The move toward digital retailing is the inevitable result of increased familiarity with self-service transactions.
My family has been in the car business since my father, Jack Kain, started selling cars in college. He opened his first dealership in 1952 and soon thereafter started bringing me and my eight brothers and sisters to work with him — first as babies in picture frames, then as toddlers and teens and finally as adults. My entire life has been spent in and around car dealerships, and I’ve received an intimate education in what does work, what should work and what might work.
As an industry, we’ve typically focused on what “does” work and shied away from “should” and “might.” Both are unpredictable and take a lot of extra planning, investment and effort. Besides, why change when we are making solid profits? Well, the industry continues to change at a rapid pace, and even though we are in a high sales cycle now, we will experience a downturn at some point in the future. I have always been taught that the best time to plan for the future is when business is good.
I realize “Tesla” and “Shop-Click-Drive” are four-letter words to many dealers right now, and you might not want to hear it, but I believe allowing customers to make their own online deal is the optimal plan for building trust — as well as efficiency and profitability.
As such, I think it’s time to plan for what the future will bring, along with all its challenges and opportunities. A major challenge is how long it takes to buy and sell a vehicle; an opportunity is finding a way to make it easier for both sides. This strategy is built on trust, which is the cornerstone of all retailing, and particularly digital automotive retailing.
I have always enjoyed studying how automobiles are marketed and sold. And I have learned that, to a large part, it has always been about the inventory. You have to stock the units the customer wants to buy and offer them at a price they want to pay. This is not new information, but the variables that affect the way you move those units are fluid.
Each dealership’s purchase process and its sales and F&I teams’ knowledge, experience and skillset vary, but at the end of the day, they are secondary to the inventory and the deal. And as much as we like to think the Internet has changed things, we are still finding that having the right inventory and offering the right deal still rule.
But change is in the air, and if you don’t plan for it, you will find it difficult to play catch-up. The big question is, when will the biggest changes occur, and what is the proper plan?
Craig Newmark, the founder of Craigslist, once said that one of the reasons we are so advanced in digital is because of the promise that drove it. We all felt like the world would change overnight. Businesses invested in digital because we wanted to be ready when the revolution arrived. Yes, the dot-com bubble burst, but the Internet continued to grow in scope and importance. In fact, had dealers and vendors not made those early investments, we probably would be about 10 years behind the rest of the retail world. The reason I mention this is to emphasize how long it takes for something to really take hold and work. You have to persist through the inevitable ups and downs at the start.
The fully online transaction is an inevitable byproduct of consumers’ increasing comfort with self-service, be it with online shopping or automated grocery-store checkout lines. Customer service representative rosters are being reduced as more people manage their accounts online. When we self-serve, we retain control and remain the focus of the transaction, which can be a great feeling, but it only works when the company on the other side of the computer or mobile device has provided the tools to make it work.
When the utility of those tools is exceeded, those same businesses must provide human interaction, and they must meet or exceed their exasperated customers’ expectations. On the other hand, in many cases, everything is easy until a customer service agent gets involved. We’ve all been there.
Consider your own shopping behaviors and think about how comfortable you have become in spending larger dollar amounts online. What’s the highest price you have ever paid for an item online? Would it be a stretch to believe that even you would be comfortable buying a vehicle off a website with minimal assistance from a car salesperson? Not for me. I have become so comfortable researching online and leveraging previous buyer product reviews that I think it is a foregone conclusion that I will eventually do the whole deal online. All I need is a trusted source on the right platform.
You May Say They Are Dreamers …
One year after launching Shop-Click-Drive, more than one-third of General Motors dealers had signed up for the program.
It’s easy to pick on the trendsetters and suggest they are dreamers and money-wasters. I will admit that, when an OEM wants to be the driver of this retail strategy, I get nervous. But when dealers are actively involved in the development, the concept is a bit easier to swallow.
When I was on the Ford Dealer Council in 2000, our chairman, Jerry Reynolds, said that any decision made by a car manufacturer without dealer involvement is a bad decision. I agree wholeheartedly. If digital retailing strategies like Shop-Click-Drive, which appears to be winning over General Motors dealers, are to move forward, the factory, dealers and customer have to be involved. The customer is part of the equation because they determine the ultimate fate of any sales experiment. By keeping them involved throughout the development process, we can likely shave years off the journey to ultimate success.
So what, exactly, would success with digital retailing look like? Does the share of all sales have to reach 2%, 5%, 10% or more? Think about it this way: When dealer websites started popping up in and around 1995, few could have guessed that, 20 years later, more than 90% of car buyers would research their purchase online, or that some dealerships would have more than 50% of their sales generated from online actions taken by shoppers. Things change.
If you’re still in shock, I suggest you get over it. I’ve witnessed firsthand how confident Millennials are with shopping online and providing their own service. It’s not a stretch to imagine them leading the way down this path.
And by the way, I believe Mom-and-Pop dealerships are most likely going to lead the way on this initiative. Yes, the big auto groups have more money to experiment, but the smaller, private operators have more of a personal stake. For that reason alone, I believe they will be the innovators. All they need now is a creative technology partner to make it work.
I judge digital retailing to be a success because it is stirring the industry. I am amused by the fact that some dealers are taking a stand against it, as if they have the luxury of picking sides. The genie is out of the bottle. The Internet is not a fad and neither is digital retailing. The right strategy will evolve through trial, error and, yes, investment. I’m not just talking about money. You will have to invest time and focus as well.
Consumers are engaged, and the proof is everywhere you look. Remember when online payment calculators were a novelty? They now account for an average of 8 minutes of the average car buyer’s time. They are not waiting for your experts to tell them what vehicle and loan will fit their monthly budget.
I can imagine a day when salespeople use their smartphones to write deals, accept deposits and handle all the paperwork. If this is possible — and I truly believe it is not only possible but probable — then the Web- or kiosk-enabled transaction is not far behind.
Back to the Back End
These advances do not necessarily portend the demise of F&I. Far from it. The effective yield is an experience that better connects the website to the store. When today’s (and tomorrow’s) car buyer arrives at your showroom, they will be prepared with vast product knowledge and financial literacy. This is not a bad thing. Experience has convinced me that a more informed customer means more trust, and more trust translates into incremental opportunities to sell F&I products.
If you are a dreamer and want to make it happen, don’t let anyone talk you out of it. Decide for yourself if it is the right strategy for your dealership. Here are a couple of important numbers worth considering: Among my dealer clients, those using digital retailing products on their websites have experienced a 13% increase in lead volume coupled with a 30% closing ratio on the leads generated. Imagine a day when you open your doors and you already have 10 units sold from overnight shoppers, and all you have to do is clean them up for delivery.
A dealer once told me, “I don’t want to be a pioneer. I’ll be a settler.” He preferred to let others go first and move in when there was no threat of danger. Whichever approach works for you is fine with me, but remember, if you aren’t in that first caravan, you may never see the frontier for yourself.
Thanks for reading. I’d love to hear from you, whether you agree or disagree.
David Kain is the president of Kain Automotive Inc., winner of the 2014 Dealers’ Choice Award for best Internet training provider, and a nationally recognized speaker, trainer and consultant. DKain@AutoDealerMonthly.com