John Stephens on Profit Margins and Customer Retention
Q. What is your outlook for sales volume in 2019?
A. We’re on track for a flat year in 2019. This pattern is expected to stay in place until sometime mid-year, when most economists expect a slight downturn. Dealers should be in preparation mode for reduced vehicle sales. It’s important to remember that this flat sales year is still at record highs when compared to historical unit sales. We’ve reached the peak of just how far sales can climb, so going forward the emphasis needs to be on maximizing profit potential on each sale, and on increasing customer retention.
Q. What is the “State of Compliance” and how will it impact retail automotive dealers?
A. Dealers may feel like compliance is taking a back seat in 2019, but that is far from the truth. While the CFPB is restructuring and pulling back, the FTC is increasing its focus in the retail automotive space. In addition, all eyes are on the Hill to see what will happen with GAP and the Department of Defense decision on the Military Lending Act. With all these developments, there is no reason to back off compliance and discontinue good practices.
Q. What will the pre-owned space look like in 2019?
A. Pre-owned vehicle values continue to stay strong. Manufacturers have reduced their incentives and are no longer flooding dealerships with too many vehicles. As a result, vehicles are maintaining their values better in both new and used departments. This is a great time for dealers to evaluate their CPO programs and “why buy here” messaging. I’m counselling my clients to make sure their team is trained to educate every consumer they interact with on their traffic-driving programs, like a lifetime powertrain program.
Q. What strategies will dealerships employ to achieve their profitability goals?
A. We can expect dealers to take a three-pronged approach to achieving their profitability goals for 2019.
- Placing a heavier emphasis on their service drive retention, through F&I product sales. Dealers will evaluate their product menu and F&I pay plans based on those products that encourage customers to return to them for service.
- Training service advisors to better recognize opportunities for maintenance, enhance dealership communication, and sell less expensive consumer protection products from the service drive.
- Increasing transparency around the F&I process as a whole by providing information about the consumer protection products they offer online. The goal with this is to streamline the F&I process with more educated consumers, and generate more interest in the benefits provided by F&I products before consumers even enter the dealership to help increase PRU and penetration. Empowering the customer with information needs to continue to be out front and center, regardless of how the customer approaches dealership.
Q. How are dealers addressing the Millennial buyer?
A. As Millennial purchasing power continues to increase, dealers are evaluating how to best appeal to this consumer group. We’re already seeing dealers invest more in reaching consumers where they are, using their website and mobile apps to engage with consumers before, during and after the vehicle purchase. In addition, dealers are focusing on personalizing each visit during both sales and service. In 2019, we can expect dealers to train their staff on how to be more transparent. Consumers are contacting the dealership with more information than ever before, but they will still have questions. The key will be to answer those questions in a truthful, factual, and open manner in whatever means the consumer prefers, i.e. online, email, mobile apps, etc. This will help give consumers a sense of control in the vehicle buying process, while also making them feel valued.
Right now, there is a lot of discussion around changing the car-buying model. One of the more prevalent trends is dealers looking into empowering sales people and allowing them to take more responsibilities in F&I. However, they have limited training and processes in place to make this transition a smooth one. Product administrators need to step up to the plate here and provide dealers with advice, training and support, as they begin to contemplate and implement different operating procedures.