NADA 2018 REVIEW APRIL 2018 - BDO Australia

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NADA 2018 REVIEW APRIL 2018 - BDO Australia
NADA 2018
REVIEW
APRIL 2018
NADA 2018 REVIEW APRIL 2018 - BDO Australia
NADA 2018 REVIEW
APRIL 2018

CONTENTS

1    INTRODUCTION

2    LEVERAGING THE DIGITAL GIANTS: GOOGLE, FACEBOOK AND TWITTER

3    CONVERT FACEBOOK ADS TO OFFLINE CUSTOMERS

4    10 MOST IMPORTANT SOCIAL MEDIA TRENDS

5    7 HABITS OF HIGHLY EFFECTIVE CAR PEOPLE

6    NOT ALL CUSTOMERS ARE CREATED EQUAL

7    MODERN SALES MANAGEMENT – BREAK PLATEAUS & DOMINATE TODAY’S MARKET

8    THE SCIENCE OF MANAGING, MOTIVATING AND MARKETING TO MILLENNIALS

10   GAME CHANGERS DRIVING WHOLESALE EFFICIENCY AND INVENTORY VELOCITY

12   THE DEALERSHIP OF TOMORROW – AN UPDATE ON A 2016 STUDY

13   THE DEALERSHIP BUSINESS MODEL OF TOMORROW
NADA 2018 REVIEW APRIL 2018 - BDO Australia
NADA 2018 REVIEW
APRIL 2018 // PAGE 1

INTRODUCTION

The 2018 National Automotive Dealers Association Conference              There were a number of sessions about the dealership of tomorrow
was hosted in Las Vegas. This annual event continues to be the           and although the speakers concluded that dealers need to fully
largest dealer convention in the world, this year with over 25,000       embrace social media, data mining and other on line tools available
people attending from over 50 different countries. BDO Automotive        to them, they did not see the overall dealership model changing
attended and here is what we took away from this year’s convention       significantly. They envisage some reductions in the number of
and how it will affect Australian dealerships.                           dealerships, but recognised that consumers still want the final
                                                                         interaction with the dealership at their site, including a test drive.
There were 60 different seminars with 102 educational sessions
and in the following pages we share the key points and learnings         Staff retention continues to an issue in the sector and this coupled
obtained from the sessions we attended. The convention is based          with a perceived lack of trust by the consumer in salespeople formed
around a huge exposition where over 550 suppliers to the motor           the basis for a number of seminars. The millennial generation is the
sector, including all the largest manufacturers such as Ford, General    largest to date and will in the next few years become the dominant
Motors and Toyota, showcase their goods and products. This               generation in the workforce. They have different views and attributes
enables the attendees to see at first hand the new technology, new       and as business leaders, dealers need to understand this group.
products and systems available in the sector which may benefit their     They are more mobile than previous generations, want to make
dealership.                                                              a difference and want to work collaboratively, dealers need to
                                                                         incorporate these values into their employment proposition.
Staged around the expo are the workshops and seminars that
continue to provide not only “best practice” and new ideas for           If you would like to discuss any of the topics raised in the document
dealers to consider but also, and just as importantly, remind dealers    please do not hesitate to contact us.
of some of the basics and how important it is to get these right. They
cover topics from HR to legal and accounts, sales and after-sales to
social media and technology.
For the first time the conference included peer to peer sessions
where dealers could discuss and learn from each other with these
sessions being facilitated by the relevant speakers. The motor sector
in the US continues to fare well with sales in 2017 over c17.5m
vehicles which was in line with 2016. However, they are starting to      MARK WARD                           RANDALL BRYSON
see a slowdown in the sector but this would appear to be behind          NATIONAL LEADER, AUTOMOTIVE         PARTNER, AUTOMOTIVE
that in the UK where new registrations started to slow twelve
months ago.
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LEVERAGING THE DIGITAL GIANTS: GOOGLE, FACEBOOK AND TWITTER
PHIL SURA, PETER LETO (Google), PHILLIP RATHER (Facebook), CHAD RUMMINGER (Twitter)

This was promoted as a “super” session and focussed on how dealers     In terms of a good budget for digital marketing, Google                  Facebook promoted their “dynamic ads” to drive dealership traffic
could leverage Google, Facebook and Twitter to drive sales and         recommended a minimum budget of $100 per vehicle sold on                 and quoted a dealership ‘Darcars’ who used them to increase
service bookings. Each speaker was an automotive Tier 3 specialist     Google Ad solutions (based on it driving 60% of your traffic). All       website traffic resulting in over 45,000 vehicle detail page views in
and were head of their respective industry groups with a view that     speakers warned against evaluating digital effectiveness based           three months, at 92% lower cost per view than other ad streams.
95% of the auto sales and service intenders can be reached if you      on the “last click”, as the path to purchase is complex from early       Facebook also showed examples of “messenger bots” which they
leverage digital channels appropriately.                               discovery, to research and finally purchase. They all agreed on          said were perfect for sales and service.
                                                                       the importance of video with 80% of online traffic being video
A key message from the speakers was unsurprisingly that the most
                                                                       consumption by the end of 2018.
effective digital campaign encompassed all three mediums. Google
was all about intent; “where else can you go looking for customers     In terms of aftersales the speakers thought that much more could be
where they actually raise their hand and indicate they want to buy?”   made of digital to “make customers for life” and showed examples
Facebook is unique as focussed on the social aspect of buying a car;   of contact with customers after their purchase including a dealership
you log in as you and share your intent, and learn from people you     who used Facebook to reach current owners who had never brought
know. Twitter argued that their users discovered content outside of    their car back for a service with a coupon for a cut price oil change.
their social network and 8 in 10 twitter shoppers want to see dealer   Google argued that shoppers who service their vehicles at your
information on the platform.                                           dealership are three times more likely to buy their next car from you.
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CONVERT FACEBOOK ADS TO OFFLINE CUSTOMERS
SCOTT MEYER

This was a lively, entertaining and really interesting session and one   A professional set-up on Facebook allows you to measure                 Facebook measurement allows you to upload CRM sales data, and
we would recommend that you catch up on as most of the content           conversions, integrate with your inventory, and manage your             then matches to Facebook users and measures how many customers
is available in video format from Scott Meyers’ website.                 marketing team and partners. Scott advocated the set up of the          saw an ad before purchase – very powerful!
                                                                         following items to best use Facebook and there is a free video course
Meyers explained that Facebook aggregates attention, which means                                                                                 The ability to select audiences based on geographic, demographic,
                                                                         on his website – 9clouds.com/nada:
it can easily add or highlight specific content, including its own                                                                               CRM-based custom audiences and engagement audiences was
video content (like Netflix), their own Marketplace (like Craigslist)    • Facebook Business Manager – business.facebook.com                     fascinating if not a little scary given the level of data held by
and their own ads. Facebook controls data and attention through                                                                                  Facebook.
                                                                         • Facebook Pixel – Ad account>tools>pixels –
four of the most popular apps and websites (Facebook, Instagram,
                                                                           (this tracks behaviours)
Whatsapp and Messenger).
                                                                         • Facebook Offline Events – Business Settings>Offline Events –
The average person spends over 50 minutes per day on Facebook.
                                                                           (this measures effectiveness)
It is the best place to find potential customers. What’s more, email
address and contact information on Facebook is reliable and,             • Facebook Catalog – Business Settings>Catalog –
compared to emails in your database that may be out-of-date                (to enter vehicle data).
or quickly entered by staff, Facebook emails are a perfect way to
connect with customers. Facebook also allows dealers to sell used
cars for free to other Facebook users.
NADA 2018 REVIEW APRIL 2018 - BDO Australia
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APRIL 2018 // PAGE 4

10 MOST IMPORTANT SOCIAL MEDIA TRENDS
JOEY LITTLE | AUTOALERT LLC

Joey started the workshop by stating that every dealer should look to the future. You cannot sit still as what works now will likely not work in the future.
He then discussed the 10 hottest social media trends for 2018.

01    AUGMENTED REALITY                                                    05   OTT – MESSAGING PLATFORMS                                          09   FACEBOOK SPACES
      Whether it be virtual showrooms or virtual walkarounds, we                There are many messaging platforms which can prove                      A new development in Facebook Spaces means it’s no longer
      will soon see this happening within the industry. Joey stated             confusing. Dealers need to choose just one platform to use              just a place to hang out with friends and family in your list:
      that if you think you will continue to sell cars and repair orders        and then make sure that someone administers this effectively.           you can also use it to form bonds with people in the Groups
      from the dealership site in the future then you are wrong.                                                                                        you’re in. You can now host or join a VR Space with up to four
                                                                           06   LIVE STREAMING                                                          people from a Group, so you can discuss shared interests in
                                                                                                                                                        virtual reality. The social VR app allows you to connect with
02    INSTAGRAM STORIES                                                         Increasingly important, live streaming can be done through
                                                                                                                                                        new people in a deeper way and dealers should consider it as
      Dealers need to be aware that most people are on                          Facebook or Instagram. However, dealers need to beware as
                                                                                                                                                        another channel to use as it becomes more prevalent.
      Instagram (especially young people). Dealers need to look                 there are no “rules” about this and you need to be careful
      through their customer’s eyes rather than through their own.              what your staff post. If you are not live streaming then you
      How do they communicate and socialise? The answer is                      are missing out.                                                   10   STRONGER GOVERNANCE POLICIES
      mainly through Instagram.                                                                                                                         Dealers should know what compliance their manufacturers
                                                                                                                                                        require and know what they allow you to do. Ultimately, your
                                                                           07   RETHINKING TWITTER
                                                                                                                                                        brand can be destroyed by some misplaced online content.
03    INFLUENCER MARKETING                                                      Joey believed that Twitter has lost its way as it is not seen as        Therefore, you need to ensure you carry out reputational
      This is already happening and anyone using an employee as a               multigenerational. It needs to get better but dealers should            monitoring and management. Ensure there is no fake news!
      marketing person is using influencer marketing. Joey stated on            stick with it at present.
      average people have 365 friends on social media. If you have
      100 employees then you can get a significant amount of ROI           08   DIGITAL HANDOUTS
      from them by getting them to market your business through                 Generation Z are all over this and they are becoming more
      their social media channels.                                                                                                                      Joey finished the workshop by noting that you need to know
                                                                                face to face social. This potentially will lead to better
                                                                                                                                                        what the social content policy is for your business. Have a
                                                                                communication platforms. Dealers should consider how they
                                                                                                                                                        clear plan and goals for what you want to achieve. Find your
04    GENERATION Z                                                              could use these for sales meetings etc.
                                                                                                                                                        voice and your ‘why’ and then consider how you can stretch
      YouTube is king for the latest generation meaning dealers                                                                                         your reach through social media.
      really need to embrace this. YouTube is the second most
      streamed search site behind Google (who actually own
      YouTube). Dealers should ensure they post regular videos
      whether it be how to buy a car, how to change the oil etc. Joey
      did note, however, that in research 60% of Generation Z still
      want face to face contact and want to test drive. Therefore,
      bricks and mortar dealerships are not going anywhere at the
      moment.
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APRIL 2018 // PAGE 5

7 HABITS OF HIGHLY EFFECTIVE CAR PEOPLE
KAREN BRADLEY | CEO – DEALER SYNERGY

                                                                                                03

                                                                                                Put first things first

  Neither a dependent or an independent employee are great as they both
  have negative qualities that can stunt the business. What you want is an
  interdependent person. Someone who works together with others to achieve more.
  What employers need to do is stop trying to work on a person’s behaviour and instead
  work on their paradigm ie how that person sees the world and their general outlook. The
  ultimate paradigm is that the individual sees that what they do directly drives results and
  therefore what they in turn receive in terms of reward, satisfaction and progression.
  The most effective people cut out useless meetings, they are time wasting. You should
  challenge what the point of the meetings are and what do they achieve. Do they achieve
  what you want them to?
  Karen finished the workshop by stating that the work/life balance is so important in this
  current age. You need to ensure that you take time out to renew yourself to be the best you
  can be whether in body, heart, mind or soul.
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APRIL 2018 // PAGE 6

NOT ALL CUSTOMERS ARE CREATED EQUAL
JONATHAN DAWSON | SELLCHOLOGY

10 METRICS TO DEFINE, ATTRACT AND                              JONATHAN ASKED THE QUESTION: WHO ARE MY BEST AND                          SO HOW DO YOU ATTRACT MORE SERVICE LEADS?
                                                               MOST VALUABLE CUSTOMERS?                                                  • Utilise equity mining tools
CONVERT HIGHER QUALITY CUSTOMERS?                              Do all following customers have the same ROI to the dealership?
                                                                                                                                         • Place literature in the service department
  COST OF ACQUISITION                                          • Service customers
                                                                                                                                         • Branded gifts
  What does it cost me to attract and sell to this customer?   • Referral customers
                                                                                                                                         • Assign and train key personnel to convert
                                                               • Ad-based customers
  COST OF MAINTAINING THE RELATIONSHIP                                                                                                   • Unique brands and campaigns
                                                               • Repeat customers
  What does it cost to keep them?                                                                                                        • Offer special loyalty incentives.
                                                               • Customers prospected by your sales team
  EASE OF ACQUISITION                                                                                                                    HOW DO YOU ATTRACT MORE REPEAT BUSINESS?
                                                               • Walk-in.
  How easy is it to get them to buy?                                                                                                     • Utilise equity mining tools
                                                               Which customer is more valuable? Where does the time and energy
                                                               go to on the above. Jonathan believed that the majority is likely spent   • Consider pay plan changes
  EASE OF CONVERSION
                                                               on the bottom two which are the most difficult to convert.                • Offer special loyalty incentives
  How easy is it to get them to say “yes”?
                                                               Whilst we probably spend the least on the two most desirable, being:      • Encourage salespeople to develop their own brands.
  SPEED OF SALE
                                                               Service customers – geographical convert from service to sales,
  How fast can I sell to them?                                                                                                           HOW DO I TRACK MORE REFERRAL LEADS?
                                                               lower cost of sale – highest value prospecting customer.
                                                                                                                                         • Train on referral techniques
  REFERRAL POTENTIAL                                           Repeat – second best, they are easier to convert and most profitable.
                                                                                                                                         • Ask the customers for referrals as and when they buy.
  Will they refer or endorse me?                               HOW DO I ATTRACT THE MOST ATTRACTIVE CUSTOMERS?
                                                                                                                                         HOW DO I TRACK REFERRALS?
  FREQUENCY OF SALES CYCLE                                     Jonathan stated you should consider the following areas in your
                                                               dealership:                                                               • Sales people need to understand the importance of referral
  Will they buy from me again?                                                                                                             business.They need to follow up and take ownership. If they
                                                               • Communication – what you pay attention to and discuss in your             create it then they take it more seriously rather than you
  UPSELL POTENTIAL                                               meetings with managers and sales staff                                    giving the leads to them.
  Will they buy accessories or F&I products?                   • Pay plans – are your pay plans rewarding more for selling to the
                                                                 highest value clients?                                                   Finally Jonathan posed the question: how do you cut
  RECURRING INCOME POTENTIAL                                   • Creative strategies – are you using marketing strategies that            advertising waste? He believes you can achieve this through
  Will I generate residual income?                               attract today’s consumer?                                                the following three ways:
                                                               • Budget allocation – do you have a budget to attract the more             • What are the 10 metrics to determine who your best
  INITIAL SALE PROFITABILITY                                                                                                                customers are?
                                                                 valuable types of customers?
  Will I make any money on their first purchase?
                                                               • Management focus – what do you spend your time and energy on?            • Who are my best and most valuable customers?
                                                                                                                                          • How do I attract a massive number of the best customer?
NADA 2018 REVIEW APRIL 2018 - BDO Australia
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APRIL 2018 // PAGE 7

MODERN SALES MANAGEMENT –
BREAK PLATEAUS & DOMINATE TODAY’S MARKET
JARED HAMILTON

Jared a popular speaker and regular NADA presenter asserted that                      It is critical that dealers create a process to reduce salesperson
poor salesperson engagement can lose dealers significant amounts                      attrition so that you can build a sales team that can deliver a
of profit. He recommended that dealers should upgrade their                           customer experience that has the following basic attributes:
processes to deliver on customer expectations and build a powerful
                                                                                      1. Builds trust and is “likable” – if the team can deliver empathy,
sales team in the transparent and digital age to boost profits without
                                                                                         build rapport and has been empowered then it should increase
investing anymore in marketing, real estate or inventory. The core
                                                                                         closing rates by 47%
duties of the sales manager have changed; it used to be looking
at available credit and closing deals, but now it should be about                     2. Transparency – a team that when questioned (i.e. on price) is able
building high performing sales people.                                                   to give a direct answer should improve closing rates by 44%
There are three plateaus that now face the average dealership:                        3. Flexibility – 68% of customers do not have to drive the exact car
                                                                                         before they purchase, 50% of customers said they would reject
1. Annually adjusted average rate of vehicle sales in the US are
                                                                                         the dealership if a test drive is required before getting to a price.
   around 17m so the challenge is how to increase profit without
   selling more cars
                                                                                       JARED SAID THERE ARE TWO MANAGEMENT TRUTHS
2. The average number of cars sold per month per sales person –
   which in the US is eight                                                            Good managers manage activities and not results
3. Sales person turnover, this is around 70% in the US which could
                                                                                       Process consistently delivers high performance
   be losing dealers around five deals a month per sales person as
   new staff take time to build up to the average of eight.

 WHAT IS YOUR PROCESS FOR CREATING HIGH PERFORMING EMPLOYEES?                                                                                                    This would result in:
 A Human Capital Management process that dealers could consider is:
                                                                                                                                  Include accountability of
                                                                                                                                   required achievements.
                                                                      Create development plans
                                                                    with a competency framework     Form high performing habits              05                         HIGHER PERFORMANCE
                                                                       including process, skills,
                                                                      product knowledge and a
                                                                      temperament that can be                   04
                                                                      resilient against rejection
    Create a modern manager         Define a career path to reach                                                                                                       HIGHER RETENTION
    mindset where at all levels     a senior sales person (which                 03
  they realise they are entrusted       could take two years)
     with the company assets
  including brand and customer                   02
           relationships
                                                                                                                                                                        LOWER NUMBER OF HEADACHES!
                01
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APRIL 2018 // PAGE 8

THE SCIENCE OF MANAGING, MOTIVATING AND
MARKETING TO MILLENNIALS
GABRIELLE BOSCHE | THE MILLENNIAL SOLUTION

Gabrielle started the workshop by asking attendees what the biggest
challenges were for business owners working with millennials and
the following were noted:

 Retention       Attention   Motivation       No Urgency    Respect

 Social Skills    Attendance     Cell Phones     Attendance                                     Report that user-generated
                                                                                                contents on company websites
                                                                          MILLENNIALS     84%
                                                                          262%
                                                                                                has at least some influence on
The Millennial generation is a huge part of the population,                                     what they buy.
significantly larger than Generation X. Millennials are taking over and
we need to engage with them. Gabrielle noted that by 2025 they will
be 65% of the workforce.                                                  MORE LIKELY
Gabrielle stated that the average cost to replace a millennial is about   TO BE
150% of their salary so it is very expensive.                             INFLUENCED
                                                                          BY SMARTPHONE         Check for coupons or promotions on
However, their mindset is one of mobility. Millennials stay in a                          43%   their smartphones while in a store.
job on average two to three years; however, at the start of their         APPS
employment they think they will stay for five. So why do they quit
early?
• Direct relationship with their supervisor
• Training and development opportunities.
                                                                                                Use their mobile devices on social
They want their work to matter, see it as more of a relationship                          52%   media to note they like a brand.
andwant to leave their mark. Whereas, Generation X’s view on life
was that you pay me and I take benefits until retirement.
Gabrielle stated that 65% of next generation employees are looking
for other jobs right now as they do not want miss out.
Generation Z are those born after 2001. They are the first generation
that truly embraces diversity. They live their life solely on their
mobile phone!
NADA 2018 REVIEW
APRIL 2018 // PAGE 9

THE SCIENCE OF MANAGING, MOTIVATING AND
MARKETING TO MILLENNIALS (CONT’D)
GABRIELLE BOSCHE | THE MILLENNIAL SOLUTION

WHAT DO MILLENNIALS WANT?                                                                                                                      TO SUMMARISE MILLENNIALS ARE:
They want more technology, more fun. Millennials in the first six weeks will work out how long they are going to stay in the business – do     • Mission driven
they have a career, opportunities etc. As an employer you need to set expectations early and often. They lead from the middle, they like to
                                                                                                                                               • Change minded
collaborate (whereas Gen X want people to get on with it on their own). Millennials do it together and want to collaborate. If you do not
collaborate, they see it as a weakness.                                                                                                        • They crave leadership – empower them with it. If they are part of
                                                                                                                                                 the story that is good
You need to provide clarity and content. Their biggest question is why? As they want to know the context. This is the most important thing –
to set the context. Ensure you answer why before what or how.                                                                                  • They demand feedback – Ask them to write their three
                                                                                                                                                 expectations at the start of their employment so that you can
Millennials are all about the experience. They want to know what the experience is and what it looks like.
                                                                                                                                                 help deliver on it
                                                                                                                                               • They demand transparency
                                                                                                                                               • They want mentorship
     MILLENNIAL                                                            NON-MILLENNIAL
                                                                                                                                               • They want to be brand ambassadors.

     32% More likely to focus on                                           21% More likely to focus on
                                                                                                                                               Gabrielle noted the things you should never say to the next
                                                                                                                                               generation:

     RESPECTING IDENTITIES                                                 RESPECTING IDENTITIES                                               • That’s how things have always been done
                                                                                                                                               • Wait your turn

     35% More likely to focus on                                           19% More likely to                                                  • Because I said so
                                                                                                                                               • We tried it before and it did not work.
     UNIQUE EXPERIENCES                                                    focus on RELIGION &                                                 Ultimately, they want a relationship with you their leader. This drives

                                                                           DEMOGRAPHICS                                                        ownership and transparency.

     29% More likely to focus                                                                                                                  SO WHAT DOES THE FUTURE LOOKS LIKE?

     on IDEAS, OPINIONS,                              &                    25% More likely to                                                  • Collaboration over competition
                                                                                                                                               • Change is assumed
     THOUGHTS                                                              focus on EQUALITY                                                   • Less labels
                                                                                                                                               • Authenticity and accountability
                                                                                                                                               • More careers, less “experience”.
NADA 2018 REVIEW
APRIL 2018 // PAGE 10

GAME CHANGERS DRIVING WHOLESALE EFFICIENCY
AND INVENTORY VELOCITY
SUZY HYMES | COX AUTOMOTIVE

Suzy commenced the presentation by stating that Gross margins                  The key to dealership success is the speed to market which correlates
in the used car market continue to decline – so dealers really                 to inventory turn and then profitability.
need to focus on their stock control and stock turn. Suzy did not
                                                                               So what are game changing dealers doing today to propel used
see the trend changing over the next few years. A survey carried
                                                                               vehicle efficiencies and speed to market in order to drive profits?
out by NADA during 2017 showed the average transaction price
has increased by $5,000 to $20,000 in the 12 year period to 2017,              1. Set volume and ROI goals
whilst the front end gross has reduced from $1,800 to $1,400 –
                                                                                  -- Improve turn rate: from 8 to 12
a drop of 42%.
                                                                                  -- Used to new ratio: From 1:1 to 1.25:1
However to counteract this drop F&I has been making up for
                                                                                  -- Gross return on inventory: From 100 to 120
declining profits with F&I revenue accounted for as a % of gross
profit increasing from 25% in 2005 to 41% in 2017. However as we                  -- Cycle time (recon and transportation): From 12 days to 7
are all aware F&I regulation is increasing and dealers need to ensure             -- Aged inventory (under 30 days): From 55% to 70%.
they have robust systems and controls in place.                                2. Have a strategy with goals for each of the following
So what is limiting dealers used car performance? Lack of stock is                 --     Acquisition
one of the key points, understanding your market and demand and                    --     Pricing
how you drive the speed to market are the other two.
                                                                                   --     Reconditioning
Suzy talked about operational efficiency; however, it comes back                   --     Merchandising.
to buying the right car at the right price. “Dealers must leverage
technology and most importantly data and predictive analytics to
drive dealership success in the future.”
GROSS MARGIN AS % OF SELLING PRICE                                             WHAT CONDITIONS ARE HOLDING DEALERS PERFORMANCE BACK?
                                                          New           Used
16%
                                                                                          1
14%                                                                                                                  2
                                                                12.1%                                                             3
12%
                                                                                        37%
10%                                                                                                                34%
                                                                                                                                  31%
 8%                                                                                                                                             26%
                                                                                                                                                                      23%
 6%
                                                                                                                                                                                   15%
 4%                                                              2.9%

 2%                                                                                                                                                                                             9%                  9%            9%                   8%

 0%
           2011         2012         2013   2014   2015          2016

                                                                                                                                                                                  Consumer
                                                                                                                                                                                 Confidence
                                                                                        Marketing
                                                                                        Conditions

                                                                                                                     Limited
                                                                                                                   Inventory

                                                                                                                                  Competition

                                                                                                                                                Credit Availability
                                                                                                                                                   for Consumers

                                                                                                                                                                      Expenses

                                                                                                                                                                                              Credit Availability
                                                                                                                                                                                                    for Business

                                                                                                                                                                                                                    Regulations

                                                                                                                                                                                                                                  Staff Turnover

                                                                                                                                                                                                                                                      Consumer
                                                                                                                                                                                                                                                   Transparency
                                                                                                                                                                                                                                                       in Pricing
Source: NADA
                                                                               Source: Cox Automotive Dealer Sentiment Research
NADA 2018 REVIEW
APRIL 2018 // PAGE 11

GAME CHANGERS DRIVING WHOLESALE EFFICIENCY
AND INVENTORY VELOCITY (CONT’D)
SUZY HYMES | COX AUTOMOTIVE

GAME CHANGERS: VEHICLE ACQUISITION                                                                     GAME CHANGERS: RECONDITIONING
TRADITIONAL                                     DATA-ENABLED TECHNOLOGY DRIVEN                         TRADITIONAL RECON &                                EFFICIENT RECON & LOGISTICS
ACQUISITION STRATEGY                            ACQUISITION STRATEGY                                   TRANSPORTATION STRATEGY                            STRATEGY

• Experience/Instinct Driven                    • Data driven, disciplined                             • Priority of shop on wholesale reconditioning     • Priority of shop on paying customers
• Preference For In-Lane Purchases              • Up-front emphasis on profit                          • Mechanical, Body/Paint and detailing in          • Centralised transport loads for lower costs
                                                                                                         separate locations                               • Close proximity for inspection, mechanical and
• More effort/time with less reward             • Less time researching, more time buying &                                                                 body work
                                                  serving customers                                    • Employees dedicated to recon and moving
• More risk of paying too much, aged units
                                                                                                         vehicles
                                                • Online emphasis for efficiency

                                                                                                       Average Dealers complete                                         Top 20% of Dealers to
 ONLY 52% of Dealers are satisfied with the wholesale process                                          recon work in 7-10 days                           VS        complete recon work in less
                                                                                                                                                                                 than 4 days
GAME CHANGERS: PRICING                                                                                 GAME CHANGERS: MERCHANDISING
TRADITIONAL RETAIL PRICING                      DYNAMIC MARKET-BASED PRICING                           TRADITIONAL MERCHANDISING                          DYNAMIC MERCHANDISING
STRATEGY                                        STRATEGY

Retail price is calculated based on:            Retail price reflects each vehicles real time market   • Upload to individual properties                  • Distribution to website and third-party sites in
                                                conditions:                                                                                                 real-time
• The dealers’ acquisition price                                                                       • Photos taken at dealership several days after
                                                • Vehicle’s age                                          arriving                                         • Photos taken at the time and place of detailing
• Retail price plus mark-up to cost
                                                • Current market demand                                • Invest majority of time and budget on TV,        • Majority invested in digital assets
• Sales staff generates the same gross profit
  regardless of cost                            • Your own desired front-end profit                      Newspaper & Radio                                • Transparent pricing
                                                                                                       • Focus on leads/getting the consumer in the store • Seamlessly personalised purchase experience
                                                                                                                                                            from online to in-store

                                                                                                       Average Dealers get their                                  Top 20% of Dealers get their
 98% Top 60 Dealers Price to Market                                                                    inventory merchandised and                        VS       inventory merchandised and
                                                                                                       online in 12.5 days                                                   online in 4 days
NADA 2018 REVIEW
APRIL 2018 // PAGE 12

THE DEALERSHIP OF TOMORROW – AN UPDATE ON A 2016 STUDY
GLEN MERCER

The “Dealership of Tomorrow” was a project designed to stimulate        SPECIFIC UPDATE ON PREDICTIONS MADE IN 2016
long term planning (10 years) written only for dealers to give them     • The Sales Annually Adjusted Rate would remain at 17m to 2025
a perspective of “what does it mean for dealers” and Glen started         – this is holding true, although against all predictions millennials
by admitting that if his views contained any bias then it was that he     were the largest market segment
tried to avoid the common trait of “exaggerating change”.
                                                                        • Physical dealerships still exist even if much activity is on line
FINDINGS                                                                • The dealer ownership model continues and OEM’s have not tried
• There would be no significant disruption to the current underlying      to change this (one quote was that they already control 95% of
   business model                                                         what the dealers do!)
• There would be evolution not revolution                               • The slow consolidation of dealerships from 18,000 to 16,500
• The biggest risk was that the developing technologies of Mobility       is happening
  Services and Autonomous Vehicles would combine to challenge           • On a similar vein the number of owners will reduce from 8,000 to
  the need to own a car                                                   6,500, although it was reported that Warren Buffet was investing
• Dealers would continue to evolve from entrepreneurial unique            which was seen as an encouraging sign
  dealers to factory controlled standard dealers.                       • Profitability will be lower but balance sheet ratios such as
                                                                          Return On Equity will increase as working capital levels become
                                                                          more efficient
                                                                        • There will be a shift from margin to volume and OEM bonuses are
                                                                          becoming an increasing percentage of dealership profits (almost
                                                                          a department in their own right)
                                                                        • We will not see entirely new business models emerging such as
                                                                          mobility services ie UBER
                                                                        • With an increasing digital market the OEM will gain even more
                                                                          control and cybersecurity will be a significant risk.
NADA 2018 REVIEW
APRIL 2018 // PAGE 13

THE DEALERSHIP BUSINESS MODEL OF TOMORROW
ERIN AND RYAN KERRIGAN | KERRIGAN ADVISORS

Erin started the workshop by stating that whilst there is a lot of fear   RYAN THEN NOTED OPERATIONAL STRATEGIES THAT DEALERS CAN NOW IMPLEMENT:
and negative press the existing business model is not going away,
she is seeing more of an evolutionary process. There are changes on
the horizon mainly through new types of drivetrain. It is estimated
that electric vehicles will account for 25% of the market by 2030.             EVALUATE YOUR HUMAN CAPITAL                                INCREASE BUSINESS EFFICIENCY
Erin stated that car ownership will change with the development                • Evaluate your HR, 84% of females help buy the car but    • Simplify the product access and the transaction. Make it
of self‑driving cars. It is interesting to note that currently half              not many work in the business                              convenient for the customer
of people doubt the safety of self-driving cars however this is a              • Look at medium tenure graph why is staff turnover so     • Sites need to be time efficient. Pick up, drop off, after
26% improvement on the previous year review so consumers are                     high and getting worse                                     5.30pm, and servicing overnight
gaining more confidence. To date over $80bn has been spent on
autonomous vehicles so they will be coming.                                    • Most gross profit comes from after sales, however        • Move from a model of Gross profit per transaction to
                                                                                 dealers pay the sales team most. Are you interested in     Gross profit per customer.
Self-driving cars could change car ownership, 90% of time cars                   the after sales staff? Where are you placing the best
do not move so why does the consumer need to own a car? As                                                                                • Increase business efficiency – an examination of costs
                                                                                 talent and spending your time?
electric cars are becoming more viable this might result in more                                                                            needs to happen, the increase in employees matches
of a subscription ownership model for cars. She stated that electric                                                                        your increases in sales, therefore groups are not
autonomous vehicles are the big game changer.                                                                                               becoming more efficient.
Large dealers are already offering subscription models so using it as
a service model is not so far-fetched. Following on from this, buyers
will become more payment driven.
Online stores will become more prevalent and Erin noted the
significant number of dealerships that closed in 2017. These online
sales are driving consolidation and consumers are becoming ever
more convenience focussed.
NADA 2018 REVIEW
APRIL 2018 // PAGE 14

THE DEALERSHIP BUSINESS MODEL OF TOMORROW (CONT’D)
ERIN AND RYAN KERRIGAN | KERRIGAN ADVISORS

RETHINK THE SALES PROCESS                                              ASSESSMENT OF GOODWILL MULTIPLES
• Focus on customer experience – dealers have fallen behind other                                                                                        8.75x
  retailers, the need for retail experience has increased as a car
  becomes more of an expression rather than a need                                                                                 6.75x
• 72% of consumers feel that an improved buying process would
  motivate them to visit dealerships more often                                                                                                          6.00x
                                                                                                              4.00x
• Leverage technology – Update pricing weekly, monitor what is
  sold, ie make model, colour etc                                                     3.00x
                                                                                                              3.00x                3.00x
• Review advertising as nearly half of all advertising is in a                        2.00x
  declining medium
                                                                                  Average Collision       Average Used Car     Average Blue Sky      Average Blue Sky
• Structure your CRM around your business model (ie not just                      Centre Goodwill         Platform Goodwill   Multiple Non-Luxury   Multiple Top Luxury
                                                                                      Multiple                 Multiple
  around new cars) – you should reconfigure it around your                             3.00x                   4.00x                 6.75x                8.75x
                                                                       HIGH
  highest grossing customers rather than new cars especially as        AVERAGE         2.50x                   3.50x                4.88x                 7.38x
  manufacturers get closer to the customers.                           LOW             2.00x                   3.00x                3.00x                 6.00x

  Erin then concluded the presentation by noting how you can
  create value for the expected future value of the business.
  • Dealers need to increase economies of scale – to achieve
    what you want you need to be bigger. The US is expecting a
    25% drop in the number of dealership owners over next five
    years
  • You need to grow intelligently – be concentrated as it creates
    brand equity, which then leads to value
  • Invest wisely and carefully in real estate. Real estate is the
    most important asset you own
  • You need to focus on high customer retention and ROI – fixed
    after sales are so important as is social media. This can affect
    your goodwill value
  • Have professional accounting processes
  • Capitalise on new business opportunities.
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