Just Faster: Re-imagining Automotive Retail

Copyright © 2019 Brian Pasch Enterprises

ISBN: 978-1-5439592-1-5

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed:

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Printed in the United States of America

First Printing: November 2018

Second Printing: January 2019

Rev P3

Foreword

In the summer of 2018, Thomas Gage and I made the commitment to write a book covering the transformation of the automotive retail sales process, fueled by desires from OEMs and dealers to better serve the needs of their customers. As part of our research we polled dealers, vendors, and consumers, and this book integrates many of those data points. Let’s start with this question that I posed to 100 consumers with their answers in a word cloud.

Q: Pick two words that complete this sentence: I want my NEXT buying/leasing process to be:

You can now see how we picked the title for this book!

Consumers may not know how to make the retail sales process faster, but they want it faster, easier, simpler, and less stressful. In order to meet the needs of consumers, the automotive industry must evolve the sales process, which is going to require new training, process mapping, and technology to empower consumers to complete the sales process on their time, terms, and schedule. Case in point, Bob Barton of Beach Ford commented, "Customers don’t like to be handed off to multiple people."

An obvious question is, If consumers are demanding a Just Faster experience, why has it not changed? It is changing. We spoke to many innovators that are moving to this new-future space while also capturing some of the reasons it has been so hard. Part of it is software and multi-vendor integrations, part of it is letting go of existing dealer processes and commission plans. The biggest part, though, is grappling with change.

The change management process in automotive retail will not be controlled by a handful of companies. Change is here and is being pushed forward by dozens, if not hundreds, of companies who have a role to play in helping the retail sales process evolve.

While it is impossible to capture all the companies, opinions, strategies, or processes that will be involved in transforming automotive retail sales, we have a wonderful collection of thought leaders, dealers, manufacturers, and vendors who have contributed to this book.

Here is one perspective that resonated with us because it speaks to the need for process improvement that makes online transactions normal and seamless to the consumer:

"It’s my belief one of the keys to success in Digital Retailing is to normalize the idea of the transactional model. Essentially, if we (the dealer) successfully create the perception that shipping vehicles and selling cars sight-unseen is something that is ‘normal’ for us to do, the customer feels more confident with us, and considers transacting that way. Remember, this is new to consumers, so we must make them feel comfortable."

Evan Berney, CEO Carbiz.com, a used car dealership in Maryland

A major paradigm shift in how a majority of cars will be sold will not happen overnight. Today, the majority of all vehicle purchases and deliveries are at a local dealership. The new normal will be that the transaction can occur anywhere the customer desires and will have a strong focus on consumer experience both online and in-store. Over time, successful training, processes, and technology will start to rise above the noise of the marketplace, and leaders in automotive Digital Retailing will be crowned.

Since we are in the early stages of a more consumer-centric business model for the auto industry, expect updates to this book regularly so that it can continue to facilitate better conversations with dealers, manufacturers, vendors, and consumers. Despite its youth, in 2018 digital retailing companies received significant funding from public dealer grouping including AutoNation ($50 Million in Vroom) and Lithia Motors ($54 Million in Shift Technologies).

In December 2018 TrueCar announced its acquisition of Dealer Science, a clear move to enhance the experience of consumers using the TrueCar platform. Here is an excerpt from their press release dated December 7, 2018:

"Consumers expect to be able to configure more elements of their car deal online and they want greater transparency and validation of the elements of their car deal," said Chip Perry, TrueCar's president and chief executive officer. "We believe that dealers that place DealerScience's state-of-the-art digital retailing tools on their own websites, in their showroom and within TrueCar's marketplace will be well positioned to generate strong growth and profitability."

Note: We surveyed over 400 automotive professionals for our Digital Retailing Survey (DRS) in 2018. The survey will continue into the new year so that we have a larger sample for our January 2019 book updates. Automotive professionals who would like to take the survey should email brian@brianpasch.com.

The majority of the survey results shown in this book are taken from the DRS. We also surveyed over 100 consumers about their recent car buying experience and have included some of their responses as well. We will continue to poll consumers in the coming months to provide a larger sample for our 2019 book update.

Acknowledgements

Thomas and I had a vision for this book at the Automotive Analytics and Attribution Summit (AAAS) in November 2017. Since we made the decision to collaborate on our second book, the automotive industry has accelerated progress in simplifying the process for shopping, selecting, and purchasing a vehicle online.

This book is designed to help business executives and managers in the automotive industry have a more complete picture about the changes the industry needs to better serve consumers who want to spend less time in the dealership and have more control in the buying process.

I want to thank my friend and colleague Thomas Gage for his passion and hard work to pull all the information together from dozens of vendors, dealers, and OEM conversations. Thomas has been involved in the auto industry for many years and is currently the Chief Strategy Officer for LotLinx. His ability to simplify some of the more complicated discussions on a Digital Retailing sales process is truly appreciated.

I also want to thank my editorial team, led by Paul Schnell and assisted by Beth Braswell. Thank you, Marielle Lorentz, for your excellent cover design and work to unify the graphics in this book.

There are dozens of business leaders who have contributed their commentary to this book and, for each person involved, I am truly grateful. I want to thank everyone who read early manuscripts and sent their commentary along to create a better story for business leaders. We also want to thank our wives for allowing us to invest our lives into another book to help our industry.

In the end, I hope that business owners from all industries will realize the importance of embracing change to strengthen the franchise model against disruptive forces and to exceed the needs of today’s auto shopper.

Table of Contents

Chapter 1: Intro to Digital Retailing

Who is Driving Change?

The Current Retail Process is Broken

Are We Willing to Change?

Differentiating Digital Retail Solutions

Shopping vs. Buying in Italy

Are We Ready?

Defining Digital Retailing

Pasch Automation Levels (PAL)

Is Real-Time Accurate F&I Possible?

Trade-in is Part of Digital Retailing

Nailing the User Experience: Mazes or Fairways

Car First vs. Money First Consumers

Where Does Digital Retailing Happen?

What About Third-Party Marketplaces?

The Speed of Change in Retail Sales

Reinventing Communication Strategies

Time to Scare You

Chapter 2: Digital Retailing Requires Accurate Data

Digital Retailing Tripod

Five Classes of Data

Matching the Consumer with a Vehicle

The I in F&I

Chapter 3 – Dealership Managers Speak Up

Who Is Providing Advice

OEMs Are Moving Forward

Pricing Strategies

Pay Plans

Lead Handling

Training

Managing Digital Retailing Data

Compliance Concerns

Chapter 4 – Digital Retailing in Action

Stores with Active DR Technology

How Are Dealers Using Their DR Platforms?

What About Addendums?

Are Dealers Retaining Backend Gross?

Lead Handling Strategies

Chapter 5 – Vendor Perspectives

Roadster Interview

Cox Automotive Interview

Chapter 6 – Consumer Perspectives

Is Distance Important?

What Consumers Want to Do at Home

Chapter 7 – Exploring Retail Approaches

AutoServ

Beaverton Toyota

Berlin Automotive

Carbiz

Emich Volkswagen

Group 1 Automotive

Gunn Automotive Group

Larry H Miller Automotive

Paragon Honda

Schomp Honda

Willet Honda

Chapter 8 – Subscription Ownership Models

Wyler Fastlane

Chapter 9 - Organizational Dynamics

Role and Organizational Design

Compensation

Changing our Day Jobs

Implementing Change Inside Your Dealership

Chapter 10 – Marketing Considerations

Marketing Channel Considerations

Is Live Assistance Needed?

Tracking Marketing Investments & Engagement

Chapter 11 – Selecting a Vendor

A2Z Sync

AutoFi

CarNow

Carvoy

CDK Global

Cox Automotive

Darwin Automotive

Dealer One, LLC

Dealer eProcess

Dealer Inspire

DealerScience

Drive Motors

eLEND Solutions Inc.

GoGoCar LLC

Honcker

Market Scan Information Systems, Inc.

Motoinsight

PERQ

Roadster

Tagrail

The Appraisal Lane

TradePending

WebBuy

Chapter 12 – Further Faster

Chapter 13 – Investing in Education

References

Contributors

Chapter 1: Intro to Digital Retailing

Can we agree that the automotive industry has not experienced many disruptive events over the last two decades that would cause a corresponding reactive and disruptive change in the way retail sales are conducted? Looking back, there have been perhaps just two disruptive events in recent years to consider.

First there was the catastrophic collapse of the retail market in 2007. The drop in SAAR impacted industry-wide profitability and dried up the availability of lease vehicles for years to come. It also forced the closure of point locations as OEMs tried to make the franchise network more efficient. The response within our industry was the beginning of an inflated use of incentives to drive sales, a push to greater efficiency, and increased competition between stores for a scarce consumer. As an industry, we really did not significantly change the way vehicles were sold.

The second disruptive event was very brief and, looking back, it would no longer be viewed as a disruptive event. In 2015, Berkshire Hathaway acquired the Van Tuyl Automotive Group. Suddenly, there was a PR campaign addressing why the financial titan of our time would be entering the automotive industry.

As reported in Automotive News in 2015: This is the beginning of a journey that will have no end, Berkshire Hathaway Inc. CEO Warren Buffett said today in a statement. Cecil and Larry [Van Tuyl] have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.

The concern at the time was that this was the tipping point to a radical change in automotive retail. Thomas and I were present at J.D. Power Automotive Forum in New York when Buffet was being interviewed about the acquisition. The buzz was around substantial consolidation and a dramatic change in the way cars would be sold. It did not happen. Warren Buffett let the group run its business independently and was supposedly more attracted to the stability of the franchise business model and the profits gained in the F&I portion of the business. But we did think about the impact of outsiders entering the car business for a while.

There was also the Google Cars attempt at online classifieds in the San Francisco market, and Tesla’s nationwide battle to bypass the franchise model with direct-to-consumer sales. These events have just been noise in the dealers’ ears.

What we have seen in the last two decades instead of disruption is incremental change. This is because the fundamental way in which most vehicles are transacted has not changed. We can't overlook the impact the internet, dealer websites, third-party classifieds, and availability of online information has had on automotive retail. As information, photos, stats, specs, pricing, etc., became more prevalent online the power shifted from dealers to buyers. However, heavy lifting for automotive retail is still primarily happening in the dealership which is driving the need for a more seamless handoff between online activities and store visits called Digital Retailing.

One could argue that the shift from Traditional Media to Digital Media was significant, but here again, the change did not disrupt the business model let alone, save the industry money.

However, new forces are driving change to upend the traditional sales model. Vendors are calling it Digital Retailing, but whatever this change is called, we are in the early stages of this transformational movement in automotive retail. Digital Retailing looks like it has enough momentum to sustain lasting change, once dealers figure out how to apply the changes in their internal sales processes. Moving the steps for a vehicle transaction online-at-home or online-in-showroom will increase customer satisfaction for consumers who are tired of the existing sales model, which is a cat and mouse game at best and a confusing waste of time at the worst.

Who is Driving Change?

It’s not the OEM. However, most manufacturers see that in order to increase market share and brand loyalty, they must make the retail experience Faster and less stressful. It’s not the dealers. Many are reluctant to break down the walls of their business to allow transparent shopping, financing, and purchasing. It’s not even the consumer. While they may be unhappy with the vehicle transaction status quo, they don’t know enough about the processes to fix or suggest a new automotive retail sales experience.

Starbucks, Uber, and Amazon are driving the change that is occurring in automotive retail. These companies have reinvented their business models to give consumers what they want from the device that is always in their hand. Consumers, for the most part, have experienced ideal retail transactions in other areas of the marketplace. Dealers that solve their pain points associated with automotive retail transactions will gain market share and loyalty just as other innovative brands have done. Let’s look at how these retail leaders are changing the demands and expectations of consumers.

Do you order your Starbucks coffee from their mobile app? Ten years ago, who would have thought that millions of consumers would order their morning coffee on their mobile phones. While consumers love Starbucks coffee, they did not like waiting in line, especially when they are running late on their way to work. Starbucks made it faster and simpler.

Thomas and I have active travel schedules, which include short trips to speak at conferences, hold workshops, or visit with clients. In the past, it was very common to rent a car and drop it off when we headed back out of town. We liked the convenience but hated some of the experience.

Waiting in line to resolve a rental issue or taking a bus from the rental center to the airport is the worst part of the rental experience, outside of dealing with the insurance from an accident. When you’re late to the airport, the rental car return becomes stressful, but there was no real solution until Uber.

Today, I rarely rent a car. I use Uber to get from the airport to the hotel and back. I can take clients out to dinner, have a glass of wine, and Uber can safely and affordably get us back to the hotel. I also avoid the $40-$75 per night parking fees that hotels charge. Uber made it Faster and more affordable to get around cities.

I like shopping in stores, but my schedule often prevents me from getting to the store before things run out at home. While I like shopping, I do not like finding or paying for parking while fighting the crowds on busy shopping days. I also hate making a trip for a small item that I know I need - only to find out that the store is out of stock.

Amazon offers me a Faster way to purchase household items, clothes, electronics, and even Pellegrino Water, all with free Prime shipping. The annual fee is insignificant compared to my savings in time, gas, parking fees, and even parking tickets. Amazon removes the disappointment that occurs when you drive over to a store and find that they don’t have the item you need. With Amazon, I get what I need every time, on time, with no hassles.

What else did Amazon do? They raised the bar for every major big box in retail. They all need to offer at-home delivery. They all need to have transparency in price and ease of the transaction. Actually, not all adopted to the new business model. We know what happened to Sears.

The point here is that someone will do the same in Automotive Retail, and this someone will raise the bar for everyone else. This is how and why our industry will step into Digital Retailing. Curiously, it also appears we will be better off as an industry based on the financial experience of dealerships we interviewed.

Innovations in retail are driving consumer expectations for automotive retail. Consumers want to obtain transportation on their terms, yet the dealer community has been reluctant to even meet them halfway. The speed of change in automotive retail will be directly tied to the willingness of dealers to examine their current sales processes from the perspective of today’s digital savvy, e-commerce comfortable consumer.

The Current Retail Process is Broken

Let’s look at what a traditional automotive shopping experience looks like from the viewpoint of two individuals, Mary and Beth. We will pretend that we are filming a movie with cameras on each woman as she moves toward purchase. The main difference between these two women is that Mary needs to buy a car, and Beth wants to buy a car.

Scene 1: Research [RE]

Mary and Beth are using online tools to determine their next move, with Mary primarily looking at vehicles based on affordability, and Beth focused on finding a car with a very low operating cost. Regardless of their needs and desires, both of our consumers reach a point that they have exhausted online resources and then reach out to the dealership.

Mary submits a credit app which gets pushed into the dealership’s CRM system. Not a single person reviews her credit app. The CRM platform automatically sends an email encouraging her to make an appointment to learn more about her vehicle of interest with the promise that all of her questions will be answered.

Beth calls the dealer to confirm availability on an EV and wants to understand if EV vehicles are eligible for tax incentives. Her call was picked up by the Business Development Center (BDC), which was incapable of answering her questions. The BDC agent pressured Beth to set an appointment at the dealership to get her questions answered by an EV specialist.

Scene 2: Sales Meeting [SM]

At the morning sales meeting, the sales manager reminds the team that with three days left in the month, they need to hit their monthly sales targets. There’s a push to reconfirm that active leads are contacted again to set an appointment today. Mary and Beth, are contacted and unaware of each other’s interest in a vehicle at this dealership, reluctantly schedule an in-store visit at different times that fit into their schedules.

Scene 3: Meet and Greet [MG]

When Mary and Beth arrive at the dealership for their own appointments, they are greeted by Jack Montalcino. Although Mary states that she wants to understand her financing options first, and Beth wants to compare features, Jack has been trained to follow a very strict, linear sales process to get them into a car. Regardless of their situation, both Mary and Beth are treated the same, and just become Marybeth.

Scene 4: Needs Assessment [NE]

Jack delivers a product presentation before going on a test drive. Jack adds little value to the visit as Marybeth appears to know more about the vehicle than Jack, based on her online research.

Scene 5: Waiting [W]

Marybeth is left alone as Jack disappears to find keys, scan her license, and see if someone is already in the car.

Scene 6: License Scan [LS]

The copier is broken, and Jack can’t make a paper copy of Marybeth’s license . This adds to the delay as Jack seeks to find someone to help him fix the copier.

Scene 7: Locate Car and Keys [LK]

Jack decides to move on with his linear process; to find the keys to the car and locate it on the lot.

Scene 8: Test Drive [TD]

Marybeth goes on a test drive, and believe it or not, Jack is talking on his cellphone. (Side note: This may seem a bit farfetched, however, the consumers we surveyed for the book actually brought this up, leaving us to believe that losing focus on the consumer happens quite often during the test drive.)

Scene 9: Negotiating [NE]

Once she lands on a vehicle of interest, Marybeth asks Jack for the current rebates and incentives on the vehicle and the subsequent purchase price. Jack informs Marybeth that his team will do that research and get her the best price. Marybeth asks Jack why he can’t give a price and he ignores the question and shuffles her to his desk. Jack asks Marybeth to wait while he gets her the price of the vehicle.

Scene 10: Desking [DE]

As Marybeth waits patiently, a lot of activity is going on behind the scenes: The credit app and appraisal are completed and the initial four-square is drawn up. Rebates and incentives are checked, and rough finance rates are found. Unfortunately, Marybeth is totally unaware of what’s happening and does not value the delays this is causing. Even though Mary had already submitted a credit app online, she must re-enter her information