Surely everyone is familiar with the biblical David versus Goliath story. In the original, the much smaller David defeats Goliath by launching a single stone from his sling into the giant’s forehead. Case closed – David wins.

If only it were that easy for the Davids in the modern world.

Without sounding too much like an alarmist, the current economic climate coupled with the rapid pace of technology and the onslaught of digital marketing is creating a real David v. Goliath battle in automotive retail; though the Davids in our industry (the small, family-owned dealerships) aren’t winning in their fight against the Goliaths (the gigantic, corporate-owned groups). In fact, they’re beginning to lose ground at a disturbing pace, and this is not a good thing for the industry.

But Steve, the big groups are more efficient, right?

Absolutely. As the former ecommerce director of a large publicly traded group, I can tell you that we were much more efficient than your average small, family-owned operation. But so what? Efficiency benefits the efficient, and really no one else. We didn’t sell our cars any cheaper than the Mom & Pop operations. (In fact, if you believed our sales reps, we were getting “killed” on price by the local guys.) Plus, any efficiencies we brought to a vendor (for example, the ability to manage a 90-store account with one rep) were quickly eroded by the better pricing, terms and conditions we demanded in our agreements.

We were virtually the only ones who benefited from our efficiencies.

In many ways, Walmart is also the only one who benefits from their efficiencies. (I’m not saying this is a bad thing – it’s just the way things are.) If you believe that consumers benefit from the sometimes lower prices a Walmart can bring, you might be right. Of course, you are likely forgetting about the well-documented trade-offs that occur when one shops at Walmart: fewer choices on the shelves, lower overall quality of merchandise and a smaller workforce that generally earns less than the one it replaced.

Logically, even if you believe a Walmart coming to your city is neutral or even positive for the area and its shoppers, there is still one group that is routinely harmed when these national big box retailers come to town: owners of companies selling similar merchandise. If you are a locally-owned dealership, this is where you come in. The big box automotive retailers are getting bigger, and the latest automotive downturn has made them yearn for even greater efficiencies. Their plans include taking advantage of their enormous economies of scale and using these to drive you out of the market.

I wish I was just being overly dramatic, but small dealers are getting it from two sides: The giant chains and the many unscrupulous vendors in the digital marketing space.

Enter the snake oil salesmen

For anyone who’s ever sat through one of my group presentations, you know that I can be a bit opinionated when it comes to the snake oil salesmen and shiny-object chasers in our business. Neither provides any real service and whether by accident or through some sinister planning, both of these groups are hell-bent on separating the dealer from his or her hard-earned money. If that dealer happens to run a single-point store or a small group, these vultures will charge him or her a premium for the “right” to buy their often-inferior offering.

I despise the snake oil salesmen, and pity the shiny-object chasers. Neither of them deserves a place at your dealership or a piece of your spend. Unfortunately, the reality for most small dealers is that it’s darn hard to tell the difference between these guys and those who truly intend to help you advance your business.

Of course, if you’re running an AutoNation or Van Tuyl store, for example, you have a corporate staff that helps you navigate the vendor vetting process. This not only greatly reduces the chance you’ll trade your prized cow for some magic beans, it also reduces your individual store’s overall cost for any products or services you do buy. This is how the big guys leverage their economies of scale and this ability to “buy in bulk” (if you will) was one of the primary reasons many large dealer groups were formed in the first place.

For the small, private dealer, you not only lack the scale necessary to negotiate a low cost for products and services, but also the expertise and the time it takes to properly vet suppliers in order to find true vendor-partners – especially when it comes to digital marketing.

But vendors must love the big guys, right?

To some vendors, OEM and large group agreements are the pinnacle of success. I know, I’ve been part of that scenario in the past. When I arrived at Reynolds Web Solutions (RWS) we were the primary website provider for four of the six largest publicly-traded dealer groups, and we enjoyed a couple of small OEM endorsements/mandates.

While we liked the status and revenue streams delivered by these large groups and OEMs, the truth is that they were the loudest, most demanding customers we serviced. Moreover, the margins that their tiny monthly per-rooftop pricing returned barely covered the costs associated with pleasing these giants.

Don’t get me wrong, if I were at RWS (now a part of Naked Lime Marketing) today, I’d be doing everything in my power to land OEM and dealer group contracts. Done right, these agreements can create terrific efficiencies within an organization. Unfortunately for a lot of vendors, these are not always structured with the longer term in mind; and servicing these can be a bit of a nightmare: draining resources that would otherwise be used to create better products for the entire customer base.

I think where vendors are starting to lose when it comes to the large dealer groups, occurs when the Goliaths stop buying from a third party vendor and bring the product or service in-house. Case in point: AutoNation, the country’s largest dealer group, doesn’t have to buy customer relationship management (CRM) services from anyone, because they have their own in-house CRM tool. This begs the question: when will the other groups do the same? If I were selling CRM services, I’d be concerned about the trend in automotive toward more large groups and fewer single-point dealerships. As the groups get bigger, insourcing makes more and more sense.

The scary facts for vendors are these: there are dealers groups that create and host their own websites, some that manage all of their own SEO and SEM, a large number that manage their own IT infrastructure and a whole bunch that complete all of their email marketing activities in-house – just to name a few. The vendors who sell these products have no shot at earning these groups’ business… ever.

For in-dealership consultants and companies who provide 20 group services, there is little business (relatively speaking) coming from the Goliaths. They can and do create their own 20 Groups from within their own ranks and they can provide their own “experts” to help the individual stores via long-term, in-dealership training.

Now there’s talk of at least one large group developing a vehicle pricing tool like vAuto or AAX. Where will it stop and is any product category safe from the giant groups?

It’s like boiling a frog

As the legend goes, if a frog is placed in a pot of boiling water, it will immediately jump out. However, if you place the same frog in a pot of cold water and slowly heat the pot until the water boils, the frog will not perceive the gradual change in temperature and will be cooked to death.

Without being too dramatic, that is precisely what is happening to the small dealers in America today.

The changes are so gradual that they are almost imperceptible. From paying more for identical products or services, to accepting higher costs associated with nearly every task in the dealership, the little guys are being boiled alive. What’s worse is that there aren’t too many people pulling for the single-point dealers to survive. The OEMs seem to embrace the efficiencies that they too can create when allowing the big groups to get even bigger.

For now, anyway, the large groups seem to be playing nicely with their manufacturers, though as these groups grow, so does their leverage. It’s really not a matter of if, but rather when will a large dealer group wield enough power to truly challenge an OEM on an important matter.

So what’s the solution?

Everyone recognizes the problem, especially the big guys. From the 2010 AutoNation Annual Report:

We actively … leverage our scale to reduce costs. We continue to focus on developing national vendor relationships to … improve our cost efficiencies. For example, we realize cost efficiencies with respect to advertising … that are generally not available to smaller retailers.

For the small dealers to thrive and survive, they must gain both the influence and the expertise of the large groups. This means leveraging all of their important relationships: their 20 Groups, dealership councils, state associations and even the NADA to work together to ensure that their cost structures remain close to those of the Goliaths. Additionally, it requires gaining the education necessary to keep from being taken by the latest purveyors of snake oil.

Education begins by requiring that all managers – not just the Internet manager – attend the important digital marketing conferences and training will help the smaller dealers quickly obtain a proficiency level nearly equal to the big groups. There are some great vendors out there that welcome an educated dealer community. Unfortunately, far too many dealers leave the Internet sales and digital marketing education up to the Internet sales managers. For the small dealer, this means you have one “expert” where the largest groups have hundreds – how can you ever expect to compete?

Don’t underestimate the power of knowledge

Given the speed of evolution in the digital marketing space and the need to stay abreast of the improvements, it makes sense for dealers to ensure everyone on their team is included in the education process. Additionally, they will need to find and leverage sources and subject matter experts they can trust. There is just too much change happening way too fast for even some of the large dealer groups. It seems everyone – big and small – is struggling to keep up with the constant barrage of new media products.

This, in my opinion, is where savvy small dealers will stand the best chance. Educated dealers will be able to more easily identify which vendors are selling value and which ones are just taking dealers for a ride. They will also be more likely to pay lower prices for identical services, because they’ll be better equipped to compare the offerings of one vendor with another.

While there have been organizations/groups/blogs formed with the intention of helping dealers determine the right products/services/vendors to deliver specific solutions, all of those came with inherent flaws – including the easy manipulation by unscrupulous vendors to game product rankings and to guide/influence the group discussions. These are not subject matter experts helping dealers in need, these are snake-oil salesmen disguised as industry thought leaders with a single focus: how can we separate the dealer from his or her hard-earned money?

This is why small dealers need to not only get educated, but also to band together to become bigger than the Goliaths. If small dealers try to go it alone (without others and without more education) they will have to rely on what they learn directly from vendors and indirectly from the blogs – hardly unbiased sources of information.

Every day that the big get bigger, the small are getting smaller. Clearly, if you’re planning to pass your dealership on to the next generation then your future depends on your ability to compete today and tomorrow. But, even if you’re planning to throw in the towel and hoping to sell to one of the big guys in the near future, your operation must be growing in order to demand top dollar. Either way, you need to slay Goliath to get what you want.

In the original story, David was able to exploit a weakness in Goliath’s armor. Today there is only one way to defeat a modern Goliath: Become smarter, bigger and stronger.

Good selling!