“I’ll gladly pay you Tuesday for a hamburger today.”–J. Wellington Wimpy, Hamburger Enthusiast
The car business is a cyclical beast. As we found in the first part of this series, only a small fraction of buyers are active at any given time, while sales are not evenly distributed. If you don’t believe me, plot the monthly sales of any mainstream vehicle on a graph. Then stack that graph year over year. You’ll see the same highs and lows during the same months, and see the abnormal spikes of a new generation launch or a mid-cycle refresh. When those curves get too far off their predictable path, people start to panic. However, we know no one is really paying attention to annual patterns. Instead, everyone is enamored with the month-over-month results. The conventional wisdom is that if we’re not doing better than last month, we need to start paying people (that’s literally what a rebate does) to make a decision sooner rather than later.
Compelling people to buy a car that they don’t necessarily need at a given moment is foundational to the car business. This is the old tried-and-true method that the manufacturer loves. From the same people who brought you the lease pull-ahead method (good), also came the low-interest 84-month loan (ghastly). While I’d love to write about chrome, pastel paints, Alfred Sloan, and planned obsolescence, I’ll just say that artificial demand was basically invented by the auto industry.
As I’ve written an excruciating amount of times, the auto industry is one of the minority of businesses that runs on a thirty-day cycle. In order to hit the OEM concocted targets, dealerships embrace the stereotypes of balloons on the cars, giant purple gorillas, and letting people sweat it out. It’s not an indictment of the car business. It’s just reality. But, every time $4,200 of negative equity is rolled into a new loan, a vehicle is financed for more than 60 months, or payments are stretched beyond a customer’s limits, it creates a butterfly effect that strangles future car sales. Pushing people forward before they’re not naturally ready to go creates an endless loop of having to keep giving more and more away in order to maintain a sustainable sales velocity, at least until it’s no longer possible. This is begging, borrowing, and stealing from the future of your business.
You’re probably saying to yourself, but Bill, if I don’t do it, someone else will. Let them. Seriously. When that customer comes back in to offload their vehicle because they lost their job, or their spouse was injured, or they need to move, or their family needs have changed, so-on-and-so-forth, do you really want to be the person that declares “we enabled you to do that“? Whether it is said or not, that is what’s heard. I’ve had to have that conversation too many times, and I still feel like a greasy bastard for putting those people through it. Re-read ROI vs ROMI if you think that’s a good idea.
The showroom has sustained itself for decades by carpet-bombing customers with irrelevant advertising. There, I said it. Billions of dollars have been wasted on marketing to that tiny piece of the pie. Without understanding which customers to reach, at the right time, with the right message, companies need to blanket entire metropolitan areas just to reach a couple of houses in a few zip codes. The rest, are square, rectangular, triangular, octagonal, or dodecahedral pegs that need to be jammed into a round hole, thus jeopardizing your future relationship.
Thankfully, we have technology that helps prevent blanketing the wrong customers with the wrong options. Several services are available, both stand-alone and add-on, that can add urgency without costing the dealership future revenue. Tools that identify in-equity customers, expiring lease customers, and even trade evaluation technologies help mitigate robbing Peter to pay Paul. This technology has become mature and has proven to generate happy customers, along with thousands of dollars in incremental revenue over the years.
However, much in the way your hammer doesn’t build houses by itself, these technologies take dedicated time and energy from staff to generate value. If those equity deals just sit on a sales managers desk, they are not generating value. If sales personnel aren’t posted in the service lane to present lease pull-ahead solutions to service customers, that equity technology is still not generating value. If the pre-owned vehicle management team is not engaging with valuation tools for appraisals AND merchandising, then that technology is not generating value. Simply paying for the tools does not sell cars.
Compelling customers to consider making large financial decisions before they are prepared causes problems down the road. Just because a deal CAN be put together, doesn’t mean it should. Without using technology to identify the right opportunities means that you are trusting your intuition to consider all of the future transactions with the customer, including all permutations of maintaining their vehicle, any future bodywork, all repeat and referral business, along with selling their traded-in vehicles down the road. You could be eating a big chunk of your future pie without knowing just how big or small it will be.
In the next segment, the creatively titled “Defection and Marketshare,” I will discuss what I feel is a more sustainable approach to the future of the car business. As DealerKnows is not an advertising platform, I made it a point not to mention the names of the various technologies. If you’d like some recommendations, Joe and I are always willing to help point dealerships in the right direction. We are not motivated by selling these tools, and the referral fees we are offered go directly to support Autism research. Until next time!