Auto sales were reported down for most manufacturers in the month of April and the Federal Reserve decided to keep interest rates where they are for the foreseeable future. So what does this mean for consumer demand at your dealership? We recently caught up with Brian Finkelmeyer, Senior Director of vAuto, a Cox Automotive brand, to find out how dealerships can adapt to changing demand.
VIDEO TRANSCRIPT:
Jim Fitzpatrick: Brian Finkelmeyer, Senior Director of Conquest for vAuto and Cox Automotive companies. Thank you so much for joining us.
Brian Finkelmeyer: Jim, always good to be back on CBT.
Jim Fitzpatrick: Great to have you back. So talk to us a little bit about this environment that we’re in. Yesterday auto retail sales reported down for most manufacturers and the feds decided to keep the rate in place so it seems like for the foreseeable future we’re okay in terms of the rate, but some dealers are out there concerned. In this environment, what should they focus on? What should they be concerned with?
Brian Finkelmeyer: Well yeah you know Jim I think it’s interesting there’s been a lot of talk in the press about the doom and gloom of the US auto industry but it really largely things are still very healthy. The used car market is still moving along very nicely. Cox Automotive is forecasting nearly 40 million used cars going to be sold this year and although the SAAR was a little soft in April, largely dealers are still selling plenty of new vehicles as well. I think pure retail is down about four or five percent for the year.
So from a volume perspective I think things look still very favorable but the real focus I think for 2019 is going to become on the expense side of the equation, how dealers can run their operations more efficiently.
Jim Fitzpatrick: Yeah, talk to us about that because that’s a very hot topic. It has been now with dealers for the last 5 or 10 years in terms of margin compression and the cost that it takes to run a dealership nowadays. I know that just recently in the most recent expense report shown from NADA was 106% of gross. Talk to us about the impact that that has. I mean, that’s an alarming statistic right there.
Brian Finkelmeyer: Yeah, I thought so too, Jim. I looked back from 2012 through about 2015 expense as a percentage of gross ran about 92, 93% and in the last three, four years it just keeps ratching up. We finished 2018 at 100.2% so expenses now just slightly exceed gross and then so far this year it was almost at 106%. So I think really it’s calling into question how do we become more efficient, I think on a couple key areas, one of which you touched on the rise in interest rate, floor plan expense is up 220% so far this year.
Jim Fitzpatrick: 220. That’s incredible.
Brian Finkelmeyer: Yeah. They just reported in the Asbury quarterly announcement that their floor plan expense was up 55% year over year from last year. And I think the other startling stat is to think that dealers now are spending $722 per car in advertising expense.
Jim Fitzpatrick: I know. I know. You know, dealers are sitting back saying we’re not making the kind of money that we need to make on new cars and now we’re looking at the vehicles themselves, or I should say cars, such as Camry’s and all of the vehicles that were the number one selling vehicles in the country are now getting hit with SUVs and trucks, right? Everybody wants SUVs and trucks.
Brian Finkelmeyer: Yeah, I mean it’s really just remarkable. Going back to the sales results it was interesting to see that the big fall off in the industry are on vehicles below the cost of 20,000 which are those fuel-efficient cars you’re touching on. But when you look at the topside of the industry, vehicles over the value of 40,000, sales continue to grow.
Jim Fitzpatrick: Isn’t that crazy?
Brian Finkelmeyer: It’s remarkable.
Jim Fitzpatrick: And now, when you talk to somebody about financing, 72 or 84 months is just part of the conversation now. It’s like oh yeah, that’s what we’re going to finance our car for.
Brian Finkelmeyer: Yeah, I think well over 50% of all auto loans are now over 72 months.
Jim Fitzpatrick: Right, right. So you’re recommending dealers pay close attention to three levers basically to reduce expense and cost. Talk to us about those.
Brian Finkelmeyer: Yeah. So as I touched on obviously the floor plan piece is so critical and I think one of the things we’re talking to our clients about is just the importance of really beginning to manage your new car inventories similarly to how we’ve done over the last 10 years on the used car side. Really understand the unique market condition of each of those new cars in stock. I always say that we tend to manage our new car inventory more like a Costco, we’re just kind of at 30,000 feet but we need to be-
Jim Fitzpatrick:Jim Fitzpatrick: Put it all on the shelf. See what the customer wants.
Brian Finkelmeyer: Yeah, exactly. And I think there are so many areas of opportunity even something as simple as dealer trades where we need to be more thoughtful and making sure that if I’m giving up a sold unit to you, that I’m getting something that’s going to be fast turning vehicle in return. So that’s one of the big areas of focus. And then I think one of the other things I touched on was just this advertising piece and how it can be more surgical and thoughtful in how we’re deploying our ad dollars.
Jim Fitzpatrick: Yeah, for sure. Let’s go back to the managing of the new vehicles versus used. Dealers do look at that. Drill down a little bit on that. How can that change for the better from your viewpoint?
Brian Finkelmeyer: Yeah, so I think we need to begin to understand within our inventory we’ve got some bright spots and then some dark spots and the important thing is, is that we begin, as our founder Dale says, making hard decisions faster. And on day one, that I’ve just taken into inventory, perhaps some brown Camry’s that are slow turning combinations, and be proactive about that both from a price and a promotion perspective on day one versus waiting until day 300 to take action, because the consequence of behaving like that has just become so much more expensive. And what we look at is, there are examples out there of dealers that are still making significant money, 25, $30,000 a month in floor plan income that are behaving this way. They’re taking active steps to manage that aged inventory piece while many dealers are, you know, those cars that are out covered in pollen we haven’t touched in over a year.
Jim Fitzpatrick: Right, right. And so many times a salesperson or BDC manager will say oh this is the car that the customer landed themselves on, okay. Well, if there’s going to be any discount at all, on that first pencil, maybe that desk person should then say well let’s switch them to the older car which would make sense in giving them a discount, right? Versus going yep, let’s work the deal on the car that the customer landed themselves on when in reality the customer may be open to switching to the older car that’s in inventory. I mean obviously you’re not going to necessarily tell the customer that hey, this car has been in inventory 300 days, the one you chose has been in two days, you know. But that happens a lot, right?
Brian Finkelmeyer: Yeah, and you know Jim one of the best practices I’ve seen dealers do is they begin to actually internally discount those aged cars to drive that salesperson’s attention to those less expensive versions of whatever model we’re talking about to try to help address that exact issue you’re bringing up.
Jim Fitzpatrick: Which is funny because you have so many OEMs pushing dealers to build new showrooms over the last 10 years and it’s all about the customer experience and some of these showrooms are just incredible with coffee shops and huge waiting areas and huge screen TVs and everything else. And at the end of the day when you talk to consumers, they’re like we’re doing all of our shopping online, we just want to use the dealership as kind of a delivery center, you know, just tell us when we’re going to be there, or we need to be there, make sure that I’m not there for longer than an hour to pick up and drive the car home, right?
Brian Finkelmeyer: Jim I think there’s no doubt that the industry’s going to have to come to grips with this exact point that you’re talking on, that the factory’s almost mandating or requiring dealers to make these massive capital investments. You do have to wonder how much longer that can go on.
Jim Fitzpatrick: Yeah, it really is crazy. If you were a dealer today, what would you be telling your staff? What would you be telling them to focus on with regard to inventory control and such? Just kind of more of the same what we’ve just been talking about?
Brian Finkelmeyer: Yeah, I mean I think clearly that if I was running a store I think the big theme would be how do we make the sales process as frictionless as possible, right. I think it’s interesting, I was talking to a dealer just the other day that was saying how, with the online digital retailing, that our salespeople have to be able to adapt at different customers or different spots along the sales process and our salespeople need to be able to be nimble to pick up exactly where that shopper is on their sales process. So I think the big opportunity for dealers as we look forward is let’s be honest, most consumers are just looking for that Amazon seamless experience and the dealers that get closer to delivering that, certainly I would say are pointed in the right direction.
Jim Fitzpatrick: Right. So we were talking about a dealer that has a large dealer group up in the northeast and he said my concern for dealers today is that they become the Best Buy, where the consumers come in and they use the Best Buy as an experience, let me see what the camera looks like, let me see what the big screen TV looks like, let me play with some of the different computers there. I’m not going to buy it here. I’m going to go online and I’m going to have it shipped to my home for 20% less than what maybe Best Buy is offering that same retail item for.
But they’re using the Best Buy showrooms as kind of a, almost like a public service. They go in and say I’m going to test drive the car, I’m going to kick the tires, I’m going to look around, but guess what, I’m going to go online and I’m going to work my best deal and if the car is delivered to me I don’t care if it comes from five miles away 500 miles away. This is what I’m willing to pay for the vehicle and if they’re willing to ship it to me, then I’m in. There’s less loyalty to today’s local dealers, to say no, I buy all my cars from XYZ Motors, my parents have, I’m going to. It just doesn’t seem to be the case anymore, right?
Brian Finkelmeyer: Yeah, so on the Best Buy example it’s interesting Jim. What Best Buy did to address that problem that you’re talking about, what they call showrooming of hey, I’m just going to check things out here and go buy it someplace else, is Best Buy had to come to grips with the fact hey, we’ve got to match prices and they’ve got that now as part of their marketing scheme is we’ll match whatever price you can find online. So, I think ways in which dealers can try to take price off the table to the best of their ability and focus on that experience. I mean Best Buy’s stock is quadrupled in the last five years because they’ve really focused on the customer experience.
Jim Fitzpatrick: Yeah, and that’s what it’s all about. Customers want that in a very big way. Before I let you get out of here, talk to us a little bit about the advertising. You touched on that. It’s up over $700 a copy. What’s the remedy to that from your perspective?
Brian Finkelmeyer: Yeah, so one of the big challenges that dealers have is that with across my inventory, not all my vehicles are getting an equal distribution of the eyeballs and so we’re looking at ways in which we can help dealers draw more attention to those cars that are not otherwise being seen. One of the things we believe is a car not seen is a car not sold. And so we’re trying to help our dealers find new ways. In fact, we’ve got a new integration with Auto Trader and the ability to spotlight specific pieces of inventory right from vAuto to draw attention to those cars that are not being seen. So we’re beginning, in the very early stage of this, but we’re already beginning to see some signs of success.
Jim Fitzpatrick: Wow, that’s phenomenal. Phenomenal. Great. Well, we’re going to love to have you back here in the future, Brian, we really appreciate you visiting us.
Brian F: Jim, thanks for having me.
CBT Automotive Network. The number one most watched network in retail automotive. This has been a JBF Business Media Production.
