Why Your Dealership Can No Longer Use a General Approach to Incentives – Tom Murphy & Dave Zuchowski, Scilicet


At NADA 2020 in sunny Las Vegas, host Jim Fitzpatrick was joined by Tom Murphy, Founder and CEO of Scilicet and Dave Zuchowski, Former CEO of Hyundai and Advisor to Scilicet.


Jim Fitzpatrick: Thank you gentlemen for joining me here at CBT News.

Tom Murphy: Thank you for having us.

Jim Fitzpatrick: Sure. So let’s jump right in. Talk to us a little bit about, for the people that are not as familiar as I am with Scilicet, talk to us about the solutions that you guys provide.

Tom Murphy: So Scilicet essentially at its core is a collaboration platform that aligns or allows the dealer and the disconnect into his environment, which is significant to align, first and foremost. And then, for the manufacturer to align as well, such that they’re able to contribute to the deal in real time. Which makes for far more efficiency than they’re able to enjoy today on both counts, the dealer and the manufacturer. So we’re able to make a big difference in the deals that they would have lost.

Jim Fitzpatrick: Right, got you. Now Dave, everyone knows, in the industry, your background and you’ve done an incredible job at Hyundai and dealers… you’re a dealers’ OEM, if you know what I mean.

Dave Zuchowski: Sure.

Jim Fitzpatrick: Right. And as a former dealer, that makes a big difference in a dealer’s life. When you know the OEM’s got your back and you’re working in tandem with one another, right? Talk to us a little bit about your involvement with Scilicet. You’re on the advisory board. What do you bring to the table? What’s the future of the company?

Dave Zuchowski: Well, I think the future is very bright. I met Tom several years ago when I was still in the OEM world and he presented a solution that to me, was way ahead of where anybody else was thinking. That applying artificial intelligence… Really what it is, it’s dynamic pricing, to a model that’s really broken right now. If you look at incentive spending in our industry, the number one line item for expenses for any OEM is sheet metal, which makes sense.

Dave Zuchowski: The number two line item is incentives.

Jim Fitzpatrick: Really. Wow.

Dave Zuchowski: And incentives now have gotten to the point, at north of $4,000 a car, where it’s equal to or greater than the margin on the car. So something’s broken, something’s not working.

Jim Fitzpatrick: That’s right.

Dave Zuchowski: And you can no longer use a general approach to incentives, because if you put another thousand dollars on a vehicle, nine of those 10 people would’ve bought the car anyway. So you’re spending a lot of money for a very little bit incrementality. So how do you actually measure incrementality? How can you use AI to predict where it makes sense to spend money and where you can afford not to spend money? And that’s what really intrigued me. It’s, complicated and I don’t pretend to know the back-end piece of it, but the concept is so solid and so far ahead of anybody else. It’s incredible.

Jim Fitzpatrick: And especially now that we’re in an environment where dealers need every nickel they can get their hands on because of margin compression. It’s a whole new ball game now, right? We’re throwing cars out on the street and making zero on the front end of so many of these deals. So they need to make it in every possible way they can and the smartest way they can. Right?

Dave Zuchowski: Absolutely. One the key things that this does is it provides transparency. There’s many different forms of gross profit, right? There’s the front-end margin to the extent that there isn’t any anymore. There’s packs, there’s holdbacks, there’s doc fees, there’s a lot of things. But in many cases the people on the desk, the people making the deals, don’t have full visibility to all of that. And they think they’re a lot further apart on a deal than they may actually be. And so this is another tool when you’ve gone as far as you can go, and you can flip it over to this and you’ll put a lot of those deals together that you wouldn’t have before.

Jim Fitzpatrick: Tom, talk to us about the numbers. Because last time you were in the studio, they were crazy. We’ve got a lot of feedback from our viewers that said, “80%? Really? What’s the deal on that?” So talk to us about that.

Tom Murphy: They’re right. It is crazy. I’m only marginally more comfortable saying them now, myself. And I’m seeing them come in consistently. It was much easier after the first month or two where I could say, “Well, don’t think I think this is real.” The problem is it’s continued without fail, really. For instance, last month. Now, you have to remember that our solution becomes relevant when the desk gets to the point that they’ve decided they don’t have a deal. So we’re measuring our success against those opportunities.

Jim Fitzpatrick: Right. That they’re ready to do away with and say, “We’re done.”

Tom Murphy: They’re throwing their hands up, saying “I’m all in.

Jim Fitzpatrick: Right. There’s no more fun in this game.

Tom Murphy: I’m all in and we’re too far apart.

Jim Fitzpatrick: That’s right.

Tom Murphy: And all they do is turn to our system with that number. And last month, the worst that a dealer did was 51.67% of those deals were delivered, and as high as 83%.

Jim Fitzpatrick: Yeah, that’s crazy.

Tom Murphy: I agree.

Jim Fitzpatrick: So Dave, from your perspective, you’ve worked with dealers all over the country. How important is a tool like this today, when pricing is bringing down the gross profits, dealers obviously are challenged in making any money. I don’t need to tell you what dealers are challenged with.

Dave Zuchowski: This is critical. Again, what it does is it gives visibility to every possible gross profit that could be included in the deal, and most people in the store don’t have that. They don’t know the advertising credits, they don’t know the floor plan credits, they don’t know the packs. They don’t know doc fees all the time. They don’t know all this stuff. All of those things go in to making a deal, and they’re turning down a deal and walking their customer, when in fact all those related things to a delivery aren’t brought into consideration. And I think that’s what Tom’s solution delivers to the party, is that let’s make a fully educated decision before we decide to make a very expensive decision to walk a customer. And it doesn’t exist right now.

Jim Fitzpatrick: And when you think about the enormous cost that it took to get that customer to that point, sitting in front of you going, “Yes, I’ll take delivery of the car.” If you can meet this criteria.

Dave Zuchowski: Exactly.

Jim Fitzpatrick: You know what I mean?

Dave Zuchowski: Yeah. I can remember on the OEM side where we’d go into a dealer and every dealer says they’re not making enough gross on our cars and stuff. And we would actually go through and do a report that says, but remember, you got $20,000 from us in floorplan credits this month and $15,000 from us in advertisement credits, and we paid you $22,000 in the stair step program. So before you start whining and stuff, let’s add all these numbers. And really what this does for the decision maker on a deal, it essentially takes all those different buckets of money and lets you make a decision based on everything, not on partial information.

Jim Fitzpatrick: That’s exactly right. So a tool like this, moving forward… because stair steps are not going to go anywhere. We might bitch about them in the industry and dealers will say, “We don’t like them,” and some like them, some don’t like them. But at the end of the day though, I don’t think they’re going anywhere, right?

Dave Zuchowski: I think what will happen is you’ll get less variability from zero pay to high pay. It’ll be more compressed, so it’s less controversial, but they’ll stay.

Jim Fitzpatrick: That’s right. Which puts even more pressure on a product like this for dealers. Moving forward, it’s going to be one of these deals that is not a nice to have, it’s almost going to be a must to have, right?

Tom Murphy: I sure hope so.

Jim Fitzpatrick: That’s the plan, anyway.

Tom Murphy: So Dave spoke very accurately to one of the sources of funds that we make visible, but it’s important to understand we make that visible to the operator, which is not the desk. Because it isn’t visible to the desk for a reason, and dealers are-

Jim Fitzpatrick: Yeah. They’re going to give it away from dime one.

Tom Murphy: Well, for whatever the reason.

Jim Fitzpatrick: Yes, I was an old desk man, I know.

Tom Murphy: The dealer chooses not to make that visible. The problem with that is it’s not visible when they’re decisioning a deal, right? So what our system affords is for the dealer to have omnipresence. We like to say that whoever has piano responsibility now has omnipresence. So if you think of it as a save a deal with the benefit of all of the institutional knowledge in the organization being present in real time before you allow the customer to leave., right? So in that moment, between a desk manager saying, “We’re 1,200 bucks, we’re 1,800 bucks,” whatever the number is, in that moment when he’s come to that conclusion, before he expresses it to the customer or the salesperson or whomever, he turns to our system, tells the system I need $1,800. And in the background, the operator has set up conditions upon which he would make that available or not as the case may be.

Dave Zuchowski: The other thing I like is there’s several ways to model this. So a dealer may decide to set up a budget of incremental dollars that it would use, up to a certain point you’d be willing to use, to put deals together.

Jim Fitzpatrick: Oh, you can set that? You can set those barometers?

Dave Zuchowski: Right. Every individual store could. Or they could decide, maybe we’ve got, maybe we’re spending… traffic’s not a problem, but conversion is, and maybe we can pull back a little bit on advertising and redeploy those advertising dollars into a conversion dollars type of deal. Or maybe some of these leads, we’re spending 35 grand a month on leads, maybe we’re not getting the most efficient use out of those. Maybe we cut back on those a little bit and redeploy that money. So recognizing that margins are razor thin to begin with, it gives you another lever to pull for improving efficiency of your spend.

Jim Fitzpatrick: That’s right. And having a tool like this, with a skilled desk manager, he’s going to know what he’s making on the back end, he’s going to know what their dealer fee is. They’ve got the whole picture right there, right? Rather than this guessing game.

Tom Murphy: Well, what we know is that what they know now is insufficient. The resources that are being brought to bear in that moment, in the moment of truth, are not sufficient more often than not. And in our system, it makes those deals that would have otherwise walked, it makes more than half of them, pretty consistently today. So for us, we’re pretty excited about, as Dave mentioned, what we call dependent income. All those monies that aren’t being realized if you don’t do those deals. We cobble that together and bring it to bear on the deal. We also, as Dave just described, we have what we call budget redirect. What’s powerful about budget redirect is there’s 100% attribution and 100% ROI.

Jim Fitzpatrick: Wow.

Tom Murphy: So it’s a no risk alternative, right? So to Dave’s point, most dealers will agree that not every advertising dollar is equally effective, right? There’s some that you’re not quite so sure about. Well, with our system, what you can do is take that money allocated into our system with the full knowledge that it can’t get spent apart from transacting your deal, right, or contributing to the deal. So you’re literally saying, “Well, this dollar, instead of giving it to a third party vendor in the hopes of driving another lead, we’ll put it in this system and guarantee the close of another deal.”

Jim Fitzpatrick: Yeah. It’s phenomenal.

Dave Zuchowski: And every dollar that you do that with… What’s really interesting is the dealers that have discovered that are like mad men, right? This efficiency, everybody’s interested in efficiency, right? As the sword dips, everybody’s going from top line to bottom line. Well, efficiency in and of itself is not going to be a competitive advantage. We’re all doing that as dealers. We’re all looking at that and trying to squeeze out a buck. Well, with our solution, rather than taking a $10,000 savings out of whatever department and putting it to the bottom line, in which case it’s 10 grand saved, that’s wonderful, but it’s only 10 grand.

Dave Zuchowski: In our system, it is by definition more than 10 grand.

Jim Fitzpatrick: Wow. That’s fantastic. You’ve built a better mouse trap. That’s for sure.

Tom Murphy: We’re hoping so.

Jim Fitzpatrick: Dave and Tom, I want to thank you so much. For dealers that are watching right now that want to learn more about Scilicet, it’s Scilicet.com, right?

Tom Murphy: It is.

Jim Fitzpatrick: We’ll show that on the screen. And having a great show out here at NADA. But for those dealers that weren’t able to make it out to NADA, you owe it to yourself. Take 30 minutes and learn more about Scilicet. I’ve seen the project, or I’ve seen the program that they offer. It’s phenomenal. It can only make you money, not cost you money. So I like programs like that. So gentlemen, thank you so much for joining us.

Tom Murphy: Thank you.

Dave Zuchowski: Thank you very much.