PRODUCT-DRIVEN CRM – THE KEY TO LONG-TERM PROFIT?

Dealerships looking to increase their profits in their sales department have traditionally focused on two key areas – increasing the prospect conversion rate, and increasing gross profit per sale. But there is only so far you can go with that. 

There is undoubtedly some potential to improve the prospect conversion ratio in most dealerships.   The true industry average is probably no more than 10% or so.  Many dealerships believe their figure to be higher, but they often fail to take account of selective logging in the showroom.  The top performers are probably achieving 20%.  But even with a tightly-controlled sales process in place it is hard to get beyond the 20% level – not least because of the quality of people employed in the industry, and the prevailing salary/commission structures. 

Increasing the profit per sale is even tougher.  In a mature, competitive market, raising your prices is often not an option.  And raising your gross profit by a significant amount without raising prices is extremely hard work – even before you take into account the increasing costs of holding a franchise in the post-Block Exemption environment.  You don’t just have to sell better, you have to buy better as well.  

One alternative is to sell more accessories, or more finance.  F&I has long been seen as a way to increase profits, but that too is under increasing pressure, not least from the legislative authorities.  And if you look at the trends in the USA, with the controls they now have coming in such as the disclosure of finance commission that pressure seems certain to increase. 

During the past ten years or so the industry has focused more on increasing the customer’s repurchasing frequency as a way of increasing profits.  Ford set the ball rolling when it brought out the Options PCP.  It was designed to increase the frequency with which customers change their cars, and to make sure they came back to the dealership they bought them from in the first place.  When they saw how successful it was, the rest of the industry soon followed.  But because PCPs are linked to residual values there is a risk involved, as the industry found to its cost on both sides of the Atlantic. 

Now that residual values appear to have stabilised, the PCP is regaining popularity.  But there’s a clear need for the industry to develop new products that lock customers in and drive them back to the dealership, which are not tied to residual value risks.   

We’re seeing some of those products being developed in the USA today, in the form of tyres-for-life and engines-for-life programs.  Dealers who have embraced them are achieving some success in terms of getting customers to come back to the dealership more often – or even at all! 

The tyres-for-life guarantee is not sold as an add-on product, it is built into the selling price of the car and customers have to come back to the dealership every three months or 3,000 miles for a quick tyre inspection.  The engine-for-life package requires customers to keep coming back to the dealership in line with the manufacturer’s service intervals. 

With tyres for life, the warranty company that funds the program can buy the tyres in bulk, which keeps the cost down and makes the programs viable.  It is based on the fact that the average customer changes car every 27 months, which typically equates to one set of tyres (it also helps the used car department, because every used car that goes out has a new set of tyres on it). 

Customers who keep their cars for longer than that are more likely to come back to the dealership when their tyres need replacing – where else can they get them for free?  And that gives the dealership an opportunity to sell other products and services if it is handled in the right way by the service advisor.  If not, it may be perceived as a rip-off.  The customer may feel you are simply loading as much as you can onto the invoice.

Increasingly, US dealerships are putting more of their marketing budget into activities like these, and reducing the amount they spend on traditional advertising.  That represents something of a sea-change. 

The motor trade is less good than some other industries – companies like Apple, Dell, EasyJet and Ryanair spring to mind – at marketing additional products to their customer base.  On a regular basis these companies will come back to you offering additional products and services.  If you buy a computer from Dell, for example, they will continue to offer you consumables, or a new laptop 12 months after you’ve bought one, or an upgrade to your home system 12 months after you’ve bought one. Easyjet and Ryanair sell travel insurance, hotel bookings and car hire, plus of course their in-flight services.

For the motor trade your used car stock offers you a considerable opportunity.  A dealership database is perfect for marketing to.  Who’s to say that of the 5,000 or so customers you have on your database, 200 aren’t going to be interested in a new used car right now? It is good CRM.

 The key of course is a clean, up to date database. If you have that in place you can market additional service products, you can market to lapsed service customers, you can market to lost sales prospects….. the list goes on.

But the next generation of CRM strategies will encompass products that lock customers in to the dealership – because if you have got your customers locked in, once you start to tweak their repurchase frequency through your marketing activities you can start to see serious growth in your profits. 

SALES DROUGHT, PRE-REGS AND THE €45 MILLION WINDFALL

Last 10 days as a %

What benefit is there to a car market to register in excess of 50% of its monthly registrations in the last 10 days of the month? I have been trying to figure this out all year and it doesn't make any sense to me for the motor industry in Ireland to continue to do this. June 2012 saw 4178 units registered in the last 10 days, a massive 65% of the month’s units! Our year to date report is at this link INSIGHT JULY 2012

With the seasonally adjusted sales rate (SAR) at just 77,000 units for the year the market is suffering from a savage beating at the moment. Retail sales are falling, and with the availability of credit tightening the prospect of more sales through finance doesn’t look good. Nor does the prospect of another scrappage scheme look likely even though some manufacturers are calling for them across Europe Crisis in Europe. 

Public consultation on adjusting the CO2 bands

In fact things could get much worse before there is any sign of them getting better. The government have called for a review of VRT in Ireland and whilst this shouldn’t bode badly for the industry it needs to be very carefully managed. 

When it was last reviewed in 2008 the timing couldn’t have been worse with the new scheme coming in on the 1^st July that year. Effectively it killed sales in the first 6 months and the industry welcomed in the recession way before it should have done. This can’t be allowed to happen again.Click here for the VRT detail

IS THE DEALER’S VOICE BEING HEARD?

The reality is that the government needs to generate more revenue from the industry as their tax receipts are back 72% on 2007 from €1.4 billion to under €400 million last year. It’s highly likely that they will change the rates around the CO2 emission band and the rumour is that this will be in place for the budget. I don’t want to tread on any toes with this as I know that the livelihoods of a lot of people depend on the manufacturers, the industry bodies and the government getting it right this time.

However I do have concerns, concerns about the government not listening as well as it could do to what is happening at the coalface. To do that they need to listen to another voice, not as loud or as well represented as it could be for a myriad of reasons. That body is the dealerships, the people that own the dealerships, that run them and that work in them. They are seeing first-hand what is happening.

WHAT IS THE GOVERNMENT HEARING?

The most immediate issue and the most pressing is the one that I have started the article with, the pre-registrations that are happening at the end of the month. With the exception of cash rich dealerships (a declining species), which can avail of manufacturer incentives and buy pre-registrations at reduced prices, there is absolutely no benefit to these dealers to self-register. The pre-registered cars will be sold, however they will push down the price on used cars, cars in stock that the dealers are having to absorb (this reality is happening now).

4 year comparison

At the very same time the government must be hearing a very different message, a message that is confusing unless you have the full picture. This message is one that says we are getting our revenue at the end of each month as the new cars get registered so everything must be OK. Sure they would like new car sales to increase and therefore earn increased review from the tax. But they are not absorbing any pain, they are not absorbing direct losses for these cars and therefore these losses have no direct consequence to them.

BROKEN RIB

Pain is a funny thing. I broke my rib just 3 weeks ago and I have to say it’s really uncomfortable. For the first week it was awful pain and I couldn’t sleep, the second week a little less and this week a little less again. But the pain is still there and I’m taking pain killers daily. Everybody around me has forgotten I’m in pain of course; the reality is they don’t care and I get that, however it’s hurting me and I’m having to make a lot of changes to how I do things because of it.

It’s the same for the government but they just don’t know it. The dealers out there are really hurting and they are in a lot of pain, but its a pain that the government aren’t feeling which they need to.  34,493 cars have been registered in the last 10 days of six months to June this year so far, 50% of the total cars registered year to date. If I conservatively suggested that 33% of these cars were self-registrations then the government has taken around €45million in revenue this year over and above what they really should have done. THAT WOULD BE A PAINFUL HOLE IN REVENUE TO PLUG.

REAL MARKET

My belief is that the real retail market is sitting at around 60,000 units this year and as such the likely revenue from VRT should be around €240 million and not the €310 million that they will likely get paid. If that revenue was €240 million perhaps they would sit up and take notice, €70 million that’s a big hole in revenue to fill. Its a truer picture of what’s really happening in the market on which to gauge their decisions on the VRT review. AND IT DOESN’T INCLUDE ANY OF THE VAT REVENUE THAT WILL BE GENERATED.  

Getting back to the dealerships pain though; 5 dealers have closed their doors within the last 3 weeks and it is rumoured that there are manufacturers who are actively shoring up others. The reality is that there are still too many dealers for the size of the current market and more will go. What can be done to avert this?

There are therefore only two things that can be done, either somehow the market has to see a lift in volumes or more dealers have to close their doors. Anything the government can do to lift sales will be a welcome boost for the dealers as with this option there is a chance for the government to earn more revenue in VRT, VAT, PRSI and Corporation Tax. The second option guarantees a drop in taxation revenue and will result in more dealers closing their doors. The dealers need this message to be heard loud and clear.

My belief is that this argument, that any increase in taxation will hurt the other side of the revenue coin is not being discussed as much as it could be. Whilst the government picks up VRT revenue from decisions made to pre-register cars not required, the true story will not be told. 


My genuine concern is that unless it is discussed in more depth with dealers it will lead to a decision on VRT that, like a broken rib, will be really painful and will take much longer to heal that is avoidable.


If the government increases VRT in whatever way, in a depressed market, it will have major adverse consequences for car dealers, jobs and tax revenues. The industry needs to avoid a repeat of what happened in 2008 by getting this debate on the table now and getting their voice heard loud and clear.


Brian

IS IRELAND A MICROCOSM FOR AUTOMOTIVE SALES IN EUROPE

A situation that is likely to be played out in other European markets is being played in Ireland. The numbers of vehicles registered in the last 10 days of the month to the end of May is increasing. Year to date 30,315 of the total cars registered have been registered in the last 10 days of the month, this is 50% of all the passenger car registrations. 

As a comparison that percentage was 46% in 2011, 45% in 2010 and 37% in 2009.

It can’t be in the interests of the manufacturers to do this or in the interest of the dealers, so what’s causing it?

PRIMARY REASONS

Number one; there are as many dealers today faced with cash flow problems as there were in 2009. This is influencing the last ten-day figures in that dealers simply haven't got the money available in the earlier part of the month to register cars and pay for them.

Number two; the manufacturers have likely over ordered for the market and are using pre-registrations as a means to force vehicles onto the market. With the distributors forcing registrations to this level they are simply pushing bigger problems down the road.

Number three; consumers are simply not coming in to the showrooms. If they have money they are not spending it and if they don’t they can’t get it. There continues to be poor availability of credit for consumers which means that larger purchases cannot be funded (this isn’t true of all of the franchises represented in Ireland but it is true of many).

The competitive playing field is uneven. The cash flow situation faced by many is stifling those dealers ability to purchase pre-registered cars and pass those savings onto their customers. Dealers with funds available can maintain volumes and profits. It really stifles consumer choice and may compromise competition when the game plays out.

First 10 days in June 2012 by franchise

With numbers this low it means that down the road in 2015 there will continue to be a shortage of used cars trade-ins and a declining service parc.

The last time there was a case of real pre-registration madness identified in Ireland was in 2000, the difference between then and now is that then it was a market fuelled by credit  and now it is a market being strangled by the lack of it.

CARLOS GHOSN WORDS

CEO of Nissan and Renault

Carlos Ghosn of Nissan Motor Co and Renault today stated that he expected "three to four more years of stagnation" in the European auto business. European consumers, facing tremendous uncertainty in their lives, are holding off from making large purchases like cars and companies need to be strong enough to make it through three or four tough years to outperform rivals, he said.

When a major player in the industry makes these statements they should be heeded. It’s going to be tough going for automotive sales in Europe and businesses need to be well prepared for it.

THE HUMAN PAIN IS A REALITY

Those franchises that recognise the new playing field, that don't expose their dealers to pre-registration madness, combined with good consumer offers and finance availability will be better placed for a toughening market. The networks with oversubscribed dealers, too many registered units and no access to consumer credit will suffer.

More dealerships will be forced into closure sooner than anticipated. Is this a good thing down the road? If you don’t consider that there are real people behind the closures then what is happening is simply the nature of business and the change is needed.

If you understand that people are really suffering, that business that have been established for years are failing and the human pain is a reality.

A BROKEN FRANCHISE MODEL?

A question needs asking about the franchise model. If it worked then why are the networks so oversubscribed? As new sales fall then down the line service parcs fall as well which influences aftersales. New sales and used sales are reliant on finance to support the sales (and to contribute to profit). If credit isn’t available it hits sales volumes and reduces 2 profit centres (chassis and F&I). Absorption levels are already at the lowest in years and customer retentions levels are falling.

If a dealership can’t make a profit then it can’t re-invest and serve its customers properly. If it doesn’t do this it will lose its CSI rebates and possibly the franchise. And if the uneven playing field continues then it’s more likely that only the larger groups, often supported by the manufacturer, will prevail.

I know that this is a simplistic view however it’s a big subject. 1-3% pre-tax returns are normal for the industry which really doesn’t leave a lot of profit reserve for tough times.

This can’t be good for customers. Protecting the customer is the purpose of the Block Exemption Regulation given to the industry.

A franchise model can’t be said to be working when so many dealerships are forced into foreclosure simply because they were operated to the rules of the franchise, who by the way are not retailers by their own admission.

IRELAND; A MICROCOSM FOR EUROPE

This makes me think that what’s happening in Ireland is a microcosm for what’s likely to come down the road in other markets in Europe. Given that a new block exemption is coming into place next year the changes needed by the networks will likely accelerate to accommodate the shrinking markets.

If Ireland is a microcosm for Europe then other markets need to take notice as to what’s happening there as dealers are facing a tough times ahead.

RIDING THE STORM

Short-term measures never solve a problem but they can help, here are 10 that dealers can take:

1.       Actively reduce aged new and used car inventory as a matter of urgency, re-appraise, recondition further if necessary, price to sell and review website pricing of those units daily.

2.       Focus on parts stock control analysing all lost sales; look at your stock orders in minute detail and only order when needed.

3.       Chase in all monies due from the trade, from customers, from finance companies and from your franchise.

4.       Review trade payment terms, try to keep all less than 30 days.   

5.       Quality control finance paperwork to ensure prompt payment

6.       Review warranty claims for accuracy and recalls for revenue  

7.       Work every showroom customer, drive every trade-in, open up every finance opportunity early, demonstrate every customer and make sure that every customer through the showroom is managed to the best of your ability.

8.       Make sure a Vehicle Health Check (VHC) is completed one very car through the workshop (sales, as well) and make sure that every lost service customer receives a phone call from you asking them to come back.

9.       Source your used cars from your customer base; they have your prime stock.

10.   Use the time that you will have available to you wisely. For example if you are not using social media as a marketing medium then learn about it, if you don’t have a health check program in place then consider one.

PLAN FOR THE STORM

The most important thing to do is to complete a three to four year business plan based on a worst case scenario, a flat 70000 to 75000 market for the next 4 years. If the company can survive then it may need to eat into cash reserves. If it hasn’t got cash then the flat market will need to sustain the business, if it does all well and good and the business plan will show it. If the market can’t sustain the business with profit over a flat four years then the sooner the big decision is made the better.

And if you don’t crunch the numbers you will not be in the driving seat to navigate the storm.

 FRANCHISE MODEL AT WORST NEEDS AN OVERHAUL

Is the franchise dealership model broken? I think the situation being faced by Irish dealers proves the case that the model there needs an overhaul.

Can the same be said for the rest of Europe? I think the manufacturers probably know a complete overhaul is needed and this really is the time to start making the changes. The playing field will further change again down the road for sure; an urgent overhaul is needed now.

KING CANUTE; A CAUTIONARY TALE

King Canute is famous for the tale of the incoming tide. According to legend, Canute’s courtiers flattered him into believing that his word was so powerful that even the tide would recede at his command. Canute is said to have taken this compliment literally and had his throne placed by the shore and vainly attempted to command the waves to recede until he almost drowned.

With all the data in Ireland pointing towards a sub 75000 real market in 2012, I was amazed to discover that one manufacturer is talking about an 84000 this year and is advising their dealers to plan for the same. The dealers know that this will not happen. If they ordered to the 84000 market they would get caught with inventory, tying up cash and getting caught with pre-registrations. It’s happened before and the bones of those businesses lie crumbling in the grave.

With some franchises continuing to make basic market mistakes on a grand scale then the immediate victims will be the dealers; and further down the road it’s likely to be the franchise model and consumers too.

And the practise of pre-registering cars will never stop whilst courtiers within the franchises continue to flatter and mislead their masters. 

Our May Newsletter, Twitter and Symco TV

This is my best attempt at a short line to deliver the May edition of our Saleslynx e-newsletter, 8 years on and going strong. It’s a monthly digest of the latest web marketing, social networking, leadership, strategy and global auto industry news written and produced by Steve Hamilton.

In this month’s edition Steve covers stories on; the list of America’s top 100 dealer groups, the latest data from ASE PLC showing a 1.7% net profit in the 1^st QTR and he reports on US auto sales, with the best showing since 2007, whilst sales in Europe struggle -7.5% down on last year. There is a lot more too, including the key numbers for the markets we cover. To download the newsletter just click on the link Issue 103

A little extra as well; if you are thinking of using Twitter then this guide will prove useful Twitter Guide for Business Speaking of Twitter if you want your newsletter delivered as soon as its published then follow us on twitter http://twitter.com/#/saleslynx and we will follow you back, I promise!

The second extra bit for our Irish followers; we have just completed our 6 month analysis of the used vehicles for sale on Carzone, to download a copy go to Ireland Used Car Snapshot May 2012.pdf 

And to finish up I have two bits of up to the minute industry news; first of all the sad news of the passing of Ron Sewell. I worked for Ron back in 1989 and I have very fond memories of that time Thank you to Ron Sewell

And I want to wish Skip all the best with his new TV channel symco.tv, he is offering free credits to try out the service and please don’t tell him this but he really is very good at online training!

All the best

Brian

A THANK YOU TO RON SEWELL

I heard today the sad news that Ron Sewell had passed away aged 83 on Monday. I heard the news on Twitter, which is probably appropriate given that he was a real media innovator in his day. He used his media, the Sewell’s Digest, to communicate and to educate so many people in the Motor industry and not just in the UK. His reach extended much further afield, South Africa to Australia, to China and India to name just a few of the countries his company touched. 

I was lucky enough to work for Ron and his wife Joan for 18 months. Working at Ron’s Sewell’s was a genuine education in the motor trade and I was taught business skills that serve me well to this day (including forcing me to write which I still attempt to do). I met so many people including Steve Hamilton, who produces our newsletter, through Sewell’s, started work on the same day, on a Tuesday, the 3^rd January in 1989.

1 Queens Square Bath, Sewell's Head Office. Ron's office was at the front of the building on the left hand side. I have such very fond memories of that time and of working at Sewell’s.

You know thinking about the people employed at Ron's Sewell's and the businesses spawned from that single consultancy, there were arguably a lot more people touched by his influence than the trade today might recognize.

To name just a few; MITAC, Alison Associates, Guy Allman’s BTC and AutoVHC, Chris Oakham’s TrendTracker and Richard Well’s RTS Group. He brought Martec to Europe, started the Automotive Fellowship in the UK, he touched Ireland through Bill Cullen, Bills Europa Academy has some roots that go back to Ron Sewell, and of course Sewell’s still lives on to this day under the steerage of Will Holden.

I was one of the younger consultants on his team. I remember being so happy to get a job with Sewell’s, because they really were the very best automotive consultancy at the time (I still have the job offer on file today). 

To be honest, at first I was in awe around him because he really was an influential man in the trade. Over time I really warmed to him, he was a quiet man as I remember him, always deep in thought. I think he probably communicated better through his writing, however, whenever I directly asked him for him for help he gave it freely and he took time with me. I liked Ron and I liked his wife Joan (I think she had more to do with my employment as I was a joint Aquarius).

A toast to Ron Sewell

If I hadn’t joined Sewell’s I very much doubt I would be doing what I’m doing and sat where I’m sitting today. 

So this is my little thank you to Ron Sewell; I was privileged to work for him and to know him. I’m glad he he touched my life and tonight I’ll be raising my glass to him. Thanks Ron, the industry has lost a true gentleman.

20 DAYS IN MAY; A MARKET 39% DOWN

I have been crunching some numbers around the registrations in the last 10 days of the month in Ireland. The following are the numbers to the 21st May 2012 (the May month end estimate is 5630 in the table below)

The 20 day figures in 2012 are 2682. This is down 39.15% on 2011 (4408) and the lowest since 2009 which were 2690. If the month tracks at the same as last year (by the end of May 2011, 73% of the total registrations for the full year were complete) the end of month figures for May 2012 should be around 5630, this would be 40% down on May 2011 (with the last 10 days coming in at around 2900) and would bring the likely year end numbers to 79779 (SARS rate, seasonally adjusted annualised sales rate).

The actual last 10 day figures for 2011 were 5068 of a total 9476 for the month of May 2011 (53%). If the 53% remains the same this year it would bring the likely number of the last 10 day registrations to 2960; therefore any registrations over and above this number will most likely be the number of “distressed or panic ” pre-registrations over and above any actual pre-registrations last year.

Year	Jan	Feb	Mar	Apr	May
2012	21305	11488	13046	6770	5630
First 20 days 2012	14329	5770	4309	2905	2682
First 20 days as a % 2012	67.26%	50.23%	33.03%	42.91%	47.64%
Last 10 days 2012	6976	5718	8737	3865	2948
last 10 days % 2012	32.74%	49.77%	66.97%	57.09%	52.36%
2011	20998	12570	14395	8685	9476
First 20 days 2011	12623	7204	6275	5133	4408
First 20 days as a % 2011	60.12%	57.31%	43.59%	59.10%	46.52%
last 10 days 2011	8375	5366	8120	3552	5068
last 10 days % 2011	39.88%	42.69%	56.41%	40.90%	53.48%
2010	16595	12306	13813	8544	8580
First 20 days 2010	9915	7976	6248	3931	4243
First 20 days as a % 2010	59.75%	64.81%	45.23%	46.01%	49.45%
last 10 days 2010	6680	4330	7565	4613	4337
last 10 days % 2010	40.25%	35.19%	54.77%	53.99%	50.55%
2009	15799	8883	7764	4373	5129
First 20 days 2009	11231	5967	4245	2168	2690
First 20 days as a % 2009	71.09%	67.17%	54.68%	49.58%	52.45%
last 10 days 2009	4568	2916	3519	2205	2439
last 10 days % 2009	28.91%	32.83%	45.32%	50.42%	47.55%

My thoughts are that the pre-registrations in the last 10 days will be high and probably around the 3000-4000 mark. I have double-checked my figures and if you took an average of the years 2009 through 2011 to the end of June as a % of the total market it would be 81.5% (2009 was 81%, 2010 was 77% and 2011 was 85% as scappage came to an end) then 2012 would still come in at between 77800 and 79600.  If this year the market to the end of June was 85% of the years total with registrations in month of June being around 6650 then the passenger car registrations for the full year will be around that 76000. 

Whichever way you skin it there will be a lot more casualties as new and used car throughputs of around 160 units per dealer is not sustainable when most dealers have overheads geared to double that number.

It’s this question of sustainability that is the real issue for me. In 2009 through 2011 there was some sort of government support alongside a lower vat rate. The 23% VAT rate is slowly nibbling into profits, as is the increasing cost of doing business. There are hidden losses (the cost of pre-regs on the reducing values on late plate cars) and  dealers are operating with a much smaller vehicle park for aftersales work that has not been replaced.

Look at the whole and the market really needs around 270-300 dealers to support the annual sales volumes which means that the dealer networks are over subscribed by 150 dealers or so.

I hope the numbers make some sort of sense because the market in Ireland is certainly getting tougher and its likely that more dealerships will fail in the short to medium term without some breaks.

Dealers and consumers need credit lines

A key issue that is limiting sales is the availability of business and consumer finance. Its an area that the government could help with. Ireland might be the austerity poster-boy for the Euro-zone but whats needed for the industry is the exact opposite.

The starting point is to encourage the banks to lend again, this alone could be the lifeline the industry needs because if the lines of credit are not opened up then the numbers of dealers that survive the next 18 months will continue to fall.

For me 2012 is going to be as tough a year as 2009; that year the government stepped up to the plate, its time to do so again.