Welcome back to the Improve My Dealership blog brought to you by eTag, the dealer key management systems provider. We’ve decided to focus Improve My Dealership posts on exploring avenues to efficiencies and higher profitability for dealerships.

A skim read of AM and other dealer-focused trade magazines in recent months might fool you into thinking that UK car dealers are operating in a buoyant market in which they can do no wrong. New car sales are set to exceed original 2013’s sales forecast by more than 200,000 units, hitting 2.25 million registrations by year end, up from 2.04m in 2012. It gets better, the National Franchised Dealers Association (NFDA) recently reported: “the market will remain strong in the New Year as consumer confidence continues to grow as the UK economy continues to recover.”

With positive numbers emanating from most major groups and city analysts indicating that many publicly listed groups like Vertu Motors are under-valued; it seems likely that these groups will have more shareholder funds to invest in further acquisitions in 2014. Yes – the large chains are going to continue to expand, the consolidation trend may even accelerate as we slip slowly out of the deepest recession since the 1930s.

So why worry I hear you say? But underneath the positive growth charts there remain deeper concerns which have been brought about by changing customer behaviour. Dealers are not immune from the paroxysms that have already hit high street retailers up and down the land. You guessed it: we are all going online to do our research and plan our big ticket purchases – new and used cars included.

But what should a dealer be spending their hard-earned money on to ensure they are seen online and remain visible in their core catchment area - capturing the interested buyer early and making sure they buy from them rather than the one down the road or out of area? One area where investment is badly needed is digital marketing and thankfully there are lots of suppliers with expertise in our market that can help you including Razsor and Greenlight.

But if you are investing more heavily in online marketing, something has to give now most of us are operating close to industry average return on sale margins of 1.3%. One of the areas that they might choose to hold off on is that dealership refit which your manufacturer may be asking you to fork out for.

A recent paper from automotive analyst ICDP encourages UK dealers to push back on expensive refit requests in favour of getting some more fundamental issues right – namely customer service: http://www.am-online.com/news/2013/12/18/car-dealers-the-property-timebomb-/34117/

Deeper reading of ICDP’s research findings uncovers another potential point of friction between manufacturers and franchisees: namely their attempts to micro-manage franchises in the area of customer service through enforcing top-down standards, bonus structures and CSI scores. ICDP observed that these systems are actually part of the problem rather than the solution. Their research from talking to customers that have recently bought new cars this year reveals a very different picture from published CSI scores. One part of the problem is the heavily bonus-orientated dealership sales force which sets up a dynamic which encourages individual success over team work and joined up thinking. Handovers between different people in UK dealerships can be poor or non-existent. Staff turnover runs high because the best salesmen go where the best bonus is on offer and dealerships tend to spend less on staff training as a ‘survival of the fittest culture’ starts to pervade. When compared with the US dealerships, too many UK dealers still serve up a pretty shoddy and disjointed customer experience as a result.

If the Apple Genius Bar customer service experience is the new retail customer service benchmark then the first thing that needs to happen in dealerships is to increase base salaries as a proportion of overall packages - decreasing the amount salesmen have to sell day in day out to take home a decent wage. I know this sounds potentially expensive but we would argue it’s better to spend more money, time and effort on getting your most important and influential asset right – your people – than on flashy interior design refits.  This is clearly only possibly if you have utter confidence in the strength of the brand you are selling and the sales potential of the locality you represent. If these fundamentals are in place then these sorts of changes can be made. Manufacturers themselves can help by giving their dealers the confidence they need to make these sorts of changes for the good of the business longer term.

Successful dealerships like the Arbury Motor Group (profiled in AM this month) seem to marry a hard-edged focus on the numbers with strong people skills, even fostering a family-business mentality that looks after its people.  We’ve met several dealerships with enlightened recruitment policies. Some like CJ Automotive http://www.cjautomotive.co.uk are hiring based on attitude. Previous automotive experience is not critical in ‘front of house’ roles as long as they are able to look after the customer and have a can-do attitude. 

From people to place - surely one of the key things about a dealership is its locality i.e.  its proximity to a large enough catchment of potential car buyers? So I would argue that dealerships need to work harder to market themselves as a company that is embedded in the local community.

Clever digital marketing techniques, like those espoused by the likes of Razsor and Greenlight, offer the potential for dealers based in, say, Hemel Hempstead to dominate the searches on the brands and models they sell made by online enquirers within 25 miles of Hemel. But once you have their attention, you need to get engagement. We’ve talked before about the need to offer appealing online content in previous ImproveMyDealership blogs so we won’t reiterate this here. Whatever the idea to pull the customers in, the objective must be, to be considered as a ‘destination’ to experience the prospective car earlier in a buying cycle which generally begins online today.

There appear to be other common routes to financial success.  A higher focus on F&I is definitely part of this picture. Financing, insurance and trade-in value options and calculators all must be offered on your website. Products such as PCPs have worked particularly well for many dealers in recent years, partly because prices of used cars (especially those 2-3 years old reaching the end of contract periods) have generally gone up and stayed up. In this way dealers are also able to offer a wider range of options to visitors to their dealerships. Other large chains have diversified into higher margin prestige cars and found growth that way.

Yet most dealers do not appear to have fully arrested the industry-wide decline in service revenues: http://www.motortrader.com/latest-news/dealers-urged-reverse-absorption-decline/,  so that today even the most well run dealerships have overhead absorption rates settling at 60% which is a full 20% below ASE’s benchmark percentage. To top this, new car sales margins remain razor thin. Arresting the after sales decline will surely be on the 2014 To-Do lists of many dealer principals.

So our 2014 Top 6 Priorities for Dealer Principals are:

1.      Push back on manufacturers’ premises refresh demands

2.      Consider re-balancing remuneration levels more in favour of salary if you detect your customer experience is disjointed and an everyman for himself culture is pervading the sales floor, invest in training and process to improve the customer experience

3.      Invest in digital marketing to engage with prospective car buyers before they arrive at your dealership

4.      Look closer at F&I sales and provide more options and flexibility to customers – offering them information and calculators online so they can educate themselves a little before coming to branch

5.      Develop a strategy for building your profile locally – both online and on the ground. More events, test drives, online videos, social media comms activity with lots of customer feedback will all help drive up the positive profile of your dealership

6.      Consider new ways of packaging and marketing your after-sales offers to new customers to improve those absorption levels. Service Plans are an obvious starting point but there are other ways you can personalise your service. Personalisation is a word we’ll be hearing a lot more of in 2014…..

Do you have any other priorities for 2014 to halt shrinking margins and falling overhead absorption levels?  Do let us know.

Welcome back to the Improve My Dealership blog brought to you by eTag, the dealer key management systems provider. We’ve decided to focus Improve My Dealership posts (which we will issue every three weeks) on exploring avenues to efficiencies and higher profitability for dealerships.

During the last few weeks there has been a good deal of media attention given to National Franchise Dealers Association (NFDA) Trusted Dealers ‘10 Points of Difference’ for used car sales operations: http://www.trusteddealers.co.uk/10-points#point-9 which is gaining support across the dealership world ahead of a potential backing of the code by Which? (previously known as the Consumers’ Association) and Trading Standards.

The 10 points of difference are a great start. To summarise quickly, all franchised dealers that want to be in the Trusted Dealer scheme must prove the following:

1.       Nothing to hide: All cars must be background checked to avoid inadvertent trading of cars that have been stolen, involved in serious accidents etc.

2.       No nasty surprises: All cars must be bought legitimately and every vehicle is checked to make sure there is no outstanding finance on it. The dealer must own the vehicle the customer is buying off them

3.       Every inch. Every car: All cars must be subject to a full mechanical inspection and faults rectified before it is delivered to the customer

4.       The clock never lies: No ‘clocking’ of cars will be done. This is effectively theft as it is misrepresentation of the car by giving it a lower mileage than the reality. The result is often that servicing is not done at the right time and serious maintenance changes like cam belt replacement will be done late and put the whole engine at risk

5.       Try before you buy: All Trusted Dealers need to offer a proper test drive of the car they are planning to buy

6.       Passed with flying colours: All Trusted Dealers will make sure there is a minimum of 3 months MOT on a used car, many offer a full year’s MOT today.

7.       Not a care in the world: Trusted Dealers offer a warranty or guarantee with used cars so that if there is a problem shortly after delivery it can be taken back and rectified free of charge

8.       Trade in and trade up: Trusted Dealers must welcome part exchange and use that as a contribution to the purchase of your new car.

9.       See yourself in it: Every used car from a Trusted Dealer comes with a full professional valet inside and out

10.   No need to stretch: Trusted Dealers must offer you finance to purchase your car. All Trusted Dealers must also offer service plans which mean that you can budget your servicing costs monthly or even pay upfront as you purchase your car.

There are no doubts that the NFDA’s Trusted Dealers 10 Points of Difference scheme - if it is promoted well and the consumer is educated to look out for its badge - offers a great benchmark for best practice when selling used cars in the UK.

We liked it so much, we decided to take the concept of standards into our area of specialism – key management in dealerships - and apply them to see what high standards in dealerships’ handling of customer keys might look like.

We came up with the following, which we believe constitutes Best Practice Key Security:

1.       Remove all personal keys and give them back to the customer before taking your vehicle keys

2.       Label your key (ideally with your name and registration) so that it can be found if misplaced

3.       Replace your key free of charge if we lose it

4.       Store your keys in a secure cabinet whilst not in use

5.       Keep a secure audit trail of when and who used your key whilst with us

6.       Never keep your key with your vehicle unless someone is working on it

7.       Only allow authorised users to access to your keys

8.       Offer the ability to review the usage of your keys on request, in a fast and simple-to-understand way

9.       Return your key and vehicle to you in a timely manner

10.   Treat your key as if it was one of our own.

Once we had drawn up this 10 Point Plan for Best Practice in Key Management we were acutely conscious that for it to work we would have to persuade dealers of its value - as many of them may not immediately be able to offer all 10 assurances and might need to invest in training and equipment to achieve it. We also knew we needed a system for monitoring standards, awarding certificates and stripping dealerships of these certificates if they failed regular audits of their key management standards and policies.

In short, we realised fairly quickly that the sort of charter mark we were looking to launch only works if it is backed, enforced and marketed by a relevant standards body with a strong following just as the Trusted Dealers scheme is by the NFDA.

Do you think key management should have its own Standards Charter?  Would conformity to an agreed set of principles and processes help your dealership to stand out from the crowd?  Please feel free to post your comments – if there’s a positive reaction, we will set up and promote an official Key Standards Charter on your behalf. At the very least, what this exercise illustrates is that every interface with the customer in a dealership is valuable. Procedures and standards for all of these interactions need to be set with a view to meeting or exceeding customer expectations. And they need to be backed by an organisation the customer can place their faith and trust in.

That is why I was really encouraged to read in MTN a couple of weeks ago about how Jaguar dealers have come out top of the JD Powers Dealer Satisfaction Survey for the second year running: http://motortradenews.com/mtnb/050/#4/z , largely because they understand as Jeremy Hicks, Jaguar Land Rover UK MD said that their “dealer network is the most important point of contact we have with our customers”. The Survey recognises dealers for good service including friendly and efficient and value for money service. Dealers that want to sell more and hold onto more after-sales business could do a lot worse than drawing up and living buy a standards charter of their own for all aspects of interaction with customers.

We believe setting standards, living by them and communicating them effectively to staff and customers alike, is the bedrock of any customer service improvement drive in dealerships. More power to NFDA for its Trusted Dealers scheme. Let’s hope used car dealers nationwide continue to sign up and promote it.

We will return to many of these themes in more detail in future posts so please sign up for our blog or check back to this site or www.etagsolutions.com   for the latest thoughts and tips on finding routes to increased profitability.