Jaws dropped, mine included, as Don Flow, chairman and CEO of Flow Automotive Companies, addressed several hundred dealers and industry affiliates at Automotive News’ recent Retail Forum.
“A brutal reality is in front of us,” said Flow, whose company operates 36 franchises in Virginia and North Carolina. He called for the industry to create “value equation models” that deliver the guest experience and shopping enjoyment consumers find through Amazon and Apple. “The goal is that all dollars spent on that VIN in your marketplace need to be spent with you,” he said.
He called for dealers to apply lean process management practices to their operations to eliminate waste, bottlenecks and processes that add no value to customers or to the bottom line.
Dale Pollak also addressed the gathering, calling for dealers to embrace transparency and increase efficiencies throughout their operations to push back at margin compression and other “profit evaporating” factors.
“The clarion call is efficiency. We can see no other way to survive and thrive in this business,” Pollak said, noting dealers’ inefficiency in human capital utilization, with a turnover of 64 percent in sales and 40 percent overall.
He also cited process inefficiency that leads to aging inventory and capital depreciation, promotional inefficiencies and technology inefficiencies that can be difficult to use and are frequently incompatible, so they don’t share data with one another.
“We’re not able to pull out of the industry what we used to, so we must be more efficient,” Pollak said. “We cannot expect to meet the challenge of the future if we cannot get these challenges resolved.”
Consolidation will continue as stand-alone family dealerships find it increasingly difficult to stay in business.
Dealers rightly are concerned about how new trends and technologies — such as subscription car services, ride-share, electric and self-driving cars — will trouble their business model. The product in showrooms in the next 10 to 15 years will be radically different from what we’ve known before.
Yes, the disruptors and disruptive transportation models are upon us. But while we will see these new models flow into the business and onto our streets, traditional car-ownership will continue.
Consider this information, taken from the McKinsey & Company report “Automotive Revolution — Perspective Towards 2030”:
• Despite a shift towards shared mobility, vehicle unit sales will continue to grow, but the annual growth rate is expected to drop from the 3.6 percent of the last five years to around 2 percent annually by 2030. This drop will be driven mainly by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing (Uber, Lyft and others).
• Changes in mobility behavior, leading up to one out of 10 cars sold in 2030, potentially being a shared vehicle and the later rise of a market for fit-for-purpose mobility solutions.
Yes, as Don Flow pointed out, brutal reality is before us.
Moreover, this change, whatever its nature and duration, will be painful for those who have yet to get their arms around the measurement and management of time to line (T2L) in reconditioning, for what they sell today and tomorrow.
Cox Automotive recently projected 39.5 million used-car retail sales in 2018 — each requiring some level of reconditioning. NADA forecasts new-car sales of 16.7 million.
Dealers will be selling, servicing and reconditioning traditional vehicles for years yet to come — and ride-share, subscription and other modalities will need serviced and detailed before they can be sold again through dealerships.
All this is to say that, while the industry wrestles with new delivery systems — how to further improve customer experience and make the buying process more transparent and streamlined to add value — reconditioning vehicles will remain mostly unfazed.
Steps for Preparing for the Future
Keep eliminating uncertainty in core processes. They too will need to evolve at an even faster pace. The top four are:
1. Sell cars
2. Make a respectable profit
3. Keep CSI high
4. Know your reconditioning T2L
As part of reversing margin compression and keeping your dealership fit for the future, practicing a T2L recon workflow:
• Quickly identifies car location in your workflow — whether on the backlot or in process through reconditioning
• Accounts for and tracks each step in the reconditioning process and the employees responsible for those actions and their progress through their phase of the workflow
• Provides both 40,000-foot and micro-perspectives of reconditioning workflow performance for a particular store or across a group of stores
• Determines how fast cars flow from acquisition — or your chosen start point — to the front line, ready for sale
• Helps dealers reduce T2L by days, which translates into additional vehicle turns
• Reduces the erosion of vehicle holding costs on sales margin; this cost is $40 per day per vehicle that accumulates against gross for each day you own it until sold
• Makes fixed ops, reconditioning and the entire used car operation quicker, more efficient and profitable.
Develop and hone these practices now so you can deal with whatever the future throws at you next.