by Jim Boldebook
A little secret. For almost 20 years some of America’s best dealers have been writing these advertising columns, letting me take the credit. I’ve developed an informal roundtable of some of the brightest young minds as well as seasoned legends in the car business that provide me with invaluable real-time advice, insight and feedback on advertising tests, trends and ideas that are working. This issue is no different. ‘Thank you’ to my friends who share their working knowledge from the most important vantage: where the rubber meets the road.
Just before Christmas I sent out a questionnaire to a group of those dealers and general managers asking them to look into the crystal ball and share thoughts on opportunities in 2011. Here are some of the highlights of those discussions.
Despite a couple of the toughest years in memory, there is optimism, even guarded enthusiasm for 2011 and 2012. As one of my closest dealer friends puts it, “They haven’t been building any light rail systems in my town. People still get to where they are going by car or truck. And lucky me, that’s what I do for a living!”
According to the latest NADA 2010 State of Industry report (if you haven’t seen it, please email me to receive a copy, compliments of NADA) even though new vehicle registrations dropped by 3 million over the past 10 years, there are 40 million more light vehicles in use since 1999. Scrappage topped 100% of vehicle registrations and the number of average years a vehicle has been on the road increased almost 1.5 years in that same time period. Average age/mileage is thru the roof. You don’t need a crystal ball to know this all bodes well for future business. Cars are breaking down and wearing out in record numbers and at some point these folks have no choice. They have to have another vehicle. In America, we have to eat, drink and sleep and we have to have wheels to make it happen. How many vehicles will we sell in 2011? I’ve heard predictions of 11.2 to 13.5. But the point is, there will be a lot of business out there for dealerships selling the right vehicle, at the right price with the right marketing. Most of the dealers I spoke with believe sales will be back to 15 million by the end of 2012.
Opportunity: Advertise Used Vehicles
According to the NADA numbers, new vehicle sales decreased from 60% to 52% over the past 10 years. If you’re a regular reader of this column, you’ll know I’ve been predicting that for the past 15 years. Even if the economy didn’t tank the way it did in the past few years, the fact is that used vehicles, including certified, have increased in brand value equity in the mind of most consumers. It hasn’t hurt that Mercedes, Lexus, BMW and other luxury marques have sunk enormous resources into advertising the solid value of their certified vehicles. The stigma of buying used has also diminished. Let me say this once more. You simply cannot survive (or at least make money) in this business unless you are serious about used vehicle opportunities. The percentage of used vehicle sales (by new car dealers) will increase at least another 2 points in the next 5 years with new vehicle sales declining by the same percentage.
Opportunity: Advertise Service
Most of the dealers making a reasonable profit in the last two years are doing an excellent job in the back end. The NADA report says service income has increased almost 5%, from 11% to 16%. Some of the dealers I spoke with are enjoying almost 20% from their service and parts departments.
Opportunity: Service Contract Penetration
The NADA report says the average service contract on new vehicles has increased about 10% over the past 10 years. Two of the dealers I received feedback from have increased service contract penetration in excess of 30% in the past 3 years. Why? Improved presentation techniques during a time when most new vehicle buyers are convinced they will hold onto their new vehicle for a much longer period. Buyers who previously traded within warranty coverage need to understand the cost of transmission and engine replacement could easily run $4000-$7000. Transferable contracts can add considerable value to a vehicle.
Opportunity: Warranty Expiration Notification
Your customers are being bombarded by a zillion after-market warranty companies at or near warranty expiration, yet most new vehicle dealers still do a terrible job in tracking/following customers. Several dealers have told me aggressive pursuit of warranty expiration opportunities has paid off handsomely, both in warranty sales and trade-up. No after-market warranty company can possibly have the relationship and contact opportunities you have with your own customer base. How are your R.O.s being reviewed? The service drive is a prime source of warranty sales and conversion.
Opportunity: Media Negotiation
2011 is the first year that politics will not dominate advertising buys. Retail ad expenditures in most categories will be flat. Aggressive media negotiation and longer-term contracts can put you light years ahead of the competition. Newspaper auto ad expenditures continue to drop. If you are going to be in print, don’t even think of renewing without substantial re-evaluation of the value of your contract. All media in most markets will be a lot hungrier this year.
Opportunity: Advertise Payments
Finance rates are at the lowest levels in the memory of most. Most dealers believe money will continue to loosen, and monthly payment options will attract a greater percentage of ‘have to buy’ folks who will be in a better position to take on debt.
Opportunity: Advertise Convenient Service Hours
More higher mileage cars on the road means more breakdowns and repairs. A number of dealers have told me that increased service hours, both nights and weekends, have enabled them to exceed service projections.
Opportunity: Make All Employees Part of Advertising Effort
One of the most profitable dealers in America in the past 30 years has devoted substantial marketing resources to making every employee a part of the advertising/sales program at the dealership. This dealership sells more vehicles annually through employee referral and recommendation than the total number of vehicles sold by the average dealership in America. Make 2011 the year your dealership embraces the enormous opportunities involving every single employee in your advertising program. Every employee should have business cards. Every employee should receive sales training. Every employee should be aware of promotions, specials and sales goals.
If you don’t have a copy of the NADA 2010 State of the Industry Report, email me. Study it. But don’t set your bar for these averages. In every market in the Country 10-15% of the dealerships will lose money (and possibly close their doors) this year. 25% will be flat with 2010. 30% have a small increase over last year. 15% will do better than that. 15% will enjoy record profit and growth. Only those who seize every opportunity will be in that top tier. How about you?