By Gregory Arroyo, Senior Content Manager, DealerSocket
Where are dealers when it comes to digital retailing? That was the question I posed to one of my insiders — the president of one of the industry’s largest F&I product companies — while covering a past NADA show as editor of an F&I trade publication.
My contact compared the current state of today’s digital push to one of those power plug adapters you need when traveling abroad, “the ones with eight different types of adaptors,” he clarified. “Well, we’re at the point right now where we don’t know what the plug looks like that we’re plugging into,” he added, noting that dealers will simply “buy the process that wins out.”
It’s true. In my 13 years covering the car business, I’ve learned that dealers don’t buy technology; they buy a proven process the technology drives. Validating that observation were the third-quarter earnings calls hosted by the industry’s publicly traded dealer groups.
Discussing AutoNation’s $50 million investment in Vroom during the group’s Oct. 30 earnings call, President and CEO Mike Jackson said the online used-vehicle retailer “has a very impressive journey in building the business to where it is.” Asked whether the group views its 7% stake in Vroom as kind of a hedge if the market moves in that direction in the future, the executive offered the following response:
“Yes, make a $50 million investment with Vroom, have discussions with them over the course of 2019, and see what comes from that.”
Lithia Motors offered up another example with its $54 million investment in San Francisco-based Shift Technologies — a peer-to-peer online marketplace for buying and selling used cars. What’s interesting is it’s the San Francisco-based startup’s inventory sourcing potential the group seems most interested in — at least in the near term,
“The ability for Shift to procure vehicles in our markets can greatly accelerate our used-vehicle sales,” said President and CEO Bryan DeBoer during the group’s Oct. 24 earnings call.
Then there were the questions Roger Penske raised about digital retailing during Penske Automotive’s Oct. 25 earnings call — one of which I think a lot of dealers are asking. “At the end of the day, our shareholders expect us to pay a dividend,” the group’s chairman and CEO said. “And where do we play, and, more importantly, how do we win?”
Penske pointed to logistics (home deliveries) and vehicle pricing as examples of the questions the publicly traded dealer group is trying to answer regarding online car buying. He also talked about the risks associated with financing online, as well as investments the organization has made to ensure F&I products get sold.
“So, we’re all over this,” Penske added. “But at the end of the day, what do we have to win …?”
That’s the question on everyone’s mind, it seems. While I don’t claim to have the answers, let’s delve into four key discussion points when it comes to digital retailing.
- Consumer tool or sales driver?
I believe digital retailing, at least right now, is your website’s greatest conversion tool — a payment calculator on steroids that can turn internet shoppers into showroom buyers. And you don’t have to take my word for it.
“Closing ratios are significantly higher when customers start their purchase process online and our customers tell us the process is outstanding and they love the time savings,” said Daryl Kenningham during Group 1 Automotive’s Oct. 19 earnings call. The president of the group’s U.S. operations added that changes made in website content and search engine optimization have driven up organic traffic by 31% year over year — traffic that is “more productive and profitable” than traffic coming from third-party lead sites.
And with 2019 predicted to be a challenging year in terms of sales — although 16.8 million units is still a pretty darn good year — anything that pulls consumers off the sidelines needs to be considered.
- Why should I allow my customers to self-desk?
Although trimming transaction times is one of the key promises of digital retailing, I’m not sure that’s why consumers want it. Yeah, I know that’s what these shopper studies indicate, but those same studies never seem to query consumers about their knowledge of a dealer’s compliance obligation — that, for instance, a dealer in Texas must capture a customer’s signature more than 60 times just to roll a deal or that the Federal Trade Commission and the Treasury Department have basically deputized dealers to root out identity thieves and prevent bad people from buying cars. That’s why a deal should take as long as it needs to take.
Besides, a few process tweaks (think service tour and the F&I meet-and-greet) can solve the time issue, because time becomes a non-factor if the consumer feels like the process is moving. And from my 12 years covering the F&I office, I’ve learned that what happens — or doesn’t happen — in the showroom is often the root of the time problem.
Personally, I believe the prospect of starting a deal from the comfort of your own home speaks to buyer insecurities. Hey, no one wants their credit situation or lack of car-buying prowess outed in a crowded showroom. Besides, once a dealer gets a read on where a deal should go, that transaction can move at overwhelming speeds. That’s why I believe buyers simply want to digest the process and the information at their own pace. And that’s the true opportunity when it comes to digital retailing because a customer at ease is a customer that’s easy to please.
- What’s the true opportunity of digital retailing?
During my magazine days, we’d publish an article at least once a year on how franchised dealers can dip their toes in the special finance arena. Making sure to back credit-challenged consumers into finance-appropriate vehicles always seemed to be a key tip covered. The advice seemed appropriate even for dealers who don’t dabble in secondary finance.
The challenge, I learned, is how do you manage the expectations of consumers bent on buying more car than they can afford. More importantly, how do you avoid upsetting your good credit customers with questions about their credit situation? This is where a digital retailing platform can help, providing dealers with a way to manage their customers’ expectation by allowing them to self-discover their buying power.
And with finance sources continuing to tighten their guidelines and consumer debt continuing to rise, being able to assess a consumer’s credit situation while avoiding any embarrassment makes digital retailing a compelling sales tool.
- What about F&I?
How digital retailing will impact F&I product sales is the big question facing dealers, especially since moving the product presentation further upstream runs counter to that old F&I axiom that a customer’s first F&I product objection should occur in the F&I office. And what’s the response if the customer says, “Yeah, I read about your products on your site and I’m not interested”?
So, yeah, with F&I product sales accounting for more than 40% of a dealer’s net operating profit — and given today’s margin-compressed environment — there’s a lot to think about. But let’s be realistic. How many consumers have good enough credit to get automatic approval? In fact, I would guess about 70% of deals a dealership rolls per month require F&I manager involvement. That means most buyers will require more than a document signing ceremony when they arrive at the dealership to take delivery. And here’s the good news: Those deals originating from a digital retailing platform will reach F&I complete and error-free — an F&I producer’s dream come true.
I know, what about that objection? Well, I’ve written about successful F&I operations who had no problem with salespeople endorsing service contracts. Some operations even provide their sales teams with a few word-tracks to tee up the service-contract sale. I also don’t think we can discount the impact those protection plans companies like Best Buy offer on their consumer electronics products. Lots of younger consumers now understand the value of making such investments.
Anecdotally, I’m hearing F&I products do move online — that’s if you limit the number of products presented. Whether penetrations are on par with the traditional F&I presentation, I’m not sure. And, frankly, I’m not sure how F&I profits will be impacted once product pricing lands on some aggregator site. What I do know is they eventually will.
So, yes, I understand why dealers are skittish when it comes to digital retailing. Hey, reinsurance is a dealer’s retirement plan, and it’s what kept many operations afloat during the Great Recession. Then, again, will consumers really make it that far in the digital process?
Let me close with this: Over the last few years, we’ve heard a lot of talk about vendor consolidation. Well, digital retailing intensifies those discussions. I mean, do you really need another vendor? And doesn’t it make more sense that data travel between integrated solutions? And don’t forget the now fully staffed Federal Trade Commission and its new director of consumer protection have made it clear that privacy and data security will be a top priority.
About the Author
Gregory Arroyo serves as senior manager of strategic content for DealerSocket, a leading provider of automotive software solutions. Email: firstname.lastname@example.org.