Before the clock struck midnight and 2019 officially rolled in, analysts predicted this new year would bring a decline in new vehicle sales. While that has proven true, it’s not the only issue impacting the automotive retail industry so far this year. Dealers are also grappling with shrinking OEM incentives, soaring costs of new vehicles and a shortage of technicians. How can dealers remain profitable in a flattening market? As always, customer loyalty reigns supreme, but today’s dealers must shift their perspective.

Instead of segmenting customers into traditional buckets such as “retention,” “service-not-sold” and “conquest” opportunities, dealers must take advantage of data-backed behavior prediction technology to enable dealers to view their entire buyer market holistically.

Flattening Sales

According to the National Automobile Dealers Association[1] (NADA), all segments of vehicles are forecasted to flatten or even decline with light-duty trucks being the only vehicle segment showing gains. As car retail sales slowed down across the auto industry, the number of vehicles on dealers’ lots hit an all-time high at approximately 4 million new vehicles[2] this quarter.

It would be unrealistic for a dealer to try and rely on their tried-and-true approaches from the past to accomplish future success with these trends ahead. Dealers need to expand the way they view their market: if a person is physically in your geography and wants to buy a car, they are a potential customer (no matter if they’ve bought from you before, or not). This sounds obvious; however, a fresh, holistic mindset is crucial. Why would a dealer limit its focus to 10,000 loyalty customers when it can see 100,000 customers of all types in its local market, which would include loyalty, conquest and service-not-sold prospects?

Trying to understand hundreds of thousands of customers requires a data-driven approach, which dissects the customer and scores them based on their likelihood to buy. This allows the opportunity to market to these customers with a highly targeted and individualized incentive offer. This model of analytics-based selling is going to become the new-age traditional staple, not only in meeting month-end targets but exceeding them and helping to move vehicles off the lot.

Shrinking OEM Incentives

NADA has been vocal about stair-step programs hurting consumers and eroding brand loyalty. A 2017 independent study, commissioned by the association, to explore the economic impact of the programs concluded that they had many unintended negative consequences[3]. These negative consequences include a lack of price transparency for consumers, lower residual values and used-vehicle prices for brands using them.

Stair-steps, which can take many forms, generally offer dealers cash payments from the factory if the dealership hits a preset monthly sales goal. Each OEM program is different, but in some cases, the incentives are all-or-nothing.

Despite shrinking OEM incentives, dealers should find innovative ways to create a healthy competition amongst sales staff. One way to do this is to break down the barriers between sales, service and marketing to leverage each for the total customer experience, resulting in a full understanding of the customers’ needs that turns prospects into the loyal and profitable backbone of a strong and sustainable dealership. In the same way dealers are encouraged to view their entire buyer market holistically, consider viewing each department in the dealership holistically – which creates a unified customer experience. Building a better culture and customer experience is accomplished through careful analysis, planning, and dedication. Provide the teams with the right resources, capabilities and authority to deliver those experiences.

Vehicle Affordability

While new vehicle launches are exciting for customers and dealers, affordability is still important. Auto sales continued to decline, rounding out an ever-decreasing Q1. NADA CEO Peter Welch said affordability is “probably the biggest thing” he is concerned about for the auto industry.

With NADA and others continuing to sound alarms over vehicle affordability, this means not only sticker shock but also financing challenges for consumers. Dealers need to make sure their marketing and sales efforts include a data-backed view of a prospect’s financial situation, ensuring they’re not investing resources on an offer that a customer can’t afford or other types of unqualified leads. One solution is to utilize technology that partners with a credit agency, like TransUnion, which can help determine feasibility of affordability on the spot.

When combined with data-based marketing outreach that looks at every potential customer in the market to score and identify the best prospects for a targeted and individualized marketing and sales campaign, this model of analytics-based selling is the fast lane to meeting month-end targets and moving vehicles off the lot.

Service Technician Shortage

Dealers are having a hard time hiring and keeping service technicians. One estimate from NADA is that between retirements and career changes, dealers need to hire roughly 76,000 technicians a year just to keep up with demand[4]. The U.S. Bureau of Labor Statistics predicts there will be 45,900 more service techs needed in a decade[5].

In fact, NADA launched a workforce initiative[6] to address the shortage of service techs. Now more than ever, dealers must attract qualified technicians in unique ways, in addition to the standard of competitive salaries. According to the Bureau of Labor Statistics[7], the median salary for a service technician at an auto dealer is $43,180, compared to $37,420 at collision shops or independent repairers or $33,640 at tire stores or parts and accessories shops. Why? Because the service experience is critical for a customer’s overall satisfaction and qualified, positive service technicians are a crucial face behind each dealers’ brand reputation. It is critical for dealers to invest in their service techs by – training, helping them maintain a work-life balance, providing competitive pay and creating a company culture that fosters a great experience for both employees and customers.

As we move through 2019, dealers need to take these highlighted issues seriously and focus on embracing a holistic approach, to address wider markets, encourage healthy competition among sales staff, research data to know a customer’s vehicle affordability range accurately and prioritizing technicians. All of these are essential components that will help build excellent customer experiences.

 

[1] NADA Market Beat, March 2019: https://www.nada.org/nadamarketbeat/

[2] 2018 IHS Markit Light Vehicle Sales Forecast

[4] NADA 2018 Annual Report: https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474857318

[5]U. S. Bureau of Labor Statistics https://www.bls.gov/ooh/installation-maintenance-and-repair/automotive-service-technicians-and-mechanics.htm

[6] NADA Workforce initiative: https://www.nada.org/CustomTemplates/DetailPressRelease.aspx?id=21474856721

[7] U.S. Bureau of Labor Statistics: https://www.bls.gov/ooh/installation-maintenance-and-repair/automotive-service-technicians-and-mechanics.htm#tab-5

Author: Marco Schnabl

Marco Schnabl is Co-CEO and Founder of automotiveMastermind, the leading provider of behavior prediction technology and marketing automation technology. automotiveMastermind is a part of IHS Markit.

Digital Dealer