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.

Stock levels may have risen too fast in last 6 months

After a record year for new car registrations in 2013, many have poured cold water on 2014’s prospects. The statisticians have been fretting about the rise of stock investment by UK dealers which rose 13% last year, tying up an additional £60,000 in an average dealership according to profitability specialist ASE.

The size of used car stocks increased by nearly 10% in 2013. ASE is watching carefully how this additional stock of cars translates into profit over the next six months. There is a real risk that the over-supply of used cars that has been building up in recent months will start to suppress prices which are currently commanding average gross profit margins of a healthy 12%.

Overall the average dealer made net profit as percentage of total sales of 1.4% last year, up from 1.02% in 2012. But the longer term picture, as outlined by ICDP in its 2013 edition of the European Car Distribution Handbook, is that both aftersales volume and value across Europe as a whole are declining, according to ICDP’s latest predictions:  https://www.icdp.net/our-services/publications/publication.aspx?pub=10052.

How will dealers buck this aftersales decline and where else will they be able to find sales and profit margin?

Business manager looks like a good investment

We believe the increase in sales over the last year now needs to translate into an increase in the sale of service plans for used and new cars to insulate dealers from potential falls in used car margins.

To this end, dealers need to look to hire a good business manager if they have not done so already. Trend Tracker points out that dealers employing a business manager have a finance penetration 5% higher than those that don’t. The fact that nearly three-quarters (74.2%) of all private new car registrations in the 12-months to September 2013, were sold with finance or leasing arrangements, says it all. PCPs and other personal lease products had a particularly strong year.

The signs are positive, as car parcs swelled last year so did absorption levels as more service plans were sold and after sales received a significant shot in the arm – increasing by several percentage points through 2013, boosted by marketing initiatives such as vehicle health check promotions; better tracking and retention of customers post-sale through use of CRM systems; as well as promotions of new car service plans and MoTs.

There has been widespread frustration about manufacturers’ wider application of fixed pricing for maintenance packages but dealers still found themselves able to vary servicing packages according to the age of the vehicle and cost of labour and workshop loading. There will need to be more of the same in 2014.

Interactive mobile revolution

The other big area of investment this year will surely be in improving the online buying experience. AM carried a piece last month on augmented reality which offers an easier way for prospective customers to look at the specification of cars and really get ‘under the bonnet’ of a potential new car online.

Augmented reality apps use the camera of a smartphone or tablet to overlay information, images, video and web links on top of static images or printed pages. Now that sales of tablet have exceeded 20m in the UK and mobile internet usage is set to surpass PC-based access this year, 2014 is surely the time to start planning for improving your online stores’ mobile browsing experience.

Website visitors are increasingly expecting to be able to click into 2D images and hypertext links to more information. In this context augmented reality views of cars displayed on dealer websites makes absolute sense so that the engaged customer can view specification details or upgrade options by hovering over the area of interest on the car and then clicking in at will.  It is also important to consider the customer journey from there so that, for example, once a car and series of upgrade specifics have been selected, the visitor can be taken through to an online order sheet to analyse the resulting impact on the total cost and monthly payments. Building up the online customer journey; by making it more visual, entertaining and joined up; will surely be a key goal for DPs this year.

Summary

Industry analysts predict that there are tougher times ahead for main dealers particularly in after sales volume and value Europe-wide. UK dealers will have to work harder than ever to stop customers moving their servicing to the independents.

As well as investment in engineers and equipment for their workshops; they will also need to look to hire business managers to focus more heavily on F&I; while also investing in improving the experience for online visitors, especially these coming in from mobile devices. It’s important to recognise that more than three-quarters of pre-sale research by car buyers is now happening online and the number of visits to dealerships per car sale continues to fall – now sitting at 1.4 down from 4.5 visits per sale in 2005. Customer buying habits are changing fast and dealers need to get with the online retail revolution fast or risk losing out.

What else do you think is important for UK dealers to focus on to avoid after sales volume and value declines which ICDP predicts? 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 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.

Welcome to the Improve My Dealership inaugural blog post. Yes we too recognise the power of self-publishing, entering and stimulating the big debates in the UK car dealership world. We’ve decided to focus Improve My Dealership posts (which we will issue every three weeks from now on) on exploring avenues to efficiencies and higher profitability for dealerships.

On the flip side, we will not be afraid to tackle the issues which might damage profitability if dealership management teams do not address them. Our posts should act as a digest for busy executives that do not have enough time to plough through AM, ARB, MTN and a myriad of other online trade titles which we will draw from. I hope you like it. If you do please spread the word and sign up at the top of this page to receive future posts.

I was reading through the 2012-3 financial results of some of the biggest names in the car dealership world and what strikes you is that - for many of these firms - scale continues to be all-important for progressing in the UK market.

For example Inchcape was able to continue growing this year even while margins and profitability fell away.  Its H1 2013 financials revealed an increase in sales in its UK retail division of 4.8% to £1.12bn but a trading profit drop by 0.9% to £33.5m. Inchcape sold its Ford businesses to Group 1 Automotive in February and invested in facility upgrades. For more on this go to ARN at: http://www.auto-retail.co.uk/public/02-08-2013/record-first-half-inchcape?utm_source=Inchcape+H1+2013&utm_medium=News+Alert&utm_campaign=Inchcape+H1+2013

Inchcape is preparing for the installation of BMW sub-brand ‘ibrand’ infrastructure at five UK BMW locations for a Q4 launch and completed major VW corporate identity upgrades at Wirral and at Swindon. Before the end of 2013 it will complete enlargement of its BMW, Mini and Motorrad retail centre in Sunderland and a full upgrade at BMW Norwich.

Size and heavy exposure to less mature markets – most notably China and the Asia Pacific Rim down to Australia – are clearly bolstering Inchcape Retail’s financials and enabling it to continue investing in the UK market, even as margins do come under pressure.

And UK dealers that are investing in discrete parts of the market - and principally those operating at the prestige-end of the market - are enjoying real growth. Perhaps is should be no surprise that HR Owen has set up a new Lamborghini dealership: http://www.motortrader.com/latest-news/hr-owen-lamborghini-dealership/ in Pangbourne recently. Almost simultaneously it turned in strong interim profits - up 23% on the previous year - and also picked up Motor Trader Dealership Group of the Year Award this summer: http://www.motortrader.com/industry-news/hr-owen-profits-surge/ . At the prestige end, other groups have also been investing in growing their BMW estates: http://www.am-online.com/news/2013/8/6/bowker-bmw-reveals-750-000-expansion-plans/33389/

So what has HR Owen been up to apart from cashing in on the growing luxury market and increasing its used car sales by 24%? Areas hinted at in the piece including improving procurement systems and other ‘business processes’ and adopting a ‘multi-channel approach to advertising’ (for this read heavier investment in building its online presence and securing online sales).

Perhaps HR Owen’s directors have been reading one resource I regularly turn to for new ideas in our market – US online title DealerMarketing which recently detailed how one US Chrysler Jeep Dodge dealership had benefitted from ‘video SEO’: http://www.dealermarketing.com/internet-marketing/search/3106-dealership-profile-branhaven-chrysler-jeep-dodge-ram?utm_source=DM+Weekly+2013-06-20&utm_medium=email&utm_campaign=DM+Weekly

There is no doubt that for top UK dealerships, scale is only part of the equation for securing continuous and profitable growth in a highly competitive market.  Other keys to profitable growth appear to be knowing your market intimately; looking for new brands and vehicles to help serve that market better; as well as engaging more deeply with customers and prospects (at whatever stage of the buying cycle they are in, see: http://www.dealermarketing.com/bizdev/crm-solutions/3107-four-tips-for-turning-be-backs-into-sales?utm_source=DM+Weekly+2013-06-20&utm_medium=email&utm_campaign=DM+Weekly ) and through whichever channel they prefer to use. Deeper engagement through social media, ‘video SEO’ as well as investment in other online marketing activities, is also becoming crucial to help the customer find their way to your door.

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 our site for the latest thoughts and tips on finding routes to increased profitability.


http://www.improvemydealership.com/sign-up.html