The automotive industry has a problem. As a recent WardsAuto article notes, after several years of increased demand and record-breaking sales numbers, car-buying momentum in the United States has stalled – creating a seasonally adjusted annual rate (SAAR) plateau. Industry experts forecast approximately 17 million car sales this year, similar to 2016’s 17.6 million cars sold, and 2015’s 17.5 million vehicles sold. On the surface, this would seem fine – automakers could sneak past that 17.6 million mark, for a third record year in a row, by increasing retail incentives. However, when you push past the optics of sales figures, it becomes clear that the future of the automotive sales is somewhat cloudy.
New and used vehicle margins are compressing, and will continue to compress if those retail incentives further increase in 2017. Additionally, dealership inventories have increased, loan terms have lengthened, there are issues at the sub-prime lending level. Given all these uncertainties, dealerships can no longer rely on vehicle sales as a component of driving profitable growth.
As I shared at the Digital Dealer conference in April, the best thing dealerships can do in 2017 to increase their profitable growth is focus on their customers’ ownership experience. The ownership experience is critical to increase retention, and retention is fundamental to dealerships’ profitability and growth. By placing increased emphasis on the fixed-operations side of the businesses, dealers will see their retention rates increase.
The best part of this opportunity is that it remains full of untapped potential for many dealerships. According to the National Automobile Dealers Association’s 2015 annual dealer profile report, fixed operations account for less than 50% of dealers’ average gross profit despite single-digit incremental growth in recent years. Plus, fewer than one in three service visits take place at U.S. dealerships.
Focusing on fixed-operations to increase profitability is far too often overlooked; But, consider this: IHS Automotive research shows the average car ownership spans 11 years – during that stretch, vehicles may require service between 15 and 20 times. If your dealership is missing out on all those service visits, you’re losing a considerable amount of revenue.
Cox Automotive’s 2017 Car Buyer Journey Report found that nearly half of buyers had maintenance/repair service performed after purchasing or leasing a vehicle – but nearly half of those did not return to the dealership for those services. Why? The study showed four main reasons for customers not returning to the dealer where their vehicle was purchased or leased for maintenance and repair:
- location and convenience
- scheduling difficulty and time issues
- remaining loyal to service provider they have used for years.
A deeper look at these numbers revealed something else dealers should pay attention to: for the buyers who did return to the dealer for service, they had higher satisfaction levels with said dealership than the customers who opted for service elsewhere.
Connecting Sales to Ownership
To gain customer loyalty, increase retention, and drive profitable growth, dealers should focus on building a connected ownership experience. And exactly what is a connected ownership experience? It means bringing customers’ online preferences to the in-store service bay through a streamlined and seamless journey that flows from easy appointment scheduling beginning as early as the sale transaction; to notifications on the completion of service work; to reminders of upcoming appointments. And overlay that with good, accurate, personalized communication tactics, and fair and transparent pricing, and you’ve established the foundation for customer loyalty and retention.
There are several areas dealers can focus on to increase convenience for their customers in order to begin drawing more work to their service center. First, communicate exceptionally well. The 2017 Car Buyer Journey report found less than half of customers who purchase new vehicles are introduced to the service department at the time of purchase or lease. Similarly, only a fourth of customers purchasing or leasing used vehicles are introduced at the time of the sale. Another key – properly identify and document your customers’ preference of how to communicate (e.g., texting, phone calls).
Second, invest in the latest technologies. The advancements will not only make your job easier, but provide further convenience for your customer. Essential technologies, including online invitation for service and scheduling appointments, increase flexibility while providing a great experience in the service lane. A nice additional technological touch is deploying automated service-reminder notices personalized both to the owner and vehicle to alert your customer when critical vehicle maintenance and repairs are on the horizon. These should be integrated to your appointment-scheduling process so you are one-click away from the customer.
Finally, provide as much transparency about the service process as possible. Customers want to be in the know about what is going on with their vehicle. Regular updates (in the customer’s preferred communication method), especially with respect to changes that may affect promise times, are a necessity.
In 2017, it is essential for dealerships to increasingly emphasize fixed operations as a priority in their businesses. The potential for increased service visits coupled with the healthy gross profit of fixed ops make this an essential part of your overall plan. Thus, in an effort to diversify revenue streams for profitability, dealerships who double-down on the connected ownership experience will be far more prepared to drive increased profits.
Author: Jim Roche
As Senior Vice President of Marketing & Managed Services, Jim Roche is responsible for brand positioning and driving marketing’s strategic impact on business. Jim brings over 30 years of automotive high-tech leadership experience. Previously, Jim was founder and Chief Executive Officer of AutoPoint, where he was the visionary and driving force behind the development of the industry’s first multichannel marketing platform, its adoption by hundreds of dealers and its subsequent acquisition by SRS. While at SRS, AutoPoint experienced rapid growth; Welsh Carson Anderson & Stowe acquired SRS in 2013.