Last year we saw things that were previously unimaginable. OEM bankruptcies, franchise terminations, and many more dealers that just went out of business because they couldn’t survive the economic challenges.
Automotive financing, both retail and wholesale, all but dried up while the wholesale used car marketplace drove up values without a corresponding rise in retail prices.
Although we already see some improvements this year, I think it’s fair to say that there are many new realities in the retail automobile business that will outlast the current economic cycle. One of these new realities is a much more efficient retail automotive market. I’ve been speaking and writing about the new, more efficient market for quite some time, but now the effects of this new market are being felt by all dealers in almost every aspect of their business as manifested by the reduced profitability of most operations.
Although dealers have made massive cuts in their expense structures, there are only so many steps that can be taken within the traditional dealership environment. I believe it is necessary for the industry to revisit fundamental assumptions about how vehicles are sold. Specifically, I think that the traditional structure of New, Used, F&I, and lately Internet departments are too expensive and dysfunctional. There is too much complexity in the number and nature of tasks that need to be accomplished with the present organizational structure and individual responsibilities.
There is no departmental manager that could possibly possess all of the knowledge and skills necessary to perform or supervise all of the tasks necessary to manage the sales process from beginning to end.
The result is that many critical tasks are not performed at all or on a timely basis, and many others are performed in a sub-standard manner. These dysfunctions and inefficiencies translate into profit leaks that dealerships simply cannot afford.
This reality calls for a re-examination of the variable operations organization. I have written extensively about a new organizational structure in my second book, Velocity 2.0: Paint, Pixels and Profitability. One of three new departments that I propose to the industry is what I call the New Sales Department. Unlike sales departments of the past, I don’t think that we can afford the luxury of maintaining separate new and used car sales and management staffs. Today’s used car is not the used car of the past. It is likely a highly reconditioned vehicle with factory warranty. It is not so different, nor is there enough variable gross profit in either new or used car sales to justify the expense of two separate sales and management staffs. It simply seems can no longer be afforded.
The types of people that are needed to staff my proposed new sales department are very different from those of the past. This is because today, documentation is the new negotiation. Once dealers recognize that vehicles need to be priced fairly relative to the competition, then the competition becomes the selling dealer’s most powerful closing tool. New technology allows sales people at the press of a button to produce an interactive presentation for shoppers as to how their vehicle compares in price, equipment, mileage and condition to identically equipped competing vehicles. Although there may be other similar vehicles for less, the system instantly identifies the attributes causing seemingly similar vehicles to be different. Such differences include, but are not limited to higher mileage, odd colors, less equipment, poor condition or prior accident history. The experience of viewing a live presentation is both engaging and credible and allows both dealers and shoppers to adjust their asking or offer price based on the reality of the live market and the live experience.
A single new and used sales department coupled with this new technology allows dealerships to hire individuals as product and market specialists rather than traditional negotiating sales persons. This change translates into more sales, for more gross and a much higher degree of satisfaction on the part of both buyers and dealership personnel while improving operational efficiency.