever the case might be”?
Tom Richards: I really don’t see a common thread that they all share. I think it’s different. I think it’s based on regional differentiation what their markets look like, where they’re at in the country, the economic conditions within the regions that they operate and sell. I think the OEM and the brands they have, I think there are things that they can control and look at, which are the basics, but it’s stuff that they all can get better at, the ratio of new you sold.
Jim Fitzpatrick: Fixed stops and compensation plans.
Tom Richards: Hours per hour, things that drive that business and revenue are all things that they better understand and figure out how do we focus on that. It’s all these little pieces of additional revenue that will add up to success in the long run.
Jim Fitzpatrick: Probably 90% or better of the problems dealers face are more internal than external, not market conditions, not interest rates, not gas prices or things of that nature that we all look to to say, “Uh, that’s going to be”. But you can fix so many things internally in the dealership operation to make up for that profit in a lot of cases. Not all cases but-
Tom Richards: All of which can offset those challenges. All of which can offset those challenges. In some instances like we’ve talked about earlier can actually grow you in those different economic markets. As others struggled and lose market share because they’re not reading the tea leaves and the analytics the way they should. Those are can increase market share and really truly grow in that down swept economy.
Jim Fitzpatrick: I know you guys at NCM have seen that happen with so many dealers.
Tom Richards: All the time.
Jim Fitzpatrick: Tom Richards of NCM Associates, the one and only. It’s a great organization that you’re with. Good luck to you in 2019 and beyond. Keep doing the great work that you guys do with dealers. We appreciate you very much coming into CBT and spend some time with us.
Tom Richards: Thank you. Appreciate you having us.
Jim Fitzpatrick: Great.