DealerExec Magazine Q1 2016

DealerExec A DrivingSales Publication • 1st Quarter, 2016

A DrivingSales Quarterly Covering Dealership Brand, Capital and People.

Exposing FTC Biases Against Dealership Franchise Laws

BY MARYANN N. KELLER • PAGE 12

Visit DrivingSales.com to view more than 28,000 verified dealer ratings of over 800 vendors in 28 categories.

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F O U N D E R ’ S

L E T T E R

Dealership Executive,

A

t DrivingSales, we seek to drive innovation and excellence in the auto industry by optimizing a dealership’s greatest asset, their people.

Whether it’s through providing visibility into the future of automotive retail through the stories in this edition and our news service, hearing from visionaries inside and outside the industry at our conferences, upgrading store execution with research-based process training with our university, or connecting with peers through our leading dealer community, we are here to help you take your dealership to the next level.

This edition of the magazine is about innovation in the industry. I’d like to alert you to three innovations of our own we are bringing you over the next few weeks.

First, we have evolved our successful Presidents Club event into a highly intimate and interactive format connecting you one-on-one with some of the most advanced dealers in the country as well as leading researchers to provide you practical insights to move all your departments to the highest level of performance.

It’s going to be a lot of fun to dig into the biggest challenges we face as dealership executives. I’d like to invite each of you to join us May 4-6 at the Ritz-Carlton in South Beach, Miami. Learn more at DrivingSalesPresidentsClub.com Second, we have made a major investment to create the industries first and only comprehensive resource for researching products for your dealership. Our independent dealer-savvy experts have written Buyer’s Guides to help you focus on the key differences between products and how to find the best match for your store. Detailed product reviews then help you quickly narrow your evaluation to a short list of the best products for you and your team. We expect you to find our Vendor Ratings on DrivingSales.com to be an essential resource to you in all your purchase decisions.

Finally, I’m excited to share with you we have redesigned the DrivingSales Community (DrivingSales.com). We’ve spent the last year or so redesigning and building a better tool for you and your teams to connect, share and learn with your peers to excel in automotive retail. We’ve enhanced the user profiles, made is easier for you to post and view content, and added Vendor Rating tools to find the solutions you need to improve your dealership. We hope the new Community will be very useful tool for you and your teams.

We at DrivingSales remain committed to be your partner in your personal and business success.

Sincerely,

DealerExec The Team Jared Hamilton FOUNDER

@jaredhamiltonDS

Chris Reed PRESIDENT

chris.reed@drivingsales.com

Mike Jeffs EDITOR

mike.jeffs@drivingsales.com @mikejeffs3

Steve McFarland DIRECTOR, MEDIA SALES

steve.mcfarland@drivingsales.com

Josh Phelon MEDIA SALES EXECUTIVE

josh.phelon@drivingsales.com @joshphelon

Justin Rhoane MEDIA SALES EXECUTIVE

justin.rhoane@drivingsales.com @JRhoane

Jared Hamilton Founder, DrivingSales, LLC

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Thanks to our Sponsors!

DealerExec ABOUT THIS PUBLICATION DealerExec is published quarterly

by DrivingSales, LLC featuring executive resources for automotive retail leaders covering dealership Brands, Capital and People, and a quarterly ranking of dealership vendors as rated by dealers themselves. Within the first issue of each year, DealerExec announces the annual winners of the the Dealer Satisfaction Awards from several Vendor Rating category.

SUBSCRIPTIONS To subscribe, visit DealerExecMagazine.com. Printed in the United States of America.

Copyright Š DrivingSales, LLC 2016. All rights reserved. No part of this publication may be reprinted or otherwise reproduced without publisher’s written permission. DealerExec and DrivingSales, LLC assume no responsibility for unsolicited manuscripts or photographs.

LETTERS TO THE EDITOR DealerExec and DrivingSales, LLC welcome letters to the editor.

If you have questions about the publication, or would like to make a comment, or voice an opinion about the magazine, DrivingSales, LLC, or the industry in general, please feel free to write us.

Please send letters to mike. jeffs@drivingsales.com. Include a phone number and email address.

Letters may be edited for clarity or space. Because of the high volume of mail we receive, we cannot respond to all letters.

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C O N T E N T S

Features

12

12 Exposing FTC Biases Against Dealership Franchise Laws

Arm yourselves with the facts

BY MARYANN N. KELLER

16 What Does Your Employment Brand Say About Your Dealership?

How focusing on employment branding will improve recruiting, retention and employee engagement

BY CANDICE CRANE

20 Do You Value Your Online Real Estate?

You Should.

Exploring new web address options for your brand

BY MIKE AMBROSE

36

24 Why Consumer Experience Matters

How to create the right environment for your dealership

BY TODD MARCELLE, CEO AND FOUNDER GOMOTO

28 An Incredible Year in the Buy-Sell Market

Several large transactions, and entry of new players will impact our industry for years to come

24

BY RYAN J. KERRIGAN, KERRIGAN ADVISORS

32 Technology Leadership

‘Need to haves’ versus ‘nice to haves’ technology

BY DAVID KAIN

36 One Price Selling – What Are You Waiting For?

Four reasons why being a ‘One Price Store’ is advantageous

BY MARK RIKESS

38 Innovation: Go Fast or Go Home

How removing friction can improve the customer experience

BY PROFESSOR JAY RAO

43 Get Ready for the Modern Dealership

Digital signage and virtual realty: poised to improve your dealership

BY CLIFF BANKS

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On DrivingSales.com, dealers can rate their vendors. All reviews are verified to be legitimate and posted for you to learn who the best vendors are – directly from your peers.

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The NEW DrivingSales Vendor Ratings DrivingSales Vendor Ratings…

The Essential Resource for all Dealership Purchase Decisions.

D

rivingSales Vendor Ratings has long established itself as an essential resource for dealers researching their next product purchase. With individually verified reviews from dealer users at its core, Vendor Ratings is the only site dealers can turn to for objective peer-to-peer opinion and a comprehensive view of the solutions available.

The best has just got better. DrivingSales Vendor Ratings has been expanded to include buyers guides written by industry experts to help you determine the solutions that best fit your dealership profile, comprehensive and consistent product reviews for easy product comparison, engaging media and blog content, as well as a collaborative user-interface designed to make engagements with peers dynamic and informative.

DrivingSales Vendor Ratings is your trusted partner for all your product purchase decisions.

• Compare products using consistently formatted reviews written by our independent editors to develop your short list.

• Review information provided by vendors on their products.

• Connect directly with the vendors on your list.

How to Buy:

Collaborate and Decide:

Expert-written buyers guides provide indepth insight into the key factors to consider when making a purchasing decision, and what you should focus on based upon the type of dealer you are.

Who to Consider:

• Hear directly from users on their experiences with different products.

• See who has won awards and other recognition.

Use the integrated networking tools to solicit peer input during your evaluation process.

Share your experiences using the products and working with the vendors to inform your peers and help the vendors serve you better.

With Vendor Ratings you get the information at your fingertips to make the best possible product decision for your dealership with the least effort.

Visit drivingsales.com/ratings to get started.

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Over 28,000 unbiased vendor ratings submitted by verified dealers.

CATEGORIES 6 Call Management Chat CRM/Sales Department Dealership Management Systems (DMS)

7 Fixed Ops Solutions Internet Lead Management (ILM) Inventory Pricing New Car Leads

8 Owner Marketing Reputation Management SEM - PPC Search Engine Optimization (SEO)

10 Used Car Advertising Websites

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Call Management Solutions that track inbound calls through designated tracking phone numbers so that you can manage your marketing spend and increase ROI. COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

CallSource CallTrack

1st 100%

Gubagoo TalkSmart

2nd 100%

Century Interactive

3rd

Car Wars

100%

Chat Products These solutions allow you to meet, greet and converse with customers who visit your website, as well as set appointments, generate leads and provide better customer service.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ContactAtOnce!

Chat Connect + Mobile Text Connect

1st

99%

Gubagoo

Gubagoo 24/7 Behavioral Live Chat

2nd

100%

ActivEngage

ActivEngage Managed Chat & Web-based Chat

3rd

100%

CarChat 24

24/7 Fully Staffed Chat

4th

100%

CRM-Sales Department These are Customer Relationship Management (CRM) systems that track all your walk-in, phone and Internet customers through the complete sales funnel and owner life-cycle. They allow for advanced customer segmentation and marketing and track your sales activities by employee to make your team more effective at attracting customers and managing relationships.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE

ELEAD CRM

1st

99%

DealerSocket

DealerSocket CRM

2nd

71%

VinSolutions

VinSolutions MotoSnap CRM

3rd

78%

CAR-Research XRM

CAR-Research XRM

4th

50%

Dealership Management Systems (DMS)

Dealership Management Systems connect all your dealership departments with accounting and maintain your dealership data in one central place. These ratings are for the DMS systems themselves, NOT the solutions that plug into the DMS systems such as a Desking or CRM solution.

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COMPANY

PRODUCT

Autosoft, Inc.

Autosoft FLEX DMS

1st

Auto/Mate Dealership Systems

AMPS

2nd

98%

PBS Systems Inc.

Aristo Gold - DMS

3rd

40%

Dealertrack Technologies

Dealertrack Dealer Management System

4th

67%

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OVERALL RANKING

RATING

REC.

98%

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Fixed Ops Solutions Products and/or services designed specifically for Fixed Operations.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE AutoPilot

1st 100%

ELEAD1ONE Service1One

2nd 100%

CIMA Systems

3rd

CIMA Car Care Service Menus

100%

Internet Lead Management (ILM)

These Internet Lead Management solutions are built exclusively to handle incoming Internet leads and manage your Internet sales process. Many full-service CRM systems include Internet Lead Management features, but the ILM systems listed below are stand alone utilities built exclusively for managing Internet Leads.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE

ELEAD ILM

1st

100%

VinSolutions

VinSolutions MotoSnap ILM

2nd

100%

Inventory Pricing

With market volatility and transparency increasing online, knowing how to price your inventory is a science critical to increasing your store’s profitability. These Inventory Pricing tools collect various forms of market data to help define the optimum pricing for your inventory to maximize both Gross and Turn.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

vAuto

vAuto Pricing & Merchandising

1st

100%

VinSolutions

MotoSnap Market Pricing Analysis

2nd

ACE Tech

LotPro

3rd

100%

83%

New Car Leads

These providers collect and aggregate leads from their web properties and from partner sites, then distribute these hot leads to dealers.

Currently this category is for both finance and vehicle leads.

COMPANY

PRODUCT

Autobytel Inc.

Autobytel New Car Leads

1st

91%

OnlineBKManager.com

Bankruptcy Lists

2nd

73%

TrueCar

TrueCar New Car Leads

3rd

67%

AutoTrader.com

New Car Avertising

4th

*Category scores are computed per category and are not comparable across the board.

For questions about Vendor Ratings, please email to bart.wilson@drivingsales.com

OVERALL RANKING

RATING

REC.

50%

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Owner Marketing These targeted solutions help you mine and segment your customer database, and then market to them successfully. These solutions can market to your customers through email/direct mail/phone and other means.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE GoldDigger

1st 100%

AutoAlert

Automotive Data Mining Software

2nd

83%

CIMA Systems

Complete Virtual BDC

3rd

100%

Reputation Management

These products and services help a dealership manage its reputation. They may assist with review collection, monitoring, resolution, and promotion of online reviews.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

DealerRater

DealerRater Certified Dealer Program

1st

100%

eXtéresAUTO

Online Reputation Management

2nd

100%

Digital Air Strike

Reputation Logix

3rd

100%

Cars.com

Cars.com Dealer Reviews

4th

100%

SEM - PPC

Search Engine Marketing (SEM) and Pay-Per-Click (PPC) solutions help you determine how to invest in and execute a display or paid ad campaign on the major search engines for greatest ROI. COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

Dealer e Process

Digital AMMP

1st

96%

Dealer.com

Dealer.com Unified Advertising Exchange

2nd

100%

Showroom Logic

AdLogic

3rd

100%

PureCars

PureCars SmartAdvertising

4th

100%

Search Engine Optimization (SEO)

Search Engine Optimization (SEO) solutions work to optimize your websites so that they show up higher in the search engine rankings.

These services generally include both on-page and off-page optimization. This category also includes Website Conversion Tools.

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COMPANY

PRODUCT

Customer Scout, Inc.

Customer Scout SEO

1st

100%

All Auto Network

Marketing

2nd

100%

Dealer eProcess

Power PageRank SEO

3rd

100%

Dealer.com

Dealer.com SEO

4th

50%

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OVERALL RANKING

RATING

REC.

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Used Car Advertising These consumer-facing websites allow you to display your inventory to in-market consumers. They make huge media buys to attract customers to your inventory, and to increase your walk-in, phone and web leads.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

Autobytel Inc.

Autobytel Used Cars

1st

100%

All Auto Network

Inventory Management Applications

2nd

100%

Cars.com

Cars.com Online Advertising

3rd

75%

Websites

Website solution providers create full-service websites built to be the main hub of your dealership’s online presence. These sites are central to your dealership’s marketing, branding and customer service. Micro Sites and Mobile Sites are rated in their own categories.

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COMPANY

PRODUCT

Dealer Car Search

Responsive Websites

1st

100%

DealerOn

DealerOn - Chamelion Responsive Websites

2nd

100%

Dealer e Process

Dealer eProcess Responsive Websites

3rd

88%

Dealer.com

Dealer.com Core

4th

80%

DealerFire

DealerFire Responsive Websites

5th

100%

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OVERALL RANKING

RATING

REC.

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How Do Vendor Ratings Work?

The DrivingSales Vendor Ratings site is the first formal mechanism for dealers to rate and review their vendors in a comprehensive, real-time vendor directory. It empowers dealers by allowing them to learn about all the solutions available and to view actual customer feedback, both good and bad, about how each solution actually performs.

Rules •

Only dealership employees can post ratings and reviews. Reviewers are verified to ensure they are valid and eligible to leave reviews.

•

Dealership employees can only rate and review the products they have experience using. The ratings are a chance to hear from actual customers with live experience using the solutions in their stores.

•

Each reviewer must answer three questions to complete their rating: 1. How many stars does the solution deserve?

2. Would you recommend the solution to a friend?

3. Why would or wouldn’t you recommend the solution?

•

All three components of the review, along with the job title of the reviewer, are posted live to DrivingSales.com for all to reference when selecting new vendors.

Safeguards •

DrivingSales.com protects the anonymity of each dealer employee who leaves a rating and review.

However, DrivingSales requires valid name and contact information for each reviewer so that each reviewer can be validated.

•

Each review is passed through a variety of technological checkpoints to ensure vendors are not gaming the system. Furthermore, DrivingSales staff calls to verify a large percentage of the reviews.

Vendor Ranking In each product category the vendor solutions are ranked in real-time as each new dealer rating is submitted. The vendor products are ranked based on a weighted Bayesian Algorithm. This is a standard mathematical calculation that looks at the number of stars the reviewer gave as well as the statistically valid sample size needed, relative to the competitive set, to create a ranking based on the statistical accuracy of the results. Sometimes a company with 3 stars will rate above a company with 4 stars if mathematically the first company has a higher probability of success based on the submitted reviews.

We encourage all dealers to rate and review their vendors by visiting DrivingSales.com/Ratings

Dealer Satisfaction Awards The DrivingSales Dealer Satisfaction Awards recognize those solutions with the highest vendor ratings. For each category within the vendor ratings there are three award winners, the “Highest Rated” vendor and two “Top Rated” vendors. These awards reflect products and providers with a proven record of success and excellence in serving their dealer clients. The Dealer Satisfaction Award trophies are presented annually.

Learn more at DealerSatisfactionAwards.com

Rankings Only dealership employees are allowed to rate their vendors on DrivingSales.com and all submitted ratings are verified. Final rankings are mathematically calculated on both the average user star rating as well as the intensity of dealer support for the vendor (number of reviews). Sometimes that will result in a vendor with a lower average star rating but a high volume of reviews being ranked higher than a vendor with more stars but fewer reviews.

The Vendor Ratings in this issue are based on the aggregate of all dealer ratings submitted from January 1 to December 31, 2015. *CATEGORY SCORES ARE COMPUTED PER CATEGORY AND ARE NOT COMPARABLE ACROSS THE BOARD. FOR QUESTIONS ABOUT VENDOR RATINGS, PLEASE CONTACT BEN.LANCASTER@DRIVINGSALES.COM

View detailed vendor reviews written by verified dealers at DrivingSales.com/Ratings

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C A P I T A L

Exposing FTC Biases Against Dealership Franchise Laws Arm yourselves with the facts

BY MARYANN N. KELLER

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I

n November the Federal Trade Commission invited me to participate in a panel discussion on direct sales of vehicles. This would be one session in an all day event exploring state franchise laws. Before the event, I was assured both sides would be equally represented and have the same opportunity to express their opinions on RMAs and terminations, warranty reimbursement and direct sales. But the Jan. 19 event was anything but fair, with participants opposed to franchise laws (including all of the panel moderators and academics) outnumbering those in favor, by about 3 to 1.

The situation confronting dealers is challenging because of the parties aligned against franchise laws. The FTC’s opposition to franchise laws has dominated the public debate. The agency relies upon the “research” of their chosen academics that delight in uttering inflammatory phrases like “dealer lobby,” “crony capitalism” and “monopoly pricing power.” It doesn’t matter that these economists demonstrate total ignorance of the operation of the automobile and vehicle distribution industries. Nevertheless, this agency and its academic cohorts influence decision makers and the general public. As a society, we automatically assign credibility to university professors and assume neutrality in scholarly research. By contrast, advocates in favor of franchise laws are fewer and often linked to dealers through their associations

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or legal representatives and therefore are seen as protecting the status quo for their own benefit. The media also hold an antidealer bias and repeat the claims of the pseudo research.

The second keynote speaker of the morning, Francine Lafontaine, the former FTC Director of the Bureau of Economics, provided us with examples of her academic sloppiness. In 2010, Ms. Lafontaine published her report “State Franchise Laws, Dealer Terminations, and the Auto Crisis.”

She concluded in that report that having too many dealers caused market share losses, which contributed to the bankruptcies of GM and Chrysler. Apparently Ms. Lafontaine reached her conclusions without reading any of the many books or the business press that chronicled decades of inferior products, failed acquisitions and investments, expensive labor contracts, stock buy backs, etc.

She concluded that her solution to terminate dealers so that sales per dealer by brand equaled that of the Asian companies was stymied by franchise laws.

Simultaneous with the publication of her report, the Special Inspector General for TARP issued its report on dealer terminations during the bankruptcy restructurings of GM and Chrysler. This thoroughly researched report concluded that the auto companies derived no financial benefit from the dealer terminations. The FTC, of course, has clearly, if not deliberately ignored the SIGTARP findings.

Ms. Lafontaine used the Jan. 19 forum to

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again use long division to calculate sales per dealership of luxury brands. Since the data showed lower Cadillac sales per dealer compared to its rivals, she concluded that Cadillac has too many dealers! I am certain that she never heard of Cimarron, Allante, the Cadillac diesel, high defects per vehicle, faster depreciation, and lack of innovation in the long product drought from which Cadillac is now emerging. I would argue that it has been the long suffering Cadillac dealers that kept the brand alive through this sorry period.

Finally, in an attempt to discredit the auto dealer community, Ms. Lafontaine insinuated the industry is hiding data and that was hampering her research. According to her, no one had been able to explain why there are two numbers referencing dealers: 17,000 (NADA) and 21,000 (U.S. Census Bureau). She obviously didn’t bother to contact either source to understand how the data is gathered.

The direct sales panel was the highlight of the day with Tesla and Elio Motors (which has never even built a working prototype) in starring roles. Proponents of direct sales channels argue that 1) direct sales eliminates a middleman and generates savings to be passed onto car buyers; and 2) that there are no benefits to consumers from competition among same brand dealers.

Critics bellow the franchise laws that have balanced the power between the huge OEM and the smaller dealer are an anachronism; that dealers are unnecessary and the direct sales offer a better customer experience. The antidealer forces make the assumption that automakers, who have been notorious in circumventing emissions laws and paying fines for delaying recalls, would share any hypothetical savings with customers.

About two decades ago major consulting firms dissected the costs associated with the production and distribution of vehicles. This breakdown spurred auto company managements to explore build-to-order assembly and other initiatives to supposedly lower distribution costs and capture post factory profits. A 2000 Goldman Sachs report titled “eAutomotive” memorialized these “savings” and predicted the near-term reality of build-to-order, the end of car dealers and billions of dollars in additional profits for the Detroit Three.

The fact that none of the predictions happened and most of the Internet companies lauded in its pages disappeared has not stopped academics from using the “savings” data as if they were proven fact. So fictional data is being widely used to vilify the dealer as an unnecessary middleman. The academics conveniently ignore the disaster that was the

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Ford Retail Network, an experiment hatched in the late 1990s that aimed to shrink the number of stores while giving the factory control over pricing, marketing, inventory management, compensation, etc.

The Department of Justice published its anti-franchise paper in 2009, using the “General Motors do Brasil” buildto-order/online sale channel launched in 2000 as proof of the greater efficiency of a direct sales channel. The academics and Tesla have referenced this report repeatedly.

But what Mr. Gerald Bodisch, the author of the report, forgot to do was to ask GM “How’s the Celta online channel doing in Brazil?” Had he asked, he would have gotten the same response I did when I posed that exact question. GM answered my inquiry in two days saying, in an email, that because “of the high costs associated with online sales and distribution, the program was canceled in 2006. This was three years before the DOJ report lauded Celta as model for direct sales. Bodisch’s now invalidated conclusions are still used by the FTC and anti-dealer advocates including Ms. Lafontaine and others to support their bias.

Moreover, knowing how much capital is tied up in factory or store inventory, personnel costs and facilities don’t mean those costs go away in a direct sales channel. High volume assembly does not lend itself to build-to-order and, since a car weighs 4,000 pounds, takes up 50 square feet of space and involves a complex purchase process, unique in some way to each buyer, there are comparable expenses no matter who does the selling.

Tesla’s distribution expenses are rising and the company says it will open 80 locations this year. These are costs and risks normally absorbed by a dealer. And these expenses and working capital requirements will escalate when Tesla enters the mass-market. Then it will need expertise to manage trade-ins, credit issues and customers who have a low tolerance for long waits for a car or service. Tesla now finds itself in the used car business having to retail used Teslas taken in trade along with off lease units and cars in loaner and demo fleets. In early February there were some 400+ used Teslas tying up capital, taking up space in physical locations and requiring staff to handle sales.

In 2014, NADA published my report titled “The Consumer Benefits of the Franchise System.” This report articulates the real benefits to consumers from an independent network of franchise dealers. I doubt anyone can argue with its conclusions. Dealers compete with each other and the consumer gets the benefit. That has to be better than a system of fixed factory set prices.

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The argument that same brand dealers in a given market area do not promote competition, and engage in monopoly pricing, is ludicrous. Yet, that is FTC dogma and articulated by professor Dan Crane, a member of the direct sales panel and professor Fiona Scott-Morton, a member of the final panel on future trends. Crane postulates that competition at the OEM level is sufficient to ensure competitive marketplace and states that he knows of no empirical study proving that same brand dealers compete with each other to the benefit of consumers. Professor Crane has chosen to ignore the rigorous study of the impact of intra-brand competition on vehicle transaction prices published in 2015 by The Phoenix Center.

The Phoenix Center report analyzed hundreds of thousands of transactions and concluded that just two same brand dealers within 25 miles of each other resulted in lower prices. Once again, the authors of a thorough and accurate analysis that made the case for dealers were excluded from the panel.

OEMs compete to get their vehicles on the shopper’s consideration list. But it’s the dealers who compete with each other for each sale. Price shopping among two or more same brand dealers is the norm for the majority of car buyers and it is as easy as sending off a few emails. The willingness of dealers to compete on price is fundamental to the business models of third party lead generation sites from Autotrader.com to TrueCar. That competition extends to used cars and service as well as other benefits including free loaner cars, shuttle services, weekend and even 24-hour service and fully equipped waiting lounges.

Unfortunately, the direct sale debate has largely been framed around Tesla’s challenges to franchise laws. Many of Tesla’s arguments make little sense, but they have rarely been challenged. There is nothing in franchise laws that would

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force Tesla to award franchises to existing dealers or sell its cars next to gasolinepowered vehicles, yet this nonsense was uttered again during the FTC event

by Tesla’s general counsel. Does Tesla management really think that any luxury automaker would welcome a competitor in showrooms that were built to meet that OEM’s specific brand image requirements?

The Tesla 2014 10K report includes this amazing defense of its direct model. It says that it wants “to avoid the conflict of interest in traditional dealerships…where the sale of warranty parts and repair by the dealer are a source of revenue for the dealer but are an expense for the vehicle manufacturer.” Taking this statement at face value, Tesla is saying that the manufacturer should control what is spent on warranty work because the dealer is more likely to do more. But an independent dealer network where dealers receive payment for warranty work and depend on the goodwill of their customers provides the best outcomes for car owners.

Even though the facts are on the side of the current auto retail system, dealers need to get those facts out. Dealers cannot rely on their local charitable and civic contributions to influence the debate.

Opponents see this as buying favors, not being good citizens in your communities.

The FTC wants the public to weigh in on this issue. But such a survey is likely to produce results comparable to Tesla’s surveys of unanimous support for direct sales simply because of who would participates in such a survey. The public simply doesn’t understand the complexity of automotive retailing and the many responsibilities and services provided by a dealer. Dealers should not be afraid of a fair and balanced debate on franchise laws. But to make that happen, dealers have to be willing to educate opinion leaders, including the media, investment community and other decision makers.

MARYANN N. KELLER Maryann is a principal of the automotive consultancy, Maryann Keller & Associates, serving clients in the auto, auto parts and aut o retail industries.

During a 28 year career on Wall Street, Maryann was named one of the top three auto analysts on Wall Street.

Maryann was a member of the Board of Directors of Dollar Thrifty Automotive Group, Lithia Motors and Sonic Automotive. She is a member of the board of DriveTime, a major used car retailer in the Buy Here Pay Here business and AutoCanada, the only public dealer group in Canada.

In 2014 NADA published Maryann’s report on the Consumer Benefits of the Franchise System. The report addresses the many roles dealers play in facilitating competition.

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P E O P L E

What Does Your

Employment Brand

Say About Your Dealership?

H

eadlines seen around the world showcased the exceptional year retail automotive experienced in 2015. With a record setting 17.5 million cars sold there is no doubt the industry has experienced a revival post-recession.1 With this kind of revenue momentum, retail automotive should be a magnet for talented professionals looking to capitalize on increased profits and volume. This outcome was visible during the U.S. housing boom. California alone saw a 46 How focusing percent increase in the number of on employment active real estate branding will agents from 2002 to 2008.2 The lure improve recruiting, of opportunity retention and and autonomy employee attracted sales professionals engagement away from other industries into

BY CANDICE CRANE real estate. So, why isn’t this same concept holding true for sales professionals in retail automotive?

The answer to this question can be uncovered by examining the labor market. During the recession while most dealers were struggling to survive, a major shift was occurring in the labor market. Baby Boomers, who

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were the largest generation in the workforce in 2009, were at the sunset of their career. They were no longer interested in building a book of business. If they continued working during the recession, it was only because they had to. Similarly, Generation X was going through a shift of their own. Many Generation Xers gravitated to a career of high-commission sales due to the low entry barriers and uncapped potential. Earning six figures a year was a reality for this generation, with or without a college degree. Then the Great Recession hit. While Baby Boomers watched their 401(k) decline, Generation X felt it in their paycheck. Advertising sales, mortgage, real estate, car sales, all came to a screeching halt. The entrepreneurial careers suddenly stopped paying the bills. The prior attraction to commission plans now seemed like a guaranteed way to go belly up.

With baby boomers exiting the market and Generation X becoming more risk adverse, the only generation left to recruit was the Millennials. By 2010, Millennials accounted for almost 40 percent of the workforce. The older Millennials, born in the early to mid-1980s, most likely were born to Baby Boomer parents. They grew up with parents who sacrificed time with the

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family to chase the “American Dream.” Their parents may have pushed off retirement, but for the most part, the older Millennials learned that hard work would result in financial pay off. The younger Millennials, born in the late 1980s to early 1900s, were most likely born to Generation X parents.

This demographic of Millennials did not experience the financial stability of their older cohorts. Although their parents may have attended more of their sporting events, this group of Millennials came of age during the recession to parents who were not as financially established. They were more aware of the pitfalls of a down economy and entered the job market during a time of high unemployment.

By 2015, the Millennials took over as the largest generation in the workforce. Given the personal sacrifice their parents made away from family, coupled with the instability they witnessed in the economy and the financial and social atrocities they grew up with, it is no surprise that Millennials value growth potential, pay and hours in that order.3 Millennials are just as goal oriented as previous generations, but not nearly as patient. Growing professionally is their expectation. They want to know how they will grow and in what time frame. They want to make money, but not at the cost of stability. They look for a balanced compensation plan that rewards them for exceptional performance, but protects them from the peril they witnessed in their adolescents. They also demand a form of work-life balance. This does not automatically translate to less hours per week. What they are looking for is flexibility, autonomy and the ability to make smart decisions about how to spend their time.

Unfortunately, retail automotive does not have the best

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reputation for providing the kind of opportunity Millennials are looking for. According to the 2015 NADA Dealership Workforce Study, sales turnover increased 6 points to 72 percent annually, 80 percent non-luxury. Only 33 percent of sales consultants will reach their three-year service anniversary even though compensation rose 3.3 percent to $68,823. Not surprisingly, the study also found the number of Millennials hired by dealerships increased one point to 48 percent while annual turnover of this generation remains the highest at 54 percent in comparison to Generation X at 36 percent and Baby Boomers at 29 percent. If these trends continue, Millennials will take over as the largest generation being hired by automotive retail and will continue to turnover the fastest.

So how do we turn the ship around? We can’t avoid hiring Millennials yet early indicators tell us they are the riskiest. How does retail automotive compete with programs that are designed to attract Millennials? How do dealerships, whether single point or multi-store groups, create a defined career path for Millennials to grow? As we think about ways to transfer autonomy back to the customer to improve their buying experience, should we be doing the same for our employees?

The first human capital strategic exercise should be to determine your employment brand. Similar to defining your inventory and pricing strategy, you need to define why your opportunity is unique.

Employment Brand Variables

• Are you the market compensation leader or do you provide stability in pay?

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• Do you provide an aggressive benefit program that lowers cost to the employee?

• Do you provide flexibility in scheduling or hours?

• Do you empower your employees? How is this defined?

• Is your training and development program strong enough to attract candidates?

• Are you passionate about promoting from within and have the results to back it up?

• Are you growing in volume or by number of rooftops?

• Do you currently have above industry retention?

• Do you have a preference of industry or non-industry candidates?

Obtaining multiple points of view on your employment brand is important. What your senior leadership team thinks may or may not align with what your employees think.

Personally conducting an employee assessment may produce surprising results.

Assessment Questions

1. Ask your employees why they joined the company and what they enjoy most.

2. Do you get employee referrals? If so, what do your employees tell their friends about working for your dealership or group?

3. Schedule exit interviews with employees that put in their notice to leave. Find out where the disconnects are. Why were they originally attracted to your company? Was the opportunity what they thought it was going to be? Is there consistency to why people are leaving?

The purpose of both these exercises is to define who

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your organization is today and who you want it to be. You can’t build a house without first laying the foundation.

Recruiting the right people starts with identifying what kind of opportunity you have. From there you can define your ideal profile of candidate and determine the best way to attract those people.

Retaining your employees is easy if your managers understand and buy into the same vision. For example, if your employees are attracted to your company because you provide flexibility in scheduling and you have a great development program, your managers better allow the flexibility and reinforce the importance of development. Making decisions to keep employees in the store when they should be at training or not adhering to a pre-defined schedule will, in the short term, negatively impact morale, and in the long run erode your employment brand. Similarly, if you tout growth and opportunity but fill leadership positions externally or promote based on subjectivity or seniority, new employees will take note and quickly disengage and start looking outside your company.

An 11 store group in Minnesota went through this exercise in 2009. They were unable to attract salespeople due to the changing labor market and weak employment brand. They did not have the highest paying dealerships in the area and chose to pursue non-industry sales candidates due to their one-price selling model. As a result, the candidate pool was very small and their opportunity was not strong enough to attract career sales people outside of automotive.

This group decided to redefine their employment brand by recruiting recent college graduates and focusing on promoting from within to fuel their company Continued on page 27

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B R A N D

Do You Value Your

Online Real Estate?

You Should.

I

f you were a first mover, your online marketing presence likely began in earnest in the late 90s. After online car buying sites like Autobytel.com, Autoweb and CarsDirect had

BY MIKE AMBROSE firmly established themselves, it became clear to savvy dealers that it was important to have a Web address to capture the, at the time, “handful” of consumers who were turning to the Internet to start their car shopping process.

Nearly 20 years later and probably everyone reading this will agree that the Internet has become the biggest “I really believe driver of online car sales – whether customers ‘search’ is the come direct via your own only way people website or a third party site. Of course, just as are going to find your prime physical real estate plays a key role our dealership in capturing drive-by consumers, your online in the future – presence must be continuously honed and likely from their improved to meet the changing needs of the smartphone.” digital landscape.

When you took the plunge into digital marketing, the first thing you did was secure a URL to host

Exploring new web address options for your brand

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your website on. This likely means your domain name is 10 or 20 years old; a lot has changed since then.

At the time, you probably grabbed the best dot-com domain you could find – and that didn’t necessarily mean it was the best for your business.

The reality was that many of the best dotcom domains were already taken – either by cyber squatters or by someone who just happened to have the same, or similar, brand name and got there before you. A great example of this: Nissan.com is not owned by the automaker, but, instead, by Uzi Nissan, a reseller of computer hardware and peripherals, who swooped in early and registered Nissan.com in 1994.

In the dawning days of the Internet, domain names were obviously important but, it was new to everyone, so consumers were far more forgiving when they encountered long, clunky URLs. Today, consumers are savvier, less patient – and far more likely to be doing most of their Web browsing on a smartphone. Which means their “thumbs do the walking.”

Let’s face it: what worked for desktop computers does not work for smartphones.

Think about your domain name. If it’s 10 or more characters long, then it’s probably difficult to type on a smartphone – can you imagine the aggravation of typing “DealerNameAutomotive.com” into your

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phone or sending an email to personname@dealernameautomotive.com – not to mention how hard it would be to remember from a passing billboard, radio commercial or newspaper ad.

That’s why taking control of your online real estate is so important. The world has changed a lot in 20 years – including a new twist: dot-coms are no longer the only URL choice available to businesses. With the advent of new domain ext ensions, or toplevel domains (TLDs), like .college, .property, .xyz and 100s more, including .car, .cars and .auto, there are many more choices and opportunities to extend your brand online and create a memorable and easy to locate Web address.

But really, why should dealer executive’s care, isn’t this an issue for the digital marketing guy?

Well yes, but it is also critical if you value your dealership’s identity and brand … it is as important as your physical address. Imagine if your competitor one day magically took over your physical address?

As Karn Jajoo wrote in an illuminating article on The Next Web (thenextweb. com) about the costs of losing your digital address: “Perhaps if new TLDs [top-level domains] had existed back then [in 1994], Nissan.computer and Nissan. auto would have solved this contention without the lengthy legal dispute that has allegedly already cost Mr. Uzi $2.2 million in legal fees.”

Upgrading your Web address will not only help your marketing materials with shorter, more distinctive – and memorable – domains, but it should also give you the ability to capture more organic search engine traffic. Again, according to Jajoo’s The Next

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MIKE AMBROSE Mike Ambrose is the COO of XYZ and Cars Registry Limited. With 15+ years of domain industry and digital marketing expertise, Mike specializes in building authoritative online presences through branding, SEO, and SEM best practices. He is best known for launching the world’s most popular new domain extension, .xyz, as well as industry-specific domains .College, .Rent, .Security, .Protection, and .Theatre. Most recently, Mike introduced .Cars, .Car, and .Auto: the complete line of new domains developed specifically for the automotive industry.

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Web article, “Google, which owns some of Creating a short, memorable domain like the new TLDs, is attempting to rank (them) STL.Cars reinforces all that investment. appropriately. Already some generic TLDs are Think about a billboard on the side of a busy ranked higher than a .com.” highway that simply reads “www.STL.Cars” Our early research proves this point. Take – that’s far more likely to create a lasting for example, Scholfield Automotive, who impression than www.STLMotorcars.com.” very recently launched Another forward a website on the new thinking dealer is Karen domain www.Wichita. and Sammy Quraan of Maybe it’s time cars. After a month, Brilliance Auto, a New Wichita.cars already ranks Jersey-based seller of to start looking on page 3 for the search pre-owned cars. The term “Wichita Cars” while Quraan family is not only into how your the 15-year-old .com migrating from their long dealership can equivalent, WichitaCars.

URL – currently, www. com, ranks on page 6. brilianceauto.com (with extend its online Another opportujust a single “l” because nity for expansion is a Chinese automofootprint to better in “regional” Web real tive company already estate. For example, a had the .com domain reach and appeal Los Angeles dealer could they wanted) to www. display their pre-owned Brilliance.Auto but has to today’s Webinventory on LosAngeles. obtained some very speCars, and then start to cific URLs to extend their savvy, mobile capture search engine online presence, includconsumers? traffic for competitive ing Certified.Car, Shop. keywords like “los angeles Auto and Safe.Car. cars” and “los angeles “The Internet is such a used cars.” The dealer could then run search huge and global place – we recently shipped engine marketing, TV, print, and radio cama car to Dubai! –and it seems obvious that paigns and track the results on their new it will continue to segment into different Web address. “neighborhoods” so consumers can easily This is exactly what early adopter St. find your business,” says Sammy Quraan.

Louis Motorcars is doing. The Midwest“And, as third-party leads continue to decline, based luxury car dealership rebranded from I really believe ‘search’ is the only way people STLMotorcars.com to STL.Cars – and with are going to find our dealership in the future the money saved by registering STL.Cars – likely from their smartphone. I want to over the comparable dot-com domain, the be sure I’m where my customers can find dealer was able to launch a new ad camme and I think these new industry-specific paign to promote his business. domains will take over as the default way of “I can’t think of a better or clearer domain doing business on the Web.” name for my dealership than STL.Cars. It’s Maybe it’s time to start looking into how short, memorable and relevant to my busiyour dealership can extend its online footness, geography, and industry,” said Graham print to better reach and appeal to today’s Hill, Dealer Principal, St. Louis Motorcars.

Web-savvy, mobile consumers? It could be “Almost all of a dealer’s digital marketas simple as securing a prime piece of virtual ing efforts are directed to their domain. real estate like YourCity.Cars.

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B R A N D

Why Consumer Experience Matters How to create the right environment for your dealership

BY TODD MARCELLE, CEO AND FOUNDER GOMOTO

A

s consumers have grown more dependent on the Internet and technology in every facet of their lives, nearly every industry has had to adapt to meet the demands and needs of the public. The auto dealership industry should not and cannot be any different if it intends to compete with the onslaught of online disruptors.

By the time a consumer has entered a dealership, they’ve already done their homework online and are looking for an expedited sales process. In fact, according to a 2015 Accenture survey, 75 percent of drivers polled would consider the entire car buying process online – a changing sentiment that has not gone unnoticed by a number of new companies that are offering just that.

So how do brick-and-mortar dealerships compete? They do it by utilizing the right technology that combines the online shopping and the in-dealership experience, offering consumers an efficient, transparent and pressure-free shopping

deliver a superior customer experience.

Dealers that fail to invest in consumerfacing technologies risk being trumped by competitors.”

The SSI Survey also found that customers preferred interacting with sales personnel who used a tablet to guide the sales process from start to finish. When it comes to finance and insurance (F&I) products, consumer satisfaction rose significantly when dealerships present these options on a computer or tablet screen, compared to printed materials, verbal quotes and descriptions and handwritten figures.

Conversely, customers had a negative reaction to handwritten price quotes, clearly pointing to a desire for slick, seamless and technology-driven car buying process.

These and other similar findings should serve as a wake-up call to dealerships and force change in their practices and processes. Dealerships must understand customers want and trust technology and that it can enhance efficiencies and above all, technology will ensure their survival.

Current Consumer Sentiment

Integration of Online and Offline Experiences

2015 DrivingSales Consumer Experience Research found that 56 percent of buyers said they would buy cars more often if the experience at the dealership were better.

Additionally, the J.D. Power 2015 U.S. Sales Satisfaction Index (SSI) Survey findings noted that, “Given an increasingly techsavvy consumer, dealerships that integrate technology tools into their sales process

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By integrating technology into the sales process through the use of cloud-based, customizable software dealers can revolutionize their entire sales process and create the experience that will excite customers and keep them coming back.

The right type of technology platform bridges the gap between online shopping

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TODD L. MARCELLE Todd L. Marcelle is the CEO and Founder of GoMoto, a leading provider of cloudbased customer engagement solutions designed to enhance customer experience in automotive showrooms and service waiting areas.

Todd holds a degree from Fordham University and is a GLOBE International Business Scholar. In addition to GoMoto, Todd has founded three previous startups.

and the in-dealership experience, offering consumers efficient, transparent and pressure-free shopping. These platforms can capture customers’ contact information from the start, assign salespeople, track ad sourcing, research vehicles, value trades, browse dealer incentives and connect directly to a dealer’s CRM. As a result, buyers can take immediate action while on the showroom floor, during the test drive or in the service lane, translating to real-time results for dealers.

One company that has taken consumer sentiment to heart and revamped the way they do business is Sonic Automotive, one of the nation’s largest auto dealers. With three locations already up and running in the Denver area and several others planned for this year, Sonic has developed a revolutionary concept that combines technology with the personalized and seamless experience consumers crave.

However, there are plenty of disruptors vying for their place in the market – such as Beepi, Carvana and Vroom. They each have differing business models, but all offer consumers a way to purchase used vehicles without stepping foot inside a dealership. After all, a recent Frost & Sullivan study suggests that about 5 percent of all cars will be sold online by 2020.

Dealerships Must Adapt or Die The fact that a customer can expect to spend approximately four hours or more at a traditional car dealership to complete their purchase is one that gives online companies the fuel they need to lure customers away. Many auto dealerships have recognized the tide shift, but are still figuring out the best way to adapt because they may not be in the position to make significant changes in a short period of time.

While they must make the necessary investments into their infrastructure to redesign and enhance the brick and mor-

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tar stores to meet the 21st century car buyer, these investments need not all happen at once.

Dealers can future-proof their dealerships in a number of ways depending on the size of dealership and the investment dollars available, but they must begin to implement even the smallest of changes over time.

For example, some dealers choose to completely eliminate the F&I office or include desking – a solution that mines, tracks and analyzes the billions of combinations and iteration of lease and finance lender programs available in the marketplace. Others arm salespeople with iPads which allow customers to easily conduct their vehicle search, negotiation and transaction finalization with a salesperson’s guidance. The simple goal is to bring the negotiation process out of the back room or integrate the use of tablets and touch kiosks to transform the showrooms into something enjoyable and seamless.

The Bottom Line

The industry will continue to see new industry disruptors, grapple with various factors such as gas prices, and changing consumer sentiment – the fact remains that many car customers still want to physically touch the cars and take them for a test drive even after they’ve conducted their research online. However, what they no longer want is the tired, old showroom experience which takes up their entire weekend. Instead, they want a seamless, personalized experience from the time they walk into the dealership until they drive off the lot; an experience that will save them time and give them a sense of control in choosing their dream car. The dealerships who figure out how to provide this experience with the use of technology will quickly outpace their competition and ensure their own survival.

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P E O P L E

|

E M P L O Y M E N T

growth. Their goal was to reduce turnover and increase bench strength. They defined a career path in sales, implemented small teams, extended the training program from 1 week to 12 weeks and transitioned to an hourly pay plan with opportunity to bonus based on team productivity. The dealer principals led this transformational change and invested in a small recruitment team to ensure the correct message was being delivered to the market and the right hiring process was being followed.

Once the employment brand was defined, the recruiting team worked with the general managers to define ideal profiles for each store.

Candidates that enjoy the outdoors and had a passion for travel would be sent to the Subaru dealership. Candidates with high attention to detail that prefer a faster pace were sent to Toyota. By continuing to refine the profile, this group was able to give each sales candidate a better chance of success by aligning the candidate’s style to the customer profile and dealership culture.

Five years after the initial launch of this transformational change, the group has improved sales retention, reduced the time it takes to find sales people, and developed a strong culture of promoting from within.

Sixty-four percent of the sales people that started with the company since 2010 are still employed with the group today, many in leadership positions. Since they redefined their employment brand, they have filled all front-end leadership positions internally throughout all dealerships. A significant milestone occurred in December 2015 when one of the first hires in the new model was promoted to general manager.

He went from recent college graduate to

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B R A N D

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continued from page 19

dealership GM in just under six years.

This example shows you don’t have to have the perfect opportunity for everyone, but you do need to understand who your opportunity is perfect for. If you want to be the highest paid dealership in the market, go for it. Just make sure your employees know they will earn more with you and hold your leadership team accountable to that strategy. If you want to be known as the best place for training and growth, then ensure your career path is defined and invest resources into a wellrounded development program. If you are a small family run store that prides itself on life long relationships with customers, treat your employees as if they are part of the family. Provide them with low cost benefits and reward their contributions and tenure with a personal “thank you.”

Human capital strategy isn’t a soft and fluffy HR initiative. Defining your employment brand is a complex exercise that requires focus and commitment. Once created your employment brand can significantly improve recruiting, retention and engagement but only if everyone understands and adheres to the same message.

Start the discussion today.

REFRENCES 1. Spector, M., Bennet, J., & Stoll, J. (2016, January 5). The Wall Street Journtal. Retrieved Feburary 1, 2016, from www.wsj.com: http://www.wsj.com/articles/u-s-car-salespoised-for-their-best-month-ever-1451999939

CANDICE CRANE Candice Crane is a human capital strategist specializing in recruitment, retention and talent management strategies. As a passionate change agent, she is working with progressive dealers to restructure sales process, improve recruitment strategies and reduce turnover within automotive retail. Candice was previously the head of HR for the Walser Automotive Group and is currently the Principal Consultant at Crane Automotive Resources. She completed her undergraduate degree from the University of Wisconsin-Madison and holds a Masters Degree in Organizational Development.

2. First Tuesday Editorial Staff. (2016, Feburary 7). journal. firsttuesday.us. Retrieved from First Tuesday Journal; the california real estate news sources: http://journal. firsttuesday.us/the-rises-and-declines-of-real-estatelicensees/2983/ 3. Crane, C. (2015). Help wanted: How social media and employment branding impact recent college graduates.

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C A P I T A L

An Incredible Year in the Buy-Sell Market Several large transactions, and entry of new players will impact our industry for years to come

BY RYAN J. KERRIGAN, KERRIGAN ADVISORS

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T

wo thousand fifteen marked an epic year in this multi-year boom of auto retail merger and acquisition activity. The year opened with the closing of Berkshire Hathaway’s acquisition of the Van Tuyl organization, the single largest acquisition in auto retail history. And, four additional new entrants made acquisitions, marking the formal arrival of private equity and family offices to auto retail. Overall, transaction activity set new records with 242 dealership buy/ sell transactions in 2015, a 17 percent increase over 2014. These transactions were accompanied by booming real estate prices, attractive financing and continued strong SAAR. But, the story can never be that simple. All of this activity occurred as the stock market trended down, and the public auto retail stocks fell 29 percent from their 2015 recent highs. In

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this annual recap of the buy-sell market, we’ll review each of these dynamics.

Total Acquisition Activity

Transaction activity increased by 17 percent in 2015 according to “The Banks Report,” representing a record year for auto retail buy/ sells. There were 242 dealership buy/sell transactions in 2015, compared to 206 during the same period in 2014. (Note: A transaction is defined as a sale between one buyer and one seller. By way of example, Berkshire Hathaway Automotive’s acquisition of Van Tuyl is considered a single transaction, although it included 78 dealerships and 116 franchises.)

Among the franchises being acquired, import franchises saw their market share increase by nearly 10 percent, while the domestics lost similar market share as compared to 2014. Kerrigan Advisors attributes this shift to an increase in supply of top import sellers, luxury and non-luxury.

Though domestic franchises represent 67 percent of all U.S. franchises, they accounted for only 36 percent of the franchises sold in 2015. This discrepancy is a result of the large number of domestic franchises that are smaller, and located outside of the major metro and suburban markets where buy-sell activity is concentrated.

The public retailers’ acquisition spending has decreased an estimated 43 percent in 2015 (final numbers not released, as this is being written) compared to 2014. Last year, the publics surpassed their annual pre-recession acquisition spending and

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reached their highest U.S. acquisition spenda remarkable new development. Kerrigan ing in auto retail history at $1.45 billion.

Advisors believes these and other new For the year, public acquisitions spending entrants will increasingly shape dealership was almost entirely focused in the U.S., a consolidation and meaningfully impact the notable shift from a few future of auto retail. years prior when nearly 30 percent of acquisition Importance of Private buyers, spending was outside of Real Estate the U.S. That said, the In recent transactions, including new strength of the U.S. dolwe have seen the new, lar may have prompted outsized importance of market entrants, the recently announced real estate in automoacquisition by Group 1 of tive retail transactions. continued to Spire Automotive, a 12 Appraisals are consistentdominate the dealership platform that ly coming in well above will expand their presence expectations, which has buy/sell market in the United Kingdom. the benefit of increasThough the public coming transaction sizes and in 2015. panies increased their allowing for additional acquisition spend, the buyer financing. When private buyers, including real estate appraisals new market entrants, continued to dominate are higher than anticipated, we generally the buy/sell market in 2015. Private buyers increase the rent factor for the dealership, represented 91 percent of franchise transacand reduce the store’s profitability. Because tions, and are generally less constrained than real estate trades for a higher multiple than public companies, many of whom are subject dealerships, this has the net effect of increasto framework agreements which limit their ing total transaction proceeds for the seller. ability to purchase certain franchises or make And, given low interest rates and aggressive large multi-dealership acquisitions. financing options for real estate, buyers are generally willing to accept the higher real Family Offices and Private Equity estate costs in order to get the deal done.

After two years of discussion, 2015 In some cases, buyers are basing their marked the entry of significant outside pricing on a multiple of EBITDAR (earnings capital into the auto retail industry. As before interest, taxes, depreciation, amornoted earlier, the Van Tuyl transaction by tization and rent), offering a single price for Berkshire Hathaway was finalized in the an entire transaction including real estate. first half of the year, and was soon folThis approach recognizes the importance of lowed by the announcement of additional real estate to dealership operations. As comlarge, private acquisitions. For example, mercial real estate prices continue to rise Mark McLarty purchased (backed by and image requirements expand, Kerrigan George Soros’ family office) Joe Machens Advisors believes transaction pricing will be Dealerships, a 14 store platform in Missouri, increasingly affected by real estate values. and Fremont acquired Morrie’s Automotive Group in Minnesota. New dealership buyers Publics’ Capital Acquisitions are comprised of family offices, private equity Driven by Stock Price firms and public conglomerates acquired The publics’ stock prices plummeted an 30 percent of the franchises sold in 2015, incredible 29 percent since 2015 (see chart

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private market, as the growth rate of dealership earnings declines, valuation multiples will begin to come down. Kerrigan Advisors has noted that both buyers and sellers are becoming increasingly aware of the interplay of earnings growth and valuation multiples, prompting more sellers to come to market and more buyers to sharpen their pencils.

In this light, the valuation metrics of the public companies are an important indicator for future private dealership valuation

RYAN KERRIGAN

below). This decline has resulted in a significant decline in their valuation metrics.

Generally, the publics only make acquisitions which are accretive to earnings. In order for an acquisition to be accretive to earnings, the buyer’s P/E multiple (stock price/earnings per share) must be higher than the seller’s P/E multiple (asking price of a transaction including blue sky, fixed assets and working capital divided by the dealership’s earnings).

The collective P/E multiple for all of the publics reached a peak in 2014. Given this, it is not surprising that public acquisition activity recently reached historic levels – public companies’ strong valuations increased their ability to pay up and still do transactions very accretive to earnings. However, at the end of 2015, the publics’ P/E multiple is expected to decline, reflecting the industry’s slowing growth rate. Similarly, in the

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trends. The six public dealership groups are marked to market every business day by thousands of investors who buy and sell their stock. The efficiency of the public stock exchanges, relative to the private dealership buy/sell market, informs franchise valuation trends and should be closely watched.

In summary, 2015 was a momentous year in the buy-sell market for auto retail. Large transactions, a large number of transactions, and the entry of significant new players will impact our industry for years to come. We believe that the buy-sell market will remain strong in 2016, and – in particular – foresee the announcement of multiple large transactions that have been in process for many months, if not quarters. But, we anticipate the public companies will be less active acquirers in 2016, and may portend slowing buy-sell activity in the years ahead.

Ryan Kerrigan is Managing Director of Kerrigan Advisors, where he oversees international transactions and private equity/family office outreach in addition to US auto retail buy-sell transaction work. His business experience includes transaction work, executive leadership, private equity investing and management consulting. Ryan has an MBA from Stanford University’s Graduate School of Business, an MSFS degree from Georgetown University’s School of Foreign Service and BBA in Finance from the University of Notre Dame.

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C A P I T A L

Technology Leadership ‘Need to haves’ versus ‘nice to haves’ technology

BY DAVID KAIN

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ome dealerships are just naturally on the cutting edge with technology while others are always the ones getting cut. You likely already know which group you are in. Nowadays, the technology edge seems to change weekly, which makes even the most tech-savvy among us a bit uncomfortable. I’ll use this article to express my opinion on the technologies that you must become skilled with in order to survive and alert you to those you will want to learn in order for your dealership to thrive.

For the purposes of this article, I am going to talk about technology in a broad sense, which will include both software and hardware. For the most part, software and hardware go hand in glove as it’s difficult to operate one without the other.

Technology companies are always trying to outdo one another while asking their clients to adjust to the latest and greatest and also compensate them for the cost of research and development.

Seldom do I actually hear dealers requesting software or hardware updates as they are usually just trying to figure out how to use their current ones to boost sales and profits. Rarely do I witness a technology in use today that blows my mind or truly enhances the dealership employee or customer experience. I usually just see technologies introduced that complicate the processes for buyers and sellers with very, very few exceptions.

I remember years ago one glorious exception. While negotiating with the

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CEO of an upstart dealership website company to secure our client the best possible deal, he told the dealer principal and I that as they make updates that every client will benefit from the updates and there would be no extra cost. This was a magic promise as updates at that time were happening on a monthly basis.

It was circa 2004 and I encouraged my client to sign up and enjoy the ride. They did and the company, Dealer.com, followed through as the CEO promised.

Mark Bonfigli, the CEO and co-founder of Dealer.com, was a pioneer with this “buy it one time and get all the updates” strategy. I thought it was brilliant at the time and I believe it was a key reason for their rapid growth and remarkable client loyalty. Dealers appreciated the fact that they would benefit from every upgrade as a loyal client. The proof was in their valuation when they were eventually sold and made the founders very well-to-do. Given their focus on doing business for the benefit of their clients, I think the payoff was well deserved.

You would be hard pressed to find that kind of deal available today as we are finding the prevailing model is to provide a low cost entry model and then charge $299 for each up and add-on.

This is equivalent to the Apple app store where you can purchase in-app upgrades after being lured in with a free app. In Kentucky, where I am from, the cheapest part of owning a horse is the horse. It’s the feed, the housing, the vet, the trailer, the tack, etc. that is expensive.

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If your OEM is more concerned with selling vehicles than website branding, then I would recommend you maintain the OEM site as well as your own independent site in most cases.

I remember a marketing executive with a leading automotive technology company telling me that dealer’s won’t blink an eye at a product as long as it is $299 or below. As such, all their ups and add-ons were in that range even though the total cost to dealers when all was totaled was above market cost for one price includes all options. I would recommend you pull out your invoices and scrutinize whether you really are receiving any value for items in that cost category. Due to inflation, you may want to look at $499 and below.

Beyond the dollar expenditure of technology, I would like you to consider one other real cost you have to contend with when considering the vendor race for new technologies. There is the very real cost of learning for your team members and the lost productivity cost when it takes them out of their comfort zone – aka: their productive zone. There is always a learning curve when a button is added, moved or perhaps removed from software. There is also a potential cost in productivity when a monitor becomes smaller or the bandwidth to surf online becomes overburdened and the Internet response capacity is hindered.

Dealership employees have to constantly adapt to these “new and cool” technological updates that may have negligible or no positive impact.

So … what are the “need to haves” compared to the “nice to haves?” Let’s break this down by category:

Need to Haves Dealership/OEM Collaborative Websites A website is essential to your success, but do you really need your required OEM website and an independently developed website? The truth is, it depends on the brand you represent and how rigorous their requirements are for brand compliance. If your OEM has difficult standards to meet and they employ outside vendors

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to act as the brand police and fine you for violations, then it’s likely best to just walk the straight and narrow and go with one brand compliant site. On a side note, how can an OEM be a dealer’s partner and then fine them for noncompliance when all it would take is a friendly call to address the issue? For the record, dealers that work with these brands need an effective Dealer Council to address these brutal tactics.

If your OEM is more concerned with selling vehicles than website branding, then I would recommend you maintain the OEM site as well as your own independent site in most cases. This strategy may appear more expensive, but it is often a win-win for the OEM and the dealer as more opportunities are generated which turn into car deals. I would also recommend that the OEM’s provide strategic marketing co-op to support the development and traffic generation to the independent dealer sites instead of just promoting the OEM site with these funds. Oftentimes, the most progressive dealers in the market are utilizing the two-site strategy and the OEM that holds out funding to support SEM generated traffic is only hurting them and themselves. Progressive OEM’s realize this and don’t inhibit or prohibit this strategy, rather, they support it and benefit.

Effective CRM Although CRM’s are commonplace in the market, what is not common is the full utilization throughout the dealership. It is typical to find several salespeople and the Internet/BDC team members using the CRM, but oftentimes floor salespeople do not use the tools to their full effect.

The reason I recommend an effective CRM is because a CRM that the full sales team, including managers and less techy salespeople, don’t use is not in my opinion an effective CRM. I often refer to the need for a “1 button CRM” (an exaggeration) whereby every employee can instinctively navigate

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and not only enter data, but track their ongoing process and sales results without having to have a degree in “Reportology” (this is a made up degree). A CRM should be the most simple tool in the dealership, and yet, even so called industry experts (like me ) often have trouble navigating even the most popular CRM’s.

The crazy part about this is we often hear managers say, “If it’s not in the CRM, it didn’t happen.” Heck, I’ve said it myself.

However, when I am honest with myself, I have to admit today’s CRM are designed like a junk drawer and have no flow or logic. They are essentially a technology design by committee. That committee is usually someone who has not had to use them on a daily basis. As a result, most sales/internet/BDC managers produce their own reports on a spreadsheet even after spending upward of $3,500 for a full suite CRM. Absolutely ridiculous!

Fortunately, leading CRM providers are coming to their senses and developing a more simple and user-friendly interface in future designs. This can’t happen soon enough. This wasn’t such an issue when 20 percent of car buyers used the Internet to shop for vehicles, but with upward of 90 percent going online to research and start the buying process, we need CRM’s that every person can become an expert in minutes. Think Apple when considering what I am getting at. Any 3-year-old can pick up an iPad and within minutes be navigating, while even CRM support agents often don’t know how to design work flows in their own CRM’s. As Thoreau said “Simplify, simplify” and then his friend said …”One simplify, would have sufficed.”

Tablet Equipped Sales Teams To call this a “need to have” will really frustrate a lot of old school dealership employees, but I really think it is way past time for this to be the “pen” equivalent for progressive dealers and salespeople.

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If I were shopping dealerships today for a career move, I would want to see sales managers using/requiring the use of tablets in the selling process. These are trust-building devices and they are simultaneously confidence boosters for salespeople and customers alike.

I enjoy listening to and reading the thoughts of Generational Expert Jason Dorsey, who is well-known for his book “Y-Size Your Business.” Jason talks about how Gen Y shoppers love to engage with salespeople with a tablet and it is more of a shared decision device instead of a one-sided approach conveyed with a desktop. The impact on trust when you are co-navigating with a buyer and even handing them your tablet during the process is amazing. This nuanced approach breaks down barriers and encourages team-based selling/buying.

There is compelling evidence that convinced me shoppers involved in buying with salespeople using tablets will buy sooner and will actually pay a higher price because they were part of the process. In my 20 years in automotive retail, I found sitting on the same side of the desk with shoppers worked wonders and this is just today’s equivalent. The software systems offered by companies many manufacturers that empower salespeople seals the deal for me. Especially when you see complete novice salespeople feel like experts within days. This translates to earlier success and more likely longevity in their job.

It also is an effective recruiting tool when you are able to show how progressive your dealership is compared to less techsavvy competitors.

In summary, I would just like to encourage you to choose your vendors wisely, motivate your OEM’s to support your progress and provide the best possible tools for your sales team to succeed. One tool you may want to consider looking at before making a purchasing decision is the DrivingSales Vendor Ratings.

DAVID KAIN David is President of Kain Automotive Inc. a training/ consulting company that specializes in Automotive Internet Sales, Business Development Centers, Digital Marketing and Social Media. He has a unique background that includes Automotive Retail and OEM Executive Leadership.

During his 20 years in retail he served in various positions including General Manager at Jack Kain Ford, where he remains a Dealer Partner today. His OEM experience includes being a co-founder and previous COO of FordDirect.com.

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B R A N D

One Price Selling –

What Are You Waiting For?

Four reasons why being a ‘One Price Store’ is advantageous

BY MARK RIKESS

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ost Dealers are closer to a One Price Selling sales process than they may realize. If you’re an excellent pre-owned dealer you’re basically not negotiating. You must price your cars to market to get leads. On the new car side, the customer is setting the prices. With new tools that allow prospects to literally buy the car from home, negotiating power is shifting to the consumer.

The number one reason to go to One Price is the vast majority of customers want to conduct business in a transparent man-

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ner. Women register over 50 percent of vehicles and they dislike negotiations. Gen Y now makes up almost 30 percent of the market and they also dislike negotiations.

Add in others who don’t like to negotiate and you have at least 80 percent of the market who will pay a slight premium for a fast, simple and transparent purchase experience in which they feel they are being treated fairly. Why employ a sales process that appeals to only 20 percent of the market?

The second reason to adopt a One Price process is it increases your ability to attract a younger, gender diverse sales

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force. How many of you did a great job ing and location won’t help dealers that of attracting salespeople in their early have less than a 4-star rating. One Price to mid-20s 10 years ago? If you did, you Dealers get significantly better (and often would have the majority of your sales glowing) 4+ star reviews. staff in their mid-30s with a 10 year book Is transitioning to One Price easy? No, it’s of business and a management team that not. Is it worth it? Absolutely. looks more like your customers.

To be successful, the store’s leader Look around your showroom floor. Does must have a very strong commitment to the majority of your staff look like your changing the culture to one that is cencustomer base? The market is rapidly gettered around transparency – what most ting younger while most stores sales staff customers want. Change is hard. This is are going in the opposite direction. You’ll not for the weak or lazy. never attract and retain a A number of sales youthful sales force with managers don’t have the traditional, “desking” the right belief sysWith new tools sales model that leaves tem and skill sets. We that allow sales people unempowunderstand. They have ered and required to been doing things one prospects to haggle over every sale. way for years. And The third reason to go again, change is hard. literally buy the to One Price is to elimiWe get that. Still, I’m nate wasted time in the amazed when a sales car from home, sales process. When a manager tells me he dealership is busy it takes believes “customers negotiating power at least three hours to like to negotiate!” buy a car plus delivery Because customers are is shifting to time. About half of that compelled to negotiate the consumer. time the prospect is not due to an archaic sales engaged in the sales proprocess doesn’t mean cess. They are waiting they like it. while salespeople line up to talk to a manSales managers will need to move from ager – and then comes the T.O., which backs “deal managers” to developing, training the process up even further. Negotiating F&I and coaching their sales staff so they can also slows down the process. be empowered to conduct the transacThe traditional sales process needs an tion without help of sales management on abundance of managers to handle negotiavirtually every deal. This empowerment tions. The average store has one manager results in less overall managers in the (including F&I, BDC and Sales) for 2.5 sales Variable Department. people. If you have 20 salespeople, you will It’s Inevitable. You can’t defeat the have at least eight managers. Bottom line: Internet. It’s here to stay. Today’s highly In an era of margin compression this is no informed consumer has already done their longer a financially sustainable sales model. homework to determine what they should And finally number four: Shoppers look pay for the commodity you sell. for a dealer based on social media. Yes, Those dealers that become One Price they go right to Yelp and see which dealStores have a competitive advantage over ers in their area have the highest ratings. those who are trying to improve the tradiLike it or not, this is true. Inventory, prictional process for a shrinking owner base.

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MARK RIKESS President, The Rikess Group Mark Rikess’ career as a successful entrepreneur, auto dealer, consultant, and auto industry thoughtleader has been the result of his lifelong passion for innovative thinking.

As a second-generation dealer, Mark began with an early focus on dealership performance improvement, supported by welldocumented implementation principles. The Rikess Group was founded in 1989 and Mark has been widely quoted in Automotive News, USA Today, The Wall Street Journal, Business Week, and The New York Times. Mark Rikess is a graduate of Arizona State University with a degree in Business Administration and is a resident of Hollywood, CA.

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P E O P L E

Innovation:

Go Fast or Go Home

How removing friction can improve the customer experience

BY PROFESSOR JAY RAO

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onsumers’ increasing impatience and need for instant gratification has made “speed” a key strategic weapon for firms to innovate around, differentiate, and gain a competitive advantage.

Firms like Uber, Airbnb, Luxe, Hotel Tonight, Instacart, Zeel, Postmates, Netflix and others are driving us toward an ondemand, open-access, swift and easy, sharing economy. Several firms that are selling traditional goods and services do not believe they will be affected by these trends. But surely, customers’ brains are slowly getting rewired by these new-age trendsetters.

Society will expect and demand the same sense of urgency, transparency, “do-it-now” experience from every business in every industry. If they don’t get it at your business, they will go elsewhere.1 FastCompany magazine last year celebrated its 20th birthday. In the anniversary editorial, Robert Safian was looking toward the next 20 years and listing the probable key drivers of innovation and change.2 First on the list was “speed will triumph!” In the same edition, David Lidsky reminded us of how speed had prevailed in the past.

Microsoft’s Internet Explorer killed pioneer Netscape, not because of the often-attributed Microsoft’s anti-competitive practices.

The Explorer was a much faster browser; period. Several years later, Facebook beat Myspace because it loaded pictures faster and easier on to the website. iPod beat dozens of mp3 players because its FireWire

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cable was able to transfer hundreds of music files from the PC much faster than any other player in the market. In the year 2010, there were scores of photo sharing services.

Instagram won because it uploaded and sent pictures faster than the others. Intel has been fervently making faster and faster microprocessors for the last 45 years.

Today, Uber is obsessed about getting a car as quickly as possible to the rider.

Spotify will perhaps beat Apple Music because it loads the stations faster. Apple’s A9 chip for iPhone 6S and iPad Pro is faster than any other chip on the market. Google and Amazon’s innovations are solely driven around beating the clock. Amazon’s 1-Click is the model for Uber, Instacart, GrubHub, and Starbucks.3 Even Apple licenses the 1-Click from Amazon. In 2014, 50 percent of a survey’s respondents told Akamai, a Web performance firm, that if websites are too slow to load they will leave before finishing their task. And 22 percent would never come back.4 High frequency trading is wreaking havoc on Wall Street. A single investor can execute more than 1,000 trades a second and firms are investing millions to shave off a millionth of a second.

It is very easy to dismiss all this speed mania. I often hear executives give me the same list of excuses: (1) It is a Silicon Valley thing; (2) Our industry is different; (3) We are in a high-touch business; (4) The stakes are too high, we can’t be in a hurry; (5) Our customers aren’t asking for it and won’t pay for it; (6) Our competitors are not doing it any faster; (7) Our suppliers are holding us

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Customers will see through gimmicks quickly and easily.

It only infuriates them even more. back; (8) It is too expensive to be faster, etc., etc. Most managers and leaders always have 101 reasons for in-action and for preserving the status quo.

Let us look at two firms that would not be immediately associated with speed.

Domino’s & Disney: Fast and Frictionless

Domino’s has been passionate about speed for more than 30 years. In 1979 they started giving customers a service guarantee for pizza delivery – “30-minutes or its free.”

It was dropped in 1993 after a couple of unfortunate accidents. Today, their digital strategy is again built around speed. They have reduced the pizza ordering process to less than 30-seconds; from 15 clicks to 5 clicks.5 Franchisees will soon be able to deliver up to 80 pizzas by driving the Domino’s DXP car that is fitted with an oven.

Apparently they are also testing pizza deliveries via drones. Also, Domino’s hosts “The World’s Fastest Pizza Maker” competition.

The winner gets $3,000.

Last year, Disney introduced the MagicBand – a stylish rubber wristband – for those visiting the Magic Kingdom. The MagicBand replaces virtually every transaction, removes all paperwork and reduces all waiting times once you touch down in Orlando. With the MagicBand, one can skip the luggage pickup at the airport carousel, board the park-bound shuttle at the airport, go directly to your room without checking-in at the hotel, enter the park, swipe to get on rides without waiting and pay for purchases.

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In short, the MagicBand makes the entire customer experience “fast and frictionless.6” Is your dealership fast and frictionless? Can car dealerships use speed as a strategic innovation weapon? How do you make speed a corner-stone of your strategy? How can you get your employees to embrace speed? How can you generate great innovative ideas around speed? How do you implement these ideas? What is the leader’s role in setting strategy and innovating around speed?

Two stories will probably provide some answers to many of these questions.

Southwest Airlines and Cleveland Clinic

In 1972, lack of funds was pushing fledgling Southwest Airlines toward bankruptcy. To survive, Southwest sold one of its four planes. Instead of cutting service, leaders figured out that three planes could do the work of four if they could get in-n-out of the gates in 10 minutes. That meant, unloading the passengers and bags, cleaning the plane, fueling the plane, and loading the new passengers and bags, all within 10 minutes. Magically, employees figured out quickly how to work together. Operations agents started multitasking – loading/unloading baggage, emptying garbage.

Flight attendants, pilots, fuelers and baggage handlers all chipped in by going beyond their normal duties. Employees felt that they were fighting for their jobs. While Southwest did not always make the 10-minute turn-around, it did save the company. While security procedures and more handbaggage has slowed this process today, at an average of 25 minutes, Southwest still has the fastest gate-turn in the industry.7 Even to this day, Southwest carries the maximum number of passengers per plane (i.e. the highest asset utilization in the industry).

More recently, the executives of the world famous Cleveland Clinic, employed a very similar tactic.8 With more than 5 million clinical visits, 150,000+ hospital admissions, 43,000 employees and 3,000+ physicians and scientists, Cleveland Clinic is regarded as one of the best hospitals in the world for medical excellence and keeping costs down.

But in a 2008 U.S. government survey, the clinic ranked only in the 55th percentile for overall patient satisfaction among nearly 4,600 hospitals surveyed. The executives at the clinic then embarked on many initiatives to dramatically improve patient experience and satisfaction. One such initiative was to attack a common complaint among potential patients who had opted to go elsewhere, citing that the hospital was too big, too difficult to access and get an appointment

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unless connected to someone within. So, the CEO, Toby Cosgrove, mandated that all patients have the option of getting an appointment the same day they call. A single phone number was created and a centralized scheduling was instituted across the enterprise. An advertisement promoting the new service level sent a clear message to potential patients and employees alike. The “Be Seen Today” campaign was an overnight success when divisions, functions and employees all adjusted accordingly and stepped up to accommodate 20 percent more new patients. Within a few years, same-day appointments accounted for more than a million patient visits yearly.

Change Management: Fix the Outcome & Free the Process

In the Southwest Airlines and Cleveland Clinic examples, the leaders and executives identified and articulated the problem with great clarity. They made speed the primary purpose. In both these situations, the leaders did not have all the answers ex-ante to achieve the purpose or solutions to reach the goals. In fact, in most change management situations, the variety of underlying reasons for the lack of speed are mostly hidden and unknown to the leaders.

While the outcome (need for speed) was known, the underlying causes for the lack of speed, the solutions to address the underlying causes and the process to implement the solutions were all unknown. All the unknowns were uncovered and solved only through the knowledge and the creativity of the employees. I call this the “Fix the Outcome & Free the Process” method of change.

So, the starting point for leaders is to articulate an outcome, such as halving the speed; a goal that is meaningful to the customers. Then, let the process go free. The employees will usually know all the fine and nuanced reasons that slow things down. They will identify the root causes of problems. They will find the best methods and solutions to get to the chosen outcome.

Within each of your dealerships, your employees will help you find ways to: • To cut the time needed to assign a sales person • Cut back on pointless questions your new customers have to answer • Get customers to start a test-drive faster • Cut or delete many useless forms to be filled • Cut the number of dramatic interactions between the sales person and the manager • Cut or delete annoying customer and manager interactions

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JAY RAO Professor of Tech., Operations & Info. Management at Babson College Dr. Rao teaches extensively in the Babson Executive Education programs. His executive teaching and consulting is in the areas of innovation, implementation of innovation initiatives within firms, corporate entrepreneurship and customer experience innovation. His research has appeared in The Sloan Management Review, The European Financial Review, IESE Insight, Journal of Innovative Management, and many others. He has written several business cases that range in topics from Innovation, Innovation Strategy, Customer Experience, Customer Service, Operations Strategy, Strategic Alignment, Supply Chain Management, and Quality Management.

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• Delete the wait for managers to come say “goodbyes” and thank customers for their visit • Delete stalling techniques, even if customers have clearly stated they will not buy today • Have more customer interactions before they come into the dealership Similarly, you can leverage your employees’ knowledge and creativity to speed everything up in the service and body-shop sides of the dealership as well.

In addition to improved customer satisfaction and higher NPS scores, there are a few very gratifying benefits to this “Fix the Outcome & Free the Process,” method of instituting change within the enterprise: (1) Collaboration – challenging problems brings people together; (2) Creativity – tapping into the natural creativity that resides inside each one of your employees; (3) Engagement – cutting bureaucracy improves employee initiative and morale; and most importantly (4) Innovative Culture – the more leaders adopt this process, the more it gets embedded into the values, behaviors and climate of the enterprise.

Some Caution

There are a few caveats the leaders need to recognize before going into this change journey.

Customers do not always explicitly express the need for speed. They only know it when they experience the lack of it. They experience friction. They get overwhelmed and anxious. They may never express those either. Even to this day, the car buying process is still laden with a lot of friction and anxiety that diminishes the overall customer experience considerably.

Great customer experience is an outcome of the leaders’ maniacal obsession – intense and relentless focus on the customer. A business or dealership cannot get fanatical about the customer unless one has extreme

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empathy and urgency toward the customer’s pain and experience. The biggest challenge lies in orienting enterprise-wide this empathy and urgency. As the leader, if you are not obsessed with the customer experience and the need for speed, then please don’t start the journey of change.

Customers will see through gimmicks quickly and easily. It only infuriates them even more. In addition, you will lose your employees’ trust as well.

Finally, it is not easy to dream, design and deliver great experiences for customers who are being programmed for heightened expectations. This is especially difficult for businesses in industries that have traditionally never been customer focused or speed driven. Don’t keep customers waiting. The big does not eat the small. The fast will kill the slow. The good news is that, as the leader, you do not have to have all the creative ideas and solutions for greater speed. “Fix the Outcome & Free the Process” change management will help your dealership to innovate and thrive.

Good Luck and Godspeed!

REFERENCES 1 “How Uber is rewiring your customer’s brain and what you can do about it,” by Peter Sena, Venture Beat, Oct. 4, 2015 http://venturebeat.com/2015/10/04/how-uberis-rewiring-your-customers-brain-and-what-you-can-doabout-it/ 2 FastCompany, http://www.fastcompany.com/3052872/ twenty-predictions-for-the-next-20-years 3 ibid 4 “How Uber is rewiring your customer’s brain and what you can do about it,” by Peter Sena, Venture Beat, Oct. 4, 2015 http://venturebeat.com/2015/10/04/how-uberis-rewiring-your-customers-brain-and-what-you-can-doabout-it/ 5 How Domino’s Became a Tech Company, by Jeff Bear, http://www.fastcocreate.com/3030869/behind-thebrand/how-dominos-became-a-tech-company ; accessed on Jan. 3, 2016 6 Disney’s $1 billion bet on a magical wristbank, by Cliff Kuang, March 10, 2015, Wired Magazine 7 10 minutes that changed Southwest Airlines’ future, by Jennifer Schlesinger, July 15, 2011, CNBC http://www. cnbc.com/id/43768488 8 Health Care’s Service Fanatics, by James Merlino and Ananth Raman, HBR, May 2013

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B R A N D

Get Ready for the

Modern Dealership Digital signage and virtual realty: poised to improve your dealership

BY CLIFF BANKS

O

ver the next couple of years, numerous virtual and digital technology solutions will change the look and feel of the typical dealership.

Most dealerships today are configured to yesterday’s processes and experiences. The

environment hasn’t kept up with the digital age. While most dealerships have effective websites and Internet processes, their store images don’t reflect the new realities of today’s society – touch screen mobile devices; interactive and personalized digital signage and virtual reality (VR) applications.

Digital Signage

But that should change this year, believes Jerry Daniels, a former executive with Asbury Automotive. Digital signage adoption is going to explode within the next couple of years as more dealership groups begin to implement interactive digital screens into the customer experience inside the showroom.

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Large scale adoption has taken awhile.

In 2007, Daniels founded the Automotive Broadcasting Network, which provides digital signage solutions to dealerships. The company now has several hundred clients.

But that should increase significantly over the next couple of years.

The company is in discussions with numerous manufacturers regarding various solutions. It is partnering with General Motors to provide the digital signage, including digital menu boards, directional signage and video walls, as part of the OEM’s Revolutionize the Service Lane Experience initiative.

ABN also is working with various dealership architects to include video walls, signage, and large screen monitors for TV and advertising, as part of the initial dealership design.

The benefits to dealerships include creating a modern look and feel in the dealership and can provide an environment that appears more professional and trust worthy. Having a modern showroom with advanced digital solutions can go a long way eliminating the typical stereotype customers have of dealerships.

ABN also provides video walls ranging from three to nine screens that show content such as marketing messages for the brand and the dealership.

Audi already has incorporated video walls that extend from the floor to the ceiling at dealerships in Europe. Audi customers are able to configure vehicles using a mobile device or kiosk and view the configuration on the video wall. The video walls are three-dimensional.

These are coming to Audi dealerships in the U.S. over the next several months.

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CLIFF BANKS Cliff Banks is an industry veteran of 24 years. A long time editor and analyst, he is the founder and president of The Banks Report, an online service that analyzes news and trends in the automotive retail sector. He is a regular contributor to the DealerExec.

ABN played around with 3-D video walls a few years ago, but the technology just wasn’t up to speed yet, says Daniels.

At the most basic level, large flat screen monitors today are showing content developed specifically for the dealership providing information about the dealership. Applications are available today that allow dealerships to change content instantaneously based on whatever deals are in play or which inventory they need to move the fastest.

And in the service department, if it’s raining, dealerships can show specials for windshield wipers or snow tires, if it’s snowing. A dealer’s imagination is the limit of what can be shown.

Content also can help create a certain environment or mood within the store.

Large monitors or video walls can show images designed by the dealership to match characteristics of the local market.

Meanwhile, beacon technology will help dealers personalize the in-showroom shopping experience for customers.

Virtual Reality

While stores will be busy modernizing their showrooms, other stores will be leapfrogging them by incorporating virtual reality (VR) technology into the showroom.

At a recent dealer meeting in California, Cadillac President Johan de Nysschen presented his retail plan to elevate the brand’s premium positioning with potential customers.

The plan calls for approximately 400 of Cadillac’s smaller stores to adopt showrooms that rely on virtual reality (VR) technology.

The showrooms would have limited – if any – inventory. Instead, they would rely on touch screen kiosks and virtual test drive technology, including headsets and VR systems that sales people could take to a customer’s office or home.

Obviously, dealers will need to buy into the strategy, and there are several questions that need to be answered regarding implementation and what the long-term effect will be on retail networks.

But what de Nysschen is proposing is part

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of what’s becoming a trend in the automotive retail space – adoption of virtual technology into the retail network.

Audi has been piloting VR technology in some of their stores, but that has been in international markets such as Beijing and London. But applications are expected to be in U.S. dealerships this year.

At the Consumer Electronics Show in January, Audi introduced a virtual showroom that allows customers to explore Audi’s complete portfolio of vehicles using VR goggles. Customers will be able to configure Audi vehicles while virtually driving them in numerous environments. The solution is based on technology coming from Nvidia Quadro, Oculus and HTC. In late 2014, Lexus introduced a VR driving simulator at several auto shows.

Meanwhile, Mercedes-Benz and BMW have also experimented with virtual technology in their European networks.

At the recent Mobile World Congress, Accenture Digital revealed a VR initiative it is developing with Fiat Chrysler Automobiles.

The first of the applications should be available this summer.

Customers will be able to put on a headset in the showroom and engage in a 360 degree walk around of the vehicle, including being able to view the interior.

Adoption in dealerships could explode in the next three to five years as VR applications become integrated into society. The technology has reached a point now where prices will start to come down in the near future.

For manufacturers, having virtual showrooms could expand their reach without having to extend their retail networks.

For dealerships, having some form of virtual technology in the showroom should enhance the customer experience.

Incorporating a modern look into the dealership while adding “wow” applications such as VR technology also should go a long way helping dealers create a more trustworthy image.

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