On-the-Point

The Vast Research Conspiracy

May 5, 2015

The Alpha Dawg takes the latest research with a grain of salt and reminds dealers to trust their instincts and never sacrifice F&I.
The Alpha Dawg takes the latest research with a grain of salt and reminds dealers to trust their instincts and never sacrifice F&I.

All it takes to sell anything to most car dealers is a report starting with the words… “Our most recent research shows that …” We are such suckers for misinformation disguised as valid research. All I have to say about that is my own research shows that most recent reports conducted and commissioned by vendors and manufacturers is most likely bogus and definitely suspect.

In the last three weeks of March and the first week of April, no less than five monumental research reports were piously heralded and reported in the industry press as dramatic paradigm shifts in the way consumers buy automobiles and the way we sell them.

I know, I know. I can hear you from here. “Ziegler, you’re just an old-school cynic and skeptic.” Yes, labeling is one way to discredit the discrediters and silence the opposition. But I can’t be the only one who smells a rat.

Bias Is as Bias Does

You have to agree that just about all the research, studies and surveys coming at us in rapid-fire releases is that they all benefit the business model of the vendor that released them or the direction the manufacturer is steering the dealers for their own purposes.

There is no disguising the fact that a lot of the research we see is conducted by companies that referred to themselves as “lead providers” until they could no longer justify their performance. Many of them started calling themselves “advertising sources” rather than accept responsibility for actually producing sales. They are selling VDPs and SRPs and map views, not actual customers who actually show up in your showroom and buy something.

Some of these companies have raised their rates 140% this year, despite the fact that their results are totally untrackable and unverifiable. You’re paying for doubletalk and smokescreens. Their sales presentations have been reduced to dire warnings that you’d go out of business without them.

The one thing most of these research reports and studies agree upon is that consumers are demanding changes in the way cars are sold. I’ll give them that, but of course all the changes suggested by these reports seem to conveniently benefit the companies that publish them. If we actually did sell cars the way they want, it would further mask and hide their lack of sales, results and accountability.

The author believes that converting leads from dealer websites will take precedence as more car shoppers use mobile devices to find and connect with dealers.
The author believes that converting leads from dealer websites will take precedence as more car shoppers use mobile devices to find and connect with dealers.

Recent reports from Edmunds and Autotrader seem to conflict with and even contradict each other. Coincidental with the NADA/J.D. Power Automotive Forum, Edmunds released a report on Millennials’ buying habits and trends — which seems to dispute all of the other Millennial research every other vendor has released recently — and Autotrader put out their “Car Buyer of the Future Study.” They both raise fair questions and make some good points. So which one will inspire you to change the way you do business? 

Let’s boil all the past year’s polling, research, studies and reports down to their essence: First of all, it appears that consumers dislike the time it takes for a dealership to transact a car sale from handshake to taillights. I totally agree with that. As a matter of fact, I’ve been teaching that for 25 years. The same sentiment is expressed in all my books, speeches and videos. My focus has always been on getting the entire in-dealership sales process down to less than two hours. It is totally achievable with maximized profitability and a customer-friendly process.

Here’s where I diverge with the “experts”: Many of them say we have to complete the entire sales and finance process in less than 45 minutes. Folks, that just isn’t going to happen. I’m not saying it’s impossible. You can kick every customer out of the store at the 45-minute mark if you really want to. You just can’t expect them to be satisfied or spend any money on F&I products. So you’ll also be kicking their repeat business and referrals to the curb, along with any hopes of a decent profit.

It seems obvious to me, but two of the nation’s leading auto groups, AutoNation and Sonic, are committed to giving it the old college try. Let’s see how that works for them. AutoNation has traditionally made their profits in F&I. I predict the 45-minute sale will totally tank F&I profit as well as front-end gross.

As for Sonic, we’ll see if their performance is any better than it has been. I read somewhere that Sonic is going to have sales pros running around with iPads, doing the entire transaction with the consumer from A to Z, apparently including the F&I sales — or lack thereof. You see, that’s the bottleneck. F&I is time-consuming, and there is very little you can do to shorten the process of selling and contracting without totally throwing away F&I profits.

Remember, to make all this work; the one-price/no-haggle folks are telling the dealers all you have to do is get rid of commissioned sales and hire Best Buy employees who will work for peanuts. So, even though you make less gross per unit, you’ll have a higher net profit because cost of sale will be greatly reduced. So, yeah, let’s just give them all iPads and turn them loose. Surely they’ll be motivated to close deals and maintain gross. Wake me when the nightmare is over.

Cutting Profits

I’ve always said that the vendors would take the industry away from the dealers if they could only figure out a way to get rid of F&I. Well, it’s happening now. Econtracting proponents want car buyers to fill out as much paperwork online as they possibly can and get them in and out of the finance office in record time.

If you can hear me chuckling, just ignore it. I don’t mean to be rude. But does anyone else think General Motors’ Shop-Click-Drive platform is a total disaster waiting to happen? If the factories were looking for a way to highlight their lack of understanding of the retail customer, this would be it. Just ask any GM dealer and they will tell you about the pissed-off consumers this “solution” has generated.

Of course, when something is this screwed up, the OEMs open their disaster-response manuals. Step One: Declare the project an overwhelming success and say it just needs a little tweaking. Step Two: Admit it didn’t meet expectations and say it’s all the dealers’ fault.

I know Toyota has their manual ready because they recently announced a Shop-Click-Drive-style option that will be available to Scion customers. You all know Scion: the “alternative” brand marketed to Millennials and purchased by senior citizens.

But here’s what really cracks me up: Several of these recently released pseudo-research reports agree that consumers want to remain anonymous until they make a deal. If you fell for that one, I bet you were the kid who got tricked into pulling Uncle Herb’s finger. Think about it: If the consumer wants to remain anonymous until they make a deal, the vendor doesn’t have to reveal them to you until the 11th hour.

OK, I get it. We are witnessing major changes in the way business is done. That’s a fact, but not in the way it’s being presented. Yes, customers and the way they want to buy products is changing. No, we don’t have to throw away our processes — and back-end profits — to keep their business.

How do I know? In a word, research. And I mean real research, the kind you can only compile by working with and listening to real dealers and real dealer employees who are working on the front lines. I have no theories to test. I have no hidden agenda. I am already plugged in.

So here’s what’s really happening: The lead-provider model is in trouble. There’s an entire segment of vendors scrambling to find ways to justify the money dealers are spending on their programs.

You see, with the advent of more (or most) consumers shopping and researching on smartphones and tablets, they are increasingly bypassing the third parties and going directly to the dealers and manufacturers’ websites. As I have mentioned repeatedly in articles, speeches, blogs and seminars, Google’s recent addition of “Click to Call” functionality to search results has dramatically changed the paradigm. Website conversion is more important than ever. I strongly advise dealers who don’t have 24-hour-a-day call centers to at least provide a 24-hour-a-day chat window.

Why? Because dealership websites are converting at a high enough rate to convince many of you to divert your advertising spend toward search engine optimization and, ultimately, Google positioning. That’s exactly what AutoNation and the other big players are doing. We’ve awakened to the fact that some vendors are stealing your customers right off of the first page of search results and renting them back to you.

Don’t get me wrong. Many lead providers still offer value and can prove it with measurable results. For as long as that holds true, I will advise you to keep those partnerships intact. But just as many providers in that category are rapidly losing relevancy and effectiveness. They can no longer justify their value, much less exorbitant price increases.

The nation’s No. 1 retailer, AutoNation, made waves in 2014 when chief executive Mike Jackson announced that his group would wind down third-party lead-generation efforts and focus on leads generated from dealer websites. 
The nation’s No. 1 retailer, AutoNation, made waves in 2014 when chief executive Mike Jackson announced that his group would wind down third-party lead-generation efforts and focus on leads generated from dealer websites. 

The Bell Cow

The group to watch is AutoNation. Their chairman and CEO, Mike Jackson, has been rather vocal about his desire to invest major resources into incorporating technology into the online sales processes. Jackson is nobody’s fool, and he has never demonstrated a fear of making rapid adjustments. Although I am confident their current plan will crash — and hard — I know they will blaze new trails and come up with some really great and innovative ways to blend technology solutions into sales processes and remain profitable. In other words, they will figure it out in the end.

Any process that fails to leave enough time for a complete F&I presentation is doomed to fail. The 45-minute transaction is a myth, and only the weakest dealers will stay with it. The two-hour sale is more realistic, more profitable and, whether they realize or not, more rewarding for the customer.

Speaking of the customer, the Autotrader study found that only 17 out of 4,000 respondents said they prefer the car-buying process exactly the way it is. That’s a little surprising but not totally unreasonable. But 53% said they would buy more often if the process were to change. Now hold on! Where are those sales going to come from? We are already selling too many cars to too few buyers.

And why are so many customers opposed to the process we have? Think about it: Who takes the longest to sell and finance? It ain’t the cash customers.

How many credit-challenged car buyers have you spent hours trying to calm down after the bank refused to finance their purchase of a $60,000 SUV with two repos on their bureau? I bet they hate your process and think it should change right away. (They hate the bank’s process, too, but they are more likely to remember your name.)

What about the customer who was totally unrealistic about their trade or the deal? Did some vendor create a false impression that we are holding high profits on these cars that in reality just aren’t there? Could it be that the customer dragged out the process? Nope, it was us. They came at us with a deal that couldn’t be done. The vendor told them it was possible, despite being mathematically impossible, and now they are bent out of shape. Their only recourse is to sit by the phone and wait for the next survey conductor to call.

If you think an iPad is going to fix this problem, think again.

In March, Julie Menin, commissioner of New York City’s Department of Consumer Affairs, initiated a program that would bypass dealer participation by connecting subprime car buyers directly with finance companies and credit unions. 
In March, Julie Menin, commissioner of New York City’s Department of Consumer Affairs, initiated a program that would bypass dealer participation by connecting subprime car buyers directly with finance companies and credit unions. 

The Truth Hurts

I travel this great nation and consult with dealers big and small. I am in their showrooms and I see their customers. They are neither stressed nor uncomfortable. They have done their research and they expect a fair shake from a true professional. So where are the research firms finding all these pissed-off car buyers?

I have seen customers who were frustrated, angry or both, and so have you. But I know they don’t represent the majority, certainly not in my experience, and, unless you are operating the dealership from hell, probably not in yours. They don’t want to spend the entire day with you, but they will stick around for a couple hours to get a good deal done.

That’s why the attacks on F&I should send shivers up your spine.

I just read that there are politicians in New York trying to make bank reserve to dealers illegal. In other words, banks would no longer be allowed to pay dealers anything to process loans; if I am reading this correctly, not even a flat rate payment.

Excuse me, but wouldn’t that be an incredible disservice to car buyers? These fools have no idea how many loans wouldn’t even be approved if the dealers didn’t “work the banks” on the customer’s behalf and get them that second chance. That certainly isn’t going to happen in a sterile, online, computerized credit call.

It’s a crazy world we’re living in, and it’s about to get crazier. The rogue vendors, manufacturers and government agencies seem to be engaged in an unofficial conspiracy to bring down the dealerships. They want to turn your stores into warehouses. All they have to do is automate the process. Getting rid of F&I would smooth it out. With just a few tweaks, they can own it all. I think that’s why AutoNation and others spun off from the pack and started to create their own online car malls and generate their own traffic.

I have expressed some strong opinions in this month’s column. I don’t trust some of the people trying to steer the business right now. What they say doesn’t line up with what you see in the dealerships. It’s easy enough to say it’s all about the Millennials and the way consumers want to buy, but to protect your business, your profits and your customers, you will have to continue making decisions for yourself.

Until next time, keep those emails and messages coming, and don’t forget to find me on Facebook and Twitter. I promise a swift but satisfying exchange.

Comments

  1. 1. Tom Hawkins [ May 26, 2015 @ 04:01PM ]

    Well written, informative and strikes of common sense. It's so easy to get down in the dumps and believe everything they predict. I am sure some of it may come true, but you have to keep putting it through the "common sense" filter. Thanks.

  2. 2. Ed Brooks [ May 27, 2015 @ 07:29AM ]

    Sonic has stated their goal is to "complete a vehicle purchase in 45 minutes or less from the point the car or truck has been selected". The key words here are, "from the point the car or truck has been selected". That is dramatically different than a requirement that a dealer "complete the entire sales and finance process in less than 45 minutes". I haven't see anybody say that an average transaction - including vehicle selection and test drive - should take 45 minutes.

  3. 3. Used Car Ricky [ May 28, 2015 @ 09:09PM ]

    Digital Darwinism! When someone says go with your gut instinct, it is another way of saying, I don't understand the data and I don't want to learn because it's harder to do magic. Great article!

  4. 4. Jim Kristoff [ May 29, 2015 @ 04:43AM ]

    Great article Jim!....I have spent over 30 years in the retail automotive industry. 20 years as a General Manager and 8 years a partner in a Honda store. The bottom line is that people still buy from people. Buying a vehicle is not like buying underwear on the internet. A good automotive sales process includes finding out the wants and desires of the buyer and coupling that with ALL of the different choices and options of vehicles. Consumers want well educated salespeople that can cut through the automated clutter and really HELP them purchase a vehicle! The main reason that consumers don't like the process is that there are MANY dealers that don't have a comprehensive training and accountability culture within their stores. Most have a "Sales process"....but fail when they hold no one accountable to it. If more Dealers thoroughly trained their staffs and then held them 100% accountable for completing ALL steps of the sale process and follow up process, they would all win.

  5. 5. David Ruggles [ May 31, 2015 @ 07:13PM ]

    If you torture data long enough, you can get it to say anything you want.

  6. 6. Royce Townsin [ September 27, 2015 @ 08:03AM ]

    Well written, very accurate as usual, article Mr. Jim. We are all users of the Internet, but nothing can take the place of doing business one on one with each other!! The difference between your perspective, and these other companies is you LIVE it!! They don't have a clue!! Stay the course for us, Mr. Jim!! Thanks, Royce

  7. 7. Cullen Crane [ September 28, 2015 @ 07:25AM ]

    A lot of good content here, I could not agree more that there are a number of "studies" being produced today that would more closely be described as advertising. Also agree that data lives to tell a story but it can be manipulated to tell whatever you would like to present.

    A couple of sections that I would like to comment specifically on:
    "You just can’t expect them to be satisfied or spend any money on F&I products. So you’ll also be kicking their repeat business and referrals to the curb, along with any hopes of a decent profit."

    You mentioned it in the article a bit later but I do not think Sonic is the type of company that gives anything "the old college try". They researched and studied the Independent Used Car model for five years before introducing EchoPark. As far as referrals, repeat business and profits I am stealing this from an article I read yesterday by Jim De Luca where he shopped at Town and Country Toyota in Charlotte, the Pilot store for the Sonic-One program:

    "Prakash says their market share of new Toyota sales grew from 12% to more than 21%. He attributes part of that growth to an increase in repeat and referral business from shoppers who enjoyed the Sonic-One Experience.
    Plus their F&I profit is up from $640.00 per car to over $900.00 with no F&I department."

    A little later you said...
    "Excuse me, but wouldn’t that be an incredible disservice to car buyers? These fools have no idea how many loans wouldn’t even be approved if the dealers didn’t “work the banks” on the customer’s behalf and get them that second chance. That certainly isn’t going to happen in a sterile, online, computerized credit call."

    I wonder how much of this "working with the banks" is truly to get the customer the benefit of having the deal reviewed a second time and not trying to get an extra point or two in the box. A computerized call, when developed correctly can be the most fair and unbiased way to see if a customer is able to buy a vehicle.
    Thanks again Jim.

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