CAP Development Director, Anthony Doherty, reflects on issues raised at the National Automobile Dealers Association convention, in Orlando, Florida.
Truth by repeated assertion - it’s a very common phenomenon that politicians and marketers use all the time, for example, “US dealers are more advanced than UK dealers”. I have never fully believed this view of the alleged “dinosaur” UK dealers and, after talking and listening to dealers in the US, I was immediately struck by the similarities of the issues faced and the approaches taken. Car dealers are retailers and, like any retailer, they have to have the right product at the right time for their market. So, if you want to be a successful retailer you need to be clear in three areas.
- · Which consumers make up my target market?
- · What product do they want to buy?
- · How do I become visible to them?
The successful dealers are the ones who are clear on each of these points. Every dealer will have a different approach to best suit what they are trying to achieve, be it 50 cars at £2k profit or 100 cars at £1k profit, the destination is the same, only the route varies. Like many UK dealers, US dealers have the same “I have always done it that way” attitude, and believe that what worked in the past will always work in the future. In both markets the smarter dealers are trying to apply a more scientific and analytic approach. This has lead to various decision support systems becoming popular among dealers, VAuto, Firstlook, Dealertrack and ADP Lot Management being the most high profile in the US market and iControl in the UK Market.
On the face of it all these systems take a similar approach to help dealers become more profitable. Generally they all attempt to improve “inventory management” or, put another way, help them retail every vehicle they buy and minimize the numbers that go to auction. So how do they do it?
Step One: Understand your market
You need to know which vehicles consumers are looking for and which vehicles are selling right now, this will help to define your target audience and decide which vehicles you will target. All the systems support this by analysing vehicle adverts on the big web sites and from dealers’ own websites, typically scraping the ads from these sites. Most US sites like autotrader.com and cars.com provide direct feeds of their adverts to the systems, unlike the UK where autotrader.co.uk do not provide feeds apart into their own product, iControl, and guard against scraping of their site. As well as seeing what’s retailing, the systems also tap into the auctions to match availability.
Step Two: Perform accurate appraisals when buying
When buying at auction and buying part exchange vehicles it is critical to correctly appraise the vehicle under consideration, you need to understand both its true retail value and true wholesale to enable you to bid appropriately. All the systems use the advertised price as a guide to retail and rely on trade guides for the wholesale prices. Another UK truth by assertion is that “trade guides are no longer as relevant, with dealers working from retail price”. This is clearly not the case since the profit margin lives between the trade/trade-in value and the retail so the dealer needs to analyse the live market position of both to correctly appraise every vehicle. US trade guides command a strong position, especially Kelly Blue book who publish both a trade guide and a consumer trade-in price.
Step Three: Set the retail price right and keep an eye on it
Once the vehicle is in stock and being advertised the dealer needs to monitor the retail price against similar vehicles in the local market and make timely adjustments as needed - the goal is to retail the vehicle as quickly as possible, but at the highest price. This is one area where the systems begin to differ; there is a tendency for the systems to chase the prices down reducing dealer margins per vehicle. A good system needs to analyse the dealer’s own history for vehicle trading and be very specific and accurate about the spec of each vehicle, including colour and options. Consumers are looking for value for money, not just cheapness. A smart dealer is looking for margin not just volume.
Step Four: Deliver the best vehicle marketing collateral
Whilst sourcing, buying and pricing the vehicles correctly is critical to process, getting your customers to notice the value for money your vehicle offers requires the best marketing collateral, lots of good quality photos, excellent vehicle descriptions and a level of trust in your dealership.
Step Five: Get out quickly when you need to
If you are doing steps one to four the right way you should never need step five because you will have retailed out every vehicle, however, sometimes you will need to lose aging stock so you need to keep an eye on current trade position, preferably from a live market guide.
Consumer confidence in dealers
Along with bankers and estate agents, car dealers have a poor reputation for trustworthiness, although at least car dealers can turn to independent organisations to help provide a greater level of trust. Like CAP here in the UK, Kelly Blue Book (KBB) in the US has really cemented their position of being an independent and reliable source. Whilst there are many other trade guides, Black Book, Galves, Edmunds, NADA, Manheim Auction Guide, it is KBB that commands the market for consumers, with many dealers and advertisers incorporating the KBB valuation tool on their web sites.
To prevent themselves actually becoming the dinosaurs of the industry, UK Dealers now need to stop being fooled into thinking that great size will protect them. Evolution, in this case technological evolution, will allow their competitors beat them if they too don’t invest in mechanisms to improve stock management.
Note: CAP blog entries represent the personal viewpoints of CAP staff. Business decisions should only be made on the basis of information published in CAP’s commercial products and not on the basis of information or opinion published on the CAP blog. For further information about CAP products call us on 0113 223 2111.