Every dealer knows that today’s car shoppers want more control of their car buying experience. They expect more information, transparency, and online transaction capabilities. Here to give us an update on all things digital retailing is Pete MacInnis, founder and CEO of eLEND Solutions, and Steve Finlay, editor at WardsAuto magazine.
VIDEO TRANSCRIPT:
Jim Fitzpatrick: Thank you, gentlemen, for joining us today on CBT.
Steve Finlay: Thank you, Jim.
Jim Fitzpatrick: Yeah. Steve, let’s start with you. You had an article recently in Ward’s Auto, “Does Automotive Digital Retailing Promise More than It Can Deliver?” Talk to us about that article that you wrote.
Steve Finlay: Well, a lot of it was based on a study that Pete’s organization did. What it found, I thought was interesting, is that dealers are keen on digital retailing.
Everybody thinks that dealers are reluctant about it, but it actually works for them. It has the customer doing a lot of the heavy lifting. As long as the profit margins aren’t hurt by doing it digitally versus in-store, what’s the matter? It’s easier, actually. You have the customer doing a lot of the heavy lifting.
Now, what the study, I thought, got into that was interesting is, okay, especially when it comes to financing, how much of the information is accurate. Especially if you’re using something as simple as a payment calculator. Granted, the customer is giving a whole lot of financial information, and therefore they’re getting some broad parameters.
But that information should be relatively accurate, if not down to the penny, because what the study has found, and it really reflects human nature, is if it’s inaccurate information, that’s a major turn off. You’ve got … The dealer has to unwind the deal sometimes. It just doesn’t do the job like it’s supposed to do.
Jim Fitzpatrick: Yeah, that’s exactly right.
Jim Fitzpatrick: Pete, from your perspective, what are the issues out there today in this regard, and what needs to change in the marketplace, in order for this to be more of a … or a smoother process for the consumer and the dealer?
Pete MacInnis: Well, I think there’s so much focus and emphasis put on the consumer’s experience. Of course, it’s very important and relevant, but I think most of the industry is really missing the obvious, and from a consumer’s perspective, from a dealer’s perspective, it’s really about the dealer’s process.
But when it comes down to it, there’s three elements that are critical. It’s about negotiating real terms of the price of the vehicle, trade-in valuation, and in this subject matter, we’re really focusing and zeroing-in on really qualified real payment terms for the customer, that becomes reality, as Steve was referring to.
I think the three legs of the stool … Two of the three are moving along pretty well in the evolution of digital retailing, but the finance aspect of it is … it still has tremendous friction and disconnects that’s creating as much problems as it is solutions, at this stage of the growth of the evolution of it.
I think that there’s still a large trust gap between the consumer and the dealer in the process, and I really believe most of that’s around the finance aspect of the transaction.
Steve Finlay: I’d like to chime in on two things. One is that sometimes it’s not the dealer’s fault. A lot of times, it’s not the dealer’s fault, if there is some imponderable discovered in the customer’s financing situation. I mean, financing is very tricky, and one of the reasons is because there’s so many aspects of the consumer’s personal financial picture. Sometimes the consumer might not be forthcoming with some of those things. It really is a feel along the maze walls, for a while, anyways.
Jim Fitzpatrick: Besides profits, what do dealers want to get out of digital retailing? I’ll let either one of you take that.
Steve Finlay: Pete, go ahead.
Pete MacInnis: I think, for dealers, really, it becomes very simplistic. The dealers really want to sell more cars, faster, with increased profitability. That’s really simplistic about that, and I think that’s part that it doesn’t get the focus it should have. Digital retailing should really be something around connecting the online consumer to the in-store process.
I think the dealer really wants to leverage the technology to remove bottlenecks, disconnect, and profit-leaks from the transaction. [inaudible 00:04:38], that’s what digital retailing is. It doesn’t matter whether it’s online, or in-store. It’s about how do we create efficiencies for the dealer that empowers them to sell more cars faster, and increase profitability?
Jim Fitzpatrick: So many dealers out there right now are trying to get their hands around this, right? Because most of the dealers that we talk to here at CBT are like, “Well, it’s down the pike. It’s not right now. People still want to come in and kick the tires, and see the showroom, and … ”
Steve Finlay: Well, they do.
Jim Fitzpatrick: I find that to be somewhat naïve, on the dealers’ part, to think that this isn’t coming down the pike much faster, and that the consumers aren’t going to be driving this in a very big way. They go, “No, no, no. If we can sit on our couch, or in our office, and go online and do the entire transaction right there in the comfort of our living room, then I’m going to go find the retailer that’s going to help me with that.”
I mean, we all do business with Amazon. The reason we do that is because of selection, price, and convenience, right? I think people demand that now in the auto sector. Or will be [crosstalk 00:05:40]-
Jim Fitzpatrick: … in a bigger way. Right?
Steve Finlay: They do. There’s no reason that they can’t go to the dealership. I think Pete had indicated that they want to go to the dealership to finish the deal, so everybody’s happy.
Now, I wanted to ask Pete what he thinks of online self-desking tools, and do they cause friction within the negotiating process? I’d like your thoughts on that, if you would, please.
Pete MacInnis: Well, you addressed the part of it in the survey results, from the dealers’ perspective, and how they felt about it, about the friction. Absolutely. When you think … It’s almost comical to think about a customer self-desking a deal. Where we’re really likely to [inaudible 00:06:27] transparency from the lender program.
Let me give you a specific example. Before you even get to that customer’s qualifications, you have to qualify the vehicle. Let’s look at it from an OEM captive finance perspective, and let me give an example of this.
If you talk about a consumer self-desking a deal, when you look at the dealership, you’ve got sales managers, desk managers … They do this. They’re professionals. Highly-paid, highly-compensated for being experts at desking deals. They do it every hour, every day, every week, every month, every year for 20 years, and that best-case scenario, it is still educated guesswork from their perspective.
How does a dealer, who can’t even determine the profitability of that, when it takes … You have to look at 500 different data points to get down to determine, “Is this customer best on the standard program, an extended program, and/or a dealer region program?” Then you get all the loan-to-value issues …
And we’re talking about this before you can get to the customer’s qualifications, right? Debt-to-income, payment-to-income ratios, loan-to-values … Are certain vehicles available for 84 months, but if you go above a certain dollar amount, by one dollar on the amount financed, now 84 is no longer available … you can only get it on 72? And we’ll [inaudible 00:07:39] on 72, but not 84 months?
Okay, so you’re going to hand it over to a consumer to desk that deal? Are you kidding me? That’s ridiculous.
Jim Fitzpatrick: As you know, most dealers are a little nervous, to say the least, about the loss of F&I gross profit, as we move into further down the road in digital retailing. What’s your take on that? Is that a valid concern on their part, or do you think, as some F&I companies will tell you, “No, no, no. There’s going to be plenty of F&I money on the backend of these deals, even though they are done over the internet?”
Steve Finlay: My take would be, real quickly, that … Yes, I think they will continue to make money off of F&I. They’re going to figure out how to do that. That’s a big profit center, and to give up the battle on that would be crazy. There’s no reason that you couldn’t use digital to enhance that.
Now, I wonder about the future of F&I managers. I see the trend more and more of those positions being eliminated, and the salesperson doing that job … You hear the pro and con, like “They’ve got enough to do without doing F&I, and that’s not going to happen.” It possibly could happen. It’s been tested by some dealerships.
What’s interesting is the F&I managers, typically, were great salespeople on the floor, and then they become F&I managers. So if you were to eliminate the F&I department, and I don’t see that in the immediate future, but there’s talk about doing that … If you were to do that, those F&I managers would probably be back on the sales floor. They wouldn’t be shown the door of the dealership.
Pete MacInnis: If I can add to that, I think the digital retailing, where it brings value to that, is when you think … a consumer wants to do more of the process online. The good news about that is, up until this point, the consumer’s been hiding behind their computer screen. Behind that curtain. They’ve done an extensive amount of research about the vehicle, and what they’re looking to buy, but the dealer has had very little transparency about the consumer’s buying power.
But now that you’re moving towards doing a deal online in e-commerce, that really shifts the information pendulum advantage back towards the dealer. When you do that, the consumer has to give up all of their information in order to facilitate that.
Now, by the time you get to the finance, it’s not an interview process. It’s not trying to sort out and figure out “Can this customer buy this car? Are they on the right car with the right deal structure?” If you have all of that information earlier in the process, and it’s all accurate, and you can put a deal … and negotiate a deal to real finance terms upfront, that really frees up the F&I manager now to actually focus and spend their quality time on selling those F&I products. I think the F&I aspect is going to benefit from all of this.
Steve Finlay: Yeah, that’s a good point.
Jim Fitzpatrick: I know right now, dealers are trying to line up who are the vendors out there that can help them as they navigate this digital retailing. Obviously, eLEND’s got a great name out there in helping dealers do just that. How long do you think it will be before we see the majority of vehicles being sold digitally, or online, within the market?
Steve Finlay: I mean, I would argue they are being sold online. I mean, if people are doing so much work, and then go to the dealership to wrap up the deal, or to have their decision confirmed … What would the percentage be? 70%, 80%, 90%?
Pete was right in terms of … It is so complicated behind the scenes. You want to make it simple for the dealer … or the customer. But that doesn’t mean you start dispersing incorrect information, and saying, “Well, we’re keeping it simple.”
The challenge for the people behind the scenes, people like Pete’s organization, is to have all that stuff going on, condense it into a product that makes it easy and accurate. That’s the brass ring, right?
Jim Fitzpatrick: Yeah, that’s for sure.
Pete MacInnis: [inaudible 00:11:59] that transition from the online shopping, and to Steve’s point, getting as much done of it upfront as you can. By the time they get to the dealership, it’s such a big purchase for the consumer, what they really want to know is when they get there, is there an affirmation of what they already negotiated, and a confirmation of that, that, “Yes, this is what I really want to do. This is the vehicle that I want. And the deal structure meets expectation.”
The expectation of online is fulfilled in the dealership, and that’s done in a very, very efficient, quick manner. That’s really the key to all of it.
Steve Finlay: I would also add real quickly, and this is a soft point, is that what happens at the dealership, after all that’s been done online … One of the things that happens is the delivery of the car. That should be a really special moment. Some dealers really make that a big deal, and others just go, “Here’s your keys, and we’ll tell you a little bit about it.”
That customer is getting their car. That’s an exciting moment that’s taking place at the dealership, and that dealer should really capitalize on that.
Jim Fitzpatrick: Pete MacInnis of eLEND Solutions, and Steve Finlay, editor of Ward’s Auto Magazine … Gentlemen, thank you so much for joining us. This has been very enlightening. We get a tremendous amount of great feedback from our viewers whenever we air programs like this that have to do with digital retailing, because it’s coming.
Steve Finlay: All right. Thank you, Jim.
Jim Fitzpatrick: All right. Thanks so much.
