Spend Time and Money on Cars that Aren’t Selling Themselves
By: Dennis Galbraith
Auto dealers are awash in marketing options promising to sell more vehicles with less investment. Frankly, it’s no secret among those providing marketing products and services that the best way to demonstrate a fantastic return on investment is to take credit for the vehicle sales that would have happened anyway.
Send direct mail to the dealer’s database of customers, and you are sure to tap a few who were already going to buy – even without the discount the dealer spent so much money to send the customer. Purchase keywords for the name of the dealer’s store and you can take credit for a very low cost per lead, whether or not you change a lot of shoppers’ intent to purchase. Sell a dealer leads for vehicles with an average of 23 days supply and the program will enjoy a fantastic close ratio, even if all those vehicles would have sold just as quickly without the leads.
There are a plethora of great marketing options available to dealers, and many of them do, or can, deliver a fantastic value. However, that valuation is nearly meaningless unless it includes some matching between what vehicles the program helps sell and what the dealership needs to sell.
Market What’s Not Hot
The average Honda dealer has 21 days supply of Pilots, and requires no help selling them. However, those same dealers have an 88 days supply of Fits. The value of a lead on a Fit to a Honda dealer is not worth four times more than a lead for a Pilot; it may be worth closer to 40 times more. The Pilot will undoubtedly fetch a higher gross profit, but it’s going to do that with or without any marketing support. The Pilot is hot, and the Fit is not. At this point in time, most Honda dealers need leads for Fits and not for Pilots.
Jeep dealers have a similar problem. Wrangler inventories represent just 43 days supply, but Renegades are at 78 days. It’s easier and more profitable to sell Wranglers, but many dealers are already going to sell every Wrangler they can get their hands on. A substantial marketing effort needs to be made toward selling Renegades.
Opportunities abound for focusing promotional efforts on specific models. This is vital for dealers. Some of the product provided by manufacturers virtually sells itself, but other models require a substantial, targeted effort to attract buyers. From leads, to website visits, to VDP views, dealers can purchase opportunities for models requiring more promotions without spending money on the hot selling models. The reality is most dealers either purchase these promotional services for their entire inventory, or none at all.
About the only time an all-or-nothing purchase makes sense is when the entire brand is hot or cold. Subaru stores have a 23 days supply of vehicles. Consequently, many Subaru dealers do no advertising whatsoever. Buick has no hot sellers. With a three-month supply of SUVs, and a four-month supply of cars, every model is 75 days supply or higher, compared to the national average of 59 days.
What is hot in one market may not be in another. BMW inventories are generally under control at this time, but some dealers hold more of one or two models than they should, and need promotional efforts to sell those overstocked models. Luxury brands, in particular, cannot afford to have their dealers running blowout sales when finding themselves overstocked in a particular area. This can cause damage to the image of the brand, as well as the store representing the brand in that market. Search Engine Marketing, LotLinx, direct mail, email marketing, and the purchase of leads can all be targeted for specific models without sending distress signals.
Change Your Promotions to Meet Inventory Levels
A dealer’s promotional mix needs to change as inventory levels change. Dealers need to sell what they have at the time, and promotions need to change accordingly. Old metrics like Cost-Per-Click (CPC), and Cost per Lead can be a deathtrap for marketers. It will almost always be easier and cheaper to obtain site traffic and leads for hot vehicles than for those vehicles dealers struggle to sell. Trying to optimize for the lowest cost click or lead is almost certain to lead to an abundance of inexpensive traffic for the vehicles the dealer has no trouble selling with or without advertising.
A case can be made for getting the customer in on whatever vehicle one can, then turning them on to another model. There are two primary challenges here.
- Most dealers pay their sales teams based on gross profit, and the vehicle with the most gross profit potential is usually the one in short supply. If the store operations don’t facilitate vehicle switching, it is pointless to advertise toward this objective.
- Many dealers find this strategy more difficult today than it was years ago. Shoppers’ access to online information generally sends them into the store more informed and focused than in years past.
For those willing to try a switching strategy, custom content and other SEO activities may provide the best return. Hot vehicles tend to stay hot for many months or even years. This extends the long-term return on investment from SEO activity. Custom content can promote the hot vehicle and begin to introduce the alternative vehicle.
Promoting specific models based on demand requires more work, but that is the work vendors should be doing for the dealer. The dealer’s need is for transparency, to be able to assess whether the right activity is being performed relative to the inventory the dealer has or will have. Top dealers share pipeline information with helpful vendors. This assures promotions are aimed at the inventory mix the dealer will have when the campaign is in progress, not just what is on the floor when marketing decisions are being made.
Vendor-dealer relationships cannot be limited to whether or not a purchase will be made. In the modern world of marketing, vendors don’t even know what to offer unless they understand the objectives of the dealership. Dealers need to evaluate vendors based on their ability to achieve specific marketing objectives. Hundreds of leads for hot vehicles and few leads for those models already overstocked is a prescription for disaster, even if the old metrics like CPC and Cost per Lead appear fabulous. Vendors need to listen, and dealers need objectives which are more specific than simply selling more cars.
Sidebar: The Looming CPO Challenge
Auto manufacturers have some degree of flexibility to alter the number of new vehicles produced in response to consumer demand. With CPO vehicles, there is virtually no flexibility. The mix of vehicles coming off lease or being defleeted is going to hit the used vehicle market and there is nothing anyone can do about it. CPO programs were designed to help elevate residual values, but the flood of late-model vehicles pouring into the market over the next few years will be both a challenge and an opportunity to every brand.
The nightmare scenario is one where off-lease vehicles flood the market at the same time a decline in new-vehicle sales is causing downward pressure on new car prices. That may be exactly the market dealers will face over the coming months and years. Not only have new vehicles set sales records, they have done so largely on the back of leasing activity. Add to this the fact that the mix of vehicles leased when gasoline prices were high three years ago is not the mix shoppers are demanding, as those vehicles come off lease, and the market begins to look challenging at best.
On the plus side, dealers enjoy better tools than ever before for knowing what is and is not in demand at any given time. More importantly, they have access to better tools for promoting specific vehicles. Some CPO opportunities will be a quick sell with little promotional effort. Others will require either patience or promotions, often with the cost of the former exceeding that of the latter.
Residual values are already coming down. Whether the depths of this challenge hit the market this year, next year, or shortly after is anyone’s guess. While uncertainty exists regarding when this crunch will happen, there is no doubt it will happen – and what savvy dealers need to do is prepare for it.