Today’s hot topic is, for sure, margin compression. When understanding the dynamics of margin compression, it’s important to get an education on the topic that’s not from a vendor trying to sell you their product. To begin, let’s look to Big Data for help. Personally, I like to look at the NADA market data report — the current report is from the year-end close of 2017 — because it provides a composite of data from around the country regardless of your brand or location. I believe there are five Big Data points from this report to think about — and hopefully design a strategy around.
Data Point No. 1: In 2017, 80 percent of customers who purchased new cars financed or leased them with the dealership.
Business Translation: Customers are still payment buyers who are budget constrained.
Let’s look at how we market to our customers: We advertise on our websites and elsewhere the sale price of our vehicles, less an incentive they may or may not be qualified for. Now, let’s look at the gap. Are we only trying to reach the 20 percent of our customers who pay cash? Probably not. The issue is that our customers are buying from payments and we are advertising price. So, if we switch our marketing to always show both — the most aggressive pricing and the most aggressive payments — we can reach 100 percent of our customers, giving them what they want.
Data Point No. 2: The average age of new car buyers is 51.7 years old.
Business Translation: Our sweet spot in the industry is not the Millennial who is upside down $40k and makes $45k a year; instead, it’s the 52-year-old making $80k a year.
Our messaging and marketing needs to be geared toward customers of this age, as the low end of the age spectrum here for certain brands is 46. We need to ask ourselves: What are the most important needs of customers in this age group? Is it convenience? Safety? Security? Ease of doing business? We need to address our marketing and our processes to address the needs of these consumers — not the ones who cannot afford to buy from us.
Data Point No. 3: In 2017, 58 percent of all the new car buyers purchased or leased through the captive program.
Business Translation: Your captive knows their customer pretty well and you should always be showing the customer the best captive program in all formats of marketing.
Here’s an example: One of my customers didn’t realize their captive lender had a program with zero acquisition and an increased money factor that actually was 7 percent lower a month than the standard program. Think about this for a second with the above data; you could advertise a payment that’s lower than your competition and state “no acquisition fee” or “ZERO acquisition fee” and be super competitive. This is all about understanding your captive’s programs, how they work, who they are targeting and how they are messaging. If your OEM is spending millions on a national advertising campaign, why wouldn’t you want to piggy back on to their concept?
Data Point No. 4: In 2017, finance and insurance accounted for 39.6 percent of the overall profitability of the new and used car department.
Business Translation: You cannot afford to go backwards in F&I and expect to be viable in the long term in the wake of ongoing margin compression.
Developing your own all-encompassing concept of F&I is vital to your success. Let’s examine non-automotive industries for a moment, such as Best Buy or Home Depot. These companies have recognized the value of warranties. No matter what you buy at checkout, they will try to sell you protection. Furniture stores sell you fabric at almost a 70 to 80 percent take rate, yet automotive dealers have so much more in the form of protection offerings and, often, we don’t even tell our customers we have them. If you are not telling your customers in service and parts, as well as in your online efforts, about the protection plans you have available, you are really missing out. It costs you nothing to change the process and messaging in your store. One last note: If you are going to do digital retailing, make sure you are concentrated in a heavy way on F&I, as you don’t want to become a “new car wholesaler.”
Data Point No. 5: In the near future, 10 percent of all new car purchases will be done online.
Business Translation: No one really knows what the percentage is actually going to be until it happens.
Smart dealership groups know that they need to be ready and prepared for whatever the percentage will actually be. I always promote this as the multi-prong approach theory. Dealers know how to market to the customers who walk through the door, but what about the ones who don’t make it there or that leave the dealerships website? The most successful dealerships in the
world always market to the piece of the business
they are missing, so what piece are you missing? The key here is to stay fluid with the market so, as the business continues to change and evolve, you do as well. Keeping your dealership “cutting edge” is your responsibility.
In closing, none of these five Big Data points “require you” to buy anything; you can begin to put them into action today. Best of luck and continued strong selling!