In the new car business, it’s conventional wisdom that bigger is better.
Dealers with the biggest ad budgets, biggest inventories, biggest showrooms, and the biggest discounts will be the biggest winners in the market place.
Based on the most recent NADA Dealer Financial Profile data, dealers seem to be doubling down on the bigger-is-better strategy: Advertising expense per new vehicle has increased from $600 to $700 so far this year.
Dealer inventories are also on the rise. Over the last three years, as new car sales have plateaued, dealer inventories have grown by nearly 20 percent. Meanwhile, interest rate hikes have triggered a 51 percent reduction in floor plan income for the average dealer this year, according to NADA.
To me, these are alarming trends, especially when you consider new car grosses are razor thin on most models and some industry analysts forecasting a 15-20 percent decline in new vehicle sales volumes over the next three years.
These developments beg the question: Will the bigger-is-better approach really work at a time when the market is likely getting smaller?
In a book I recently came across called, “Out-Maneuver: Out-Think, Don’t Outspend your Competition,” the authors refer to this bigger-is-better approach as an attrition strategy. They define it as the effort to gain market share, regardless of the cost. They also describe the unpleasant side-effects of this strategy: margin erosion, higher marketing costs, and overall downward pressure on profitability. Sound familiar?
But the authors also suggest an alternative, which they call the “Maneuver Strategy.” They define this strategy as one based on speed, insight and innovation. They call it a mindset of trying to out-think, not out-spend your competition.
The book’s message struck me as pretty profound, given they match the kinds of things I’m seeing some dealers deploy in their new vehicle departments to keep ahead of the competition and sell more cars:
- Speed – Incentive management is nightmare at most brands with constantly changing factory offers. A high-volume Chevrolet dealer recently told me it takes at least two to three days to update listings whenever General Motors makes a program change. But some dealers get the job done in a matter of minutes. They use technology to handle this complicated, time consuming challenge and often realize a 48- to 72-hour hour pricing advantage vs. their local competitors.
- Insight – Most dealers manage their new vehicle inventory at 30,000 feet. You can see this mentality in the accompanying chart. You have a dealer with three distinctly different Nissan Rogues, all with the same standard discount—despite significant differences in how the market values and views the vehicle. But some dealers view this attrition-type approach as an operational no-no. They use the differences in Market Days’ Supply (e.g., Overall, Like Mine), color and trim levels to shape their ordering, dealer trade and pricing decisions.
- Innovation – Today’s shopper spends 75 percent of the buying process in your online showroom and 25 percent in your physical showroom. Yet, many dealers remain fixated on the next round of TV and Radio commercials promoting their big inventories and big discounts. Meanwhile, maneuver-minded dealers are busy building trust by innovating their sales process. They are moving more of the painful portions of the sales transaction (trade-in/price negotiations and financing) to their online showroom, and delivering an efficient, satisfying delivery experience once the buyer arrives in the physical showroom. A friend of mine in Atlanta recently purchased a truck, and never stepped foot in the showroom. He handled the entire process over the phone and on his computer. The dealer delivered the truck to my friend’s driveway, and he’s been telling his friends, like me, about the experience ever since.
Mary Barra, CEO of General Motors, says she expects more change in the auto industry in the next five to 10 years than we’ve seen in the last 50. I think she’s probably right.
It seems to me that our ever-changing retail environment requires something more than the conventional bigger-is-better strategy. With today’s sophisticated online auto shopper, doesn’t it make the most sense to deploy operational speed, insight and innovation to your advantage, and out-maneuver vs. out-spend the dealer down the street?
Learn more about how to outsmart your competitors and win today’s shoppers during Brian Finkelmeyer’s session at Digital Dealer 23!
Author: Brian Finkelmeyer
Brian Finkelmeyer serves as the Director of Business Development for Conquest at vAuto. In this role, he is responsible for all aspects of vAuto’s New Car business. Prior to vAuto, Brian spent 18 years with Nissan North America in a variety of sales leadership positions. He is a routine presenter and author for various automotive trade publications. His topics focus on the importance of increasing new vehicle inventory turn by having the proper inventory mix, strategically pricing based on age and supply, and insights on maximizing effectiveness of dealers marketing investment.