Grandpa, what happened to Daddy's dealership?

“Well Jenny, it was sad to watch because your Daddy’s a wonderful hardworking man. But, for too many years, too many misinformed and greedy people had him spending time and money on make believe problems. Those make believe problems made a bunch of your Daddy’s vendors - these misinformed, greedy people - bigger and richer, and at the same time, created changes in your Daddy’s dealership that caused all of your Daddy’s employees to ultimately have to leave his dealership and take jobs in other industries…”

 “But, how did that happen Grandpa? I remember just two years ago Daddy telling us that his business was growing, and changing to adapt to the ‘future.’ He also told me something about ‘franchise laws’ that would always protect his dealership. What happened?”

That’s a conversation that can’t and won’t happen in our industry, right? I mean, so many people for decades have predicted the dooms-day end of the franchised auto dealership. Thus far, they’ve all been wrong. I for one am not one of those dooms-day, end of the franchise dealership model prognosticators. Nope. I think franchised dealers will be here for many more years to come. Not forever mind you, but for many more years. What I do believe is that dealerships will look and operate vastly different than they do today if we don’t recognize what’s happening to them, and act quickly to help them change course. Help get them back on course to their true north. I believe that consumers and the market in general will appreciate the evolution — or should I say revolution — that’s happening in automotive retail. I believe the Dealer Principals will too. But, the people that work for them, particularly those on the variable operations side… yeah, not so much. It’s they – the sales people, sales managers, General Sales Managers at dealerships that will dislike this impending revolution most. They will be the victims of this oncoming revolution. Joining them will be the thousands of parasite vendor employees – account managers, sales managers, marketing representatives, and client success advocates, just to name a few. It’s not going to be pretty for many Sales Manager, Desk Managers, and Internet Directors, and their ilk, considering for example that few jobs outside of the dealership allow a sales manager to earn annual incomes of $200K+ with the modest skill-sets of being a “closer” with an uncanny ability of split second objection handling to “hold gross,” or getting a “deal bought” by a bank. Similarly, selling a dealership a 15,000 piece direct mail campaign at $1 a piece, or an SEM campaign with a $1K per month management fee, are skill-sets (to be generous with the term “skill”) that won’t transfer as easily in say, the medical field, technology, or residential retail markets. 

The looming threat is already here. And that threat isn’t a “disruption.” It’s a distraction.

It is a distraction from what matters most. It’s distraction of the novel from the necessary. What matters most today is a dealers’ direct “hands on” involvement in building comfortable, joyful, trusting places where her market “wants to be” to fulfill its transportation demands, desires, and dreams. Building far more than the lip service of just a friction-less experience, but actually “escape-full,” “trust-full,” even “joy-full” places and experiences that buyers and owners alike look forward to visiting, staying a while, and subsequently raving about.

More on what’s causing this distraction later, but first, let’s take a look at what could be were it not for the distractions. I argue further, not what could be, but what should be. Here’s a question that I firmly believe Apple execs who are responsible for the success of their store-fronts, and Starbucks execs who are responsible for theirs as well should be asking every single day: How do we make our customers love their experiences in our outlets, as much as automotive buyers love their experiences in their local dealerships? Can you wrap your head around that? For those of us that toss around the idea of “disruption proofing” our dealerships; “customers love being in their local dealerships” is the only way a dealership will survive any disruption, let alone the existential threat that exists today… distraction.

Jeff Bezos, Larry Page, Elon Musk, Scott Painter, any number of financially capable magnates (or a few of them combined) that want to leverage their know-how and their existing infrastructures to capitalize on the opportunity to revolutionize the retail auto industry would need just four key things that I call the “New Four Horsemen of Change”: 1) massive capital, 2) trusted infrastructure, 3) proficient logisticians, and 4) a distracted dealer body. Guess how many of those things they already have? The market? Consumers over the years have proven that they’re fickle. “Dealership loyalists” isn’t a label you’d give to anyone in the market for a new car that isn’t a relative, close friend, or dealership employee today is it? Franchise laws? Ha! Those aren’t barriers to entry, they’re welcoming bridges to the extremely politically-connected Four Horsemen. Smart, wealthy billionaires would recognize that they’d not need to waste their time nor money lobbying against existing franchise laws. What the smart money would do, would be to leverage those existing franchise laws – in their favor. They’d recognize the market – whether it’s those that own or lease their vehicles, or those that use vehicles for ride sharing, or autonomous vehicles themselves would need physical, convenient places for those vehicles to be purchased, rented, and maintained. Better then, to leave these existing facilities in place… even leave the dealers’ name on the buildings. Smart money knows that names on buildings aren’t “revenue drivers” but the monies derived from serving a market through those buildings (dealerships) are in fact strong drivers of “recurring revenue” and lots of it. Consider that the existing franchise model in auto retail works in large part, not because the manufacturers’ name is on the building, but because the transactional revenue in those buildings funnels its way back up to the manufacturer in the billions of dollars annually.

The original Four Horsemen of the Apocalypse; death, famine, war, and conquest, certainly could bring forth the end of auto retail as we know it, but again, I’m not an advocate or a believer in that scenario. I see the New Four Horseman of Change posing a risk more subtle, even benign as we’ll see when we review the “distractions” that dealer principals and general managers face today.

Taking an honest inventory of the New Four Horsemen of Change that I identified above, how many of them do you think some of todays’ magnates (Bezos, Page, Musk, or Painter) lack? The way I see it few if any lack the first three - Capital, Infrastructure, and Logistics. They just need the fourth – distraction – to arrive. No, to actually continue. The 5 industry giants I mentioned above have nearly unlimited capital, proven and trusted technology infrastructures, quite literally the worlds best logisticians, and an increasingly distracted automotive dealer body. Again, the looming threat is already here. In fact, many dealer principals and general managers are unwittingly cutting down the trees and clearing the way for the Four Horsemen of Change to pave their new way. Unwittingly? Hmm, maybe they’re in fact being manipulated by one or two of the magnates already.

Grandpa, so what exactly happened to Daddy’s dealership?

“Digital Retailing”

This one is the lesser of the two distractions that I’ll opine about. Yet, for any enterprising magnate(s) looking to capitalize on a major opportunity in automotive retail, this one surely drives the grandest grins and nods of approbation.

Here’s an undeniable fact: for decades Consumer Satisfaction Index (CSI) reports screamed of customers screaming about their frustration with the buying process inside of a dealership. For decades those screams were identified in paper reports, in big 3-ring binders, that subsequently with the advent of the internet, evolved into PDF reports in a General Managers’ email inbox, and then they found their way through the Yelp and Google reviews of frustrated buyers. But while the medium changed, the lament, the FRUSTRATED SCREAM, hasn’t changed: consumers do not like nor trust the buying experience in the dealership.

But keep in mind that it wasn’t the actual dealership, it wasn’t the facilities that they rated a 3 star or less. Thanks to OEM’s that lead the charge in new dealership and facilities design, the vast majority of dealerships today are now more beautiful and more comfortable than the average Hilton Hotel. Free Wifi, free coffee (even Starbucks and Pete’s coffee), spacious waiting areas, private sales cubicles and offices, more than ample parking (sorry NYC dealers). But seriously, the dealership facilities are today, on average, great.

Certainly it wasn’t the vehicles. Brand advocates can’t wait to see, touch, and smell the new car smell of each new model, each year. Even Ford minivan drivers in downtown Boston love to see their new Mustang and Ford F-150 model relatives if nothing else to wonder, marvel, and dream about a life someday that would have utility for those vehicles. No, the beautifully designed, beautifully appointed shiny metal objects weren’t the lament found everywhere in yesterday’s CSI reports or today’s Yelp reviews. No, it was then, and it is today mostly the people-process, or more specifically the misconfigured convergence of poorly trained people trying to force an aged sales and desking process. Yes, it’s the aged and misconfigured intersection of people and process in the showroom that has made the experience something to dislike and distrust for consumers for decades. Something that when asked, most auto buyers said they’d prefer dealing with the buying process less than having their incisors pulled sans anesthesia.

We, both dealers and vendors heard them. We heard them loud and clear. They said “it’s miserable, long, and tiresome doing business with you here in this way.” And what did we do? We got distracted is what we did. Rather than putting all of our efforts into solving what we knew needed to be solved: the disconnect, the natural conflict between our managements’ desire to drive volume and gross, and the customer “happiness” that would be worthy of raving fans raving about the experience at our dealerships. Customers never said (they still don’t) that they wanted to desk the deal in their pajamas in their bedrooms. NO! To the contrary! They said they didn’t want to feel like they were being disrobed or worse in our showrooms. So, as usual, enter enterprising vendors to the distraction, er, uh, I mean the rescue.

Instead of looking to trainers and coaches that could fix the “people process” problems in dealerships. Instead of insisting that dealer principals and general managers get more actively involved downstairs in their showrooms to appreciate and help solve the plight of the frustrated customer, vendors promoted technology. Technology that could scale of course! Scale for the vendors. A scaling technology that could be monetized - for the vendors. A solution to the real problems be damned! “There’s no recurring revenue in training management or sales staff at a dealership that can easily scale.”

Vendors began building “digital retailing” systems. You know, that thing that customers weren’t asking for, but, “Mr. Dealer, let them do most of the transaction at home.” Translation: since we’re not going to fix the “people process” problem, let’s at least minimize it for the consumer. And voila! Now dealers across the country are distracted with solving a problem that no consumer said was a problem. Us vendors did, you can bet on that. For a recurring monthly fee of $2K, $1,500, $895, or $495, Mr. Dealer you can minimize the time that your customer has to experience the most miserable day of owning or leasing their vehicle. Don’t fix it and make your dealership a place the market wants to be… outsource it to the technical infrastructure of Amazon… by way of the smaller less capable Digital Retailing vendors today. Yes, you read that right. These vendors are merely paving the way for vendors like Amazon that have greater capital, more sophisticated and trusted infrastructures, and world-class logisticians that make today’s automotive “digital retailing” technologists look like apprentice plumbers trying to build regulated transactional applications by reading “HTML for Dummies.”

 Many dealers and general managers around the country are not only embracing this distracted approach to solving the make-believe-problem, but many are advocating for those technology vendors too. They’re literally cheering them on. In my opinion, these dealers and general managers are merely inviting the Grimm Reaper to dinner.

The last count, I found 17 vendors offering Digital Retailing systems. My esteemed colleague; Brian Pasch recently hosted a survey and put out a study identifying each of them and their respective features and benefits too. At the moment 17, and I promise you, that number will only grow. So, while dealers are distracted evaluating, purchasing, and implementing these “digital retailing systems, the real underlying issues – “people process” gets less and less attention.

If destruction fails to entangle us, distraction will do its best. 

Enter again the Four Horsemen of Change. You see, they’re not interested in fixing the “people process” issue. Not in the slightest bit. What they are interested in, what they do see is the opportunity to democratize the soon to be fragmented, data and fraud riddled, heavy costs of so many differing digital retailing systems throughout the dealer body. As it has in the recent past with other industries, it’s going to go a little something like this: “Hey Mr. Dealer, you’ve got 3 or 4 sales managers at the desk, working with these various systems that’s costing you $1,500 per month. For instance, Jeff Bezos at Amazon might say; look, I have all of this infrastructure, people, and logistics to execute all of these transactions easier, faster, and more securely than your current digital retailing vendor. And, to boot, if you switch over to us you’ll immediately have all of the eyeballs of the millions of people already in our platform that trust our platform and use it everyday seeing your inventory. The cost? That’s the best part! To replace the layered tools you have in place now, we can do it at pennies to the dollars you’re spending now, and have you up and running in a few days. Look, you’ve already accustomed your market to use offsite digital transactions like this, even accustomed them to home delivery and pickup. We’ll execute those tactics seamlessly for you because we have bigger, and more trusted infrastructure and logistics.”

Wait for it… wait for it… “look Mr. Dealer, you keep the franchise, you keep your variable and fixed ops margins, we’ll just reduce the infrastructure costs that all of your vendors put together. Oh, and, you won’t need any of your sales managers once our infrastructure is in place either, so you’ll be able to save a lot more money on payroll too. Really, we do millions of transactions, we have real estate and lending institutions using our infrastructure without the heavy costs of traditional “sales managers.” Hey by the way, should we increase the size of the sign on the building that has your name on it?” And just like that, faster than you can say “you can buy from the comfort of your home,” sales managers are working on their resumes, worrying about paying for their homes, and Dealer Principals are making even more money – as any entrepreneur and business owner should

Digital Retailing today is a terrible distraction in automotive retail. We’re investing countless hours and millions of dollars to solve a problem that only vendors said existed. But if you think that distraction is bad, that distraction pales in comparison to the biggest distraction for the dealer body of all time; “Tier 3 Advertising and Marketing.”

Grandpa, so what else happened to Daddy’s dealership?

“Automotive Marketing”

I’m reminded of a comment my business partner once made: “it’s amazing to me how so many experts in search engine advertising, know so little about how car buyers shop.” We were having a discussion about digital marketing in the automotive retail space. That’s where I’ll focus the discussion on the “distraction” of marketing because it’s where the vast amount of dealer time, money, and attention is spent in the context of “advertising and marketing.” 

I wrote an ebook last year - $5 Billion Reasons to Kill SEM in Retail Auto, about the $5 billion dollars of demonstrable waste in digital marketing. After further research and analyses, I’ve found $5 billion to be quite light. It’s nearly triple that amount. The time and attention that dealers invest, or more accurately waste on attempting to market their inventories and dealerships is beyond inexplicable.

The average franchised retail dealer principal himself spends at least 20 hours per month talking “marketing.” Look at an even bigger picture, collectively, between the DP (20 hours), GM (30 hours), GSM (20 hours), eComm Director (30 hours), and their Marketing Director (30 hours), the average dealer burns about 140 hours collectively a month on “marketing” attention… 140 hours! There’s only about 288 selling hours in a month. Let that sink in. Even a high school freshman in her first ever marketing class would be able to conclude that after 140 hours per month, for 5 plus years, surely any dealership would have more to show for all of their investment than trophies in a showcase on the showroom for being a manufacturers’ “Circle of Excellence” dealer. Look back yourself at what ranking position your dealership was at in your zone 10 years ago. Has it changed dramatically? Were you once the 49th, and now the 6th? Did you go from selling 350 cars per month to selling 515? Take an honest review of the past 3 years, ask yourself if your dealership went from selling on average 225, to now, with no management changes, no process or training changes, no major model or incentive changes, no new bedroom communities or major businesses that brought new buyers in your market, nothing other than all that marketing attention and spend waste; did you go from 225 to now you’re selling on average 400 units per month? Are you now 15 market percentage points above the dealer that you were once 1 market percentage point above?

Additionally, the average dealer employs at least 1 person at the average rate of $75K+ annually whose primary purpose is not to sell cars necessarily, but to inspect the performance of the various vendors and services around the dealerships’ Digital Marketing investments (read: waste). Contrast that with how many people are employed exclusively to improve customer experiences, reduce friction, and improve the human-relationship skills and sales performance of the dealerships’ employees. Nearly zero. As Beth Moore teaches: “If destruction fails to entangle us, distraction will do its best.”

Imagine if instead of wasting billions of dollars and hundreds of hours per month on useless retail auto search engine marketing (and yes, every single SEM dollar is useless at the Tier 3 level - see the aforementioned $5 Billion Reasons to Kill SEM in Retail Auto eBook), dealers and their teams were empowered and funded with a portion of that money toward building facilities, people, processes, and showrooms that customers actually wanted to be in. Imagine customers wanting to be in your showroom, wanting to bring their friends to your showroom. Imagine customers considering all of your staff “friends.” Servicing with you and buying from you at every opportunity they had. Imagine customers rating dealership showrooms and salespeople as the most “trusted and helpful people.” Crazy you say? Crazy really? Think about this;

• the majority of the SEM Truthers believe that somehow a 90-day buying cycle can be magically compressed into 9 seconds because of a search-to-a-click-to-a-vdp view!? That’s crazy!
• consider that every retail franchised dealer has on average, only single digit “Paid” website traffic monthly, yet they spend tens of thousands as if it were the other way around, as if their Paid traffic represented 90% of their traffic. That’s crazy!
• how is it, that nearly any dealer can increase their SEM spend by 25% and not have any demonstrable increase in overall quality website visitors, leads, or sales? Yet continue the blind and fruitless waste of their profits and their time. That’s crazy!
• consider that nearly every dealer can eliminate every penny of SEM spend and not see a single drop in quality organic and direct traffic, nor a single drop in quality lead volume… yet rather than inspect the veracity of these facts for themselves, no instead, they continue to be induced and distracted with every sales machination possible from vendors who are only wasting the dealers time and money. Distractingly crazy in my opinion!

Just how did dealers and their teams get so distracted with “marketing?” Particularly since there’s not a single study, not a single shred of empirical data that proves that in the absence of this digital marketing distraction, er, uh “investment”, dealers would lose sales. Not a single one. Because the opposite can be scientifically proven, yet there isn’t a single digital marketing vendor, nor third party website, nor search engine vendor that has any interest in proving it. Why? Because your distraction in time and money is what fuels their profitability and growth. It’s their growth, their convention parties, their valuations, and their multi-million dollar buyouts and “exits” that matter more to them than the futures of your dealerships’ employees, that’s why.

I’m not suggesting that there’s anything wrong with that, nor am I suggesting that there’s anything nefarious in anyway on the part of the SEM vendors. In fact, in a purely capitalistic, legal sense, businesses are to be adversarial. I applaud them. They’re correct to be concerned with their own profitability and sustainability. But, and here’s the catch, that doesn’t mean that because they're supposed to be profitable, it should come at the expense of dealerships focusing on real problems, on what really matters to the dealers markets and customers. 

Yes marketing, and in particular the attention and money that is spent at the Tier 3 level is nothing more than a distraction from what should matter most; if the dealerships’ leadership is concerned about the longevity of high paying employment for most of its variable operations staff. There’s long been this obsession for Dealers and General Managers to feel and to prove, that they’re doing their part in “driving traffic” to their dealership. It becomes easier for them to then lean on their GSM, Sales Managers, and sales staff about close-rates, follow-up, closing deals and holding gross. “I’m getting them here, you guys get ‘em closed” is often times the mentality - if not the actual words the GM uses. And then, when that proves to be less than profitable because of heavy competition, margin compressions, and of course advertising expenses crushing profitability, dealers begin to fall for, er, um, “consider” different ways to be profitable. Simpler ways like “increasing web traffic” through ad spend, or “increasing lead volume” with 3rd party aggregation sites, VDP view multipliers, etcetera, etcetera. The cycle continues. And here again come the Four Horsemen of Change to capitalize on that distraction of advertising. Zuckerberg started it with allowing dealers to equally waste their time and money on Facebook ads, heck now you can even “measure the retention” effectiveness of your Facebook ads if you weren’t yet adequately wasting enough of your time and money in their portal. Bezos too, is now offering retargeting ads within Amazon’s portal. Innocuous and helpful right? Hahaha! Mark Zuckerberg probably read Jonathan Gruber’s quip: “P.T. Barnum said a sucker is born every minute, but his estimate was laughingly low.”

If you want a clearer picture of what the Four Horsemen of Change are ultimately up to, check out this blog post from Amazon about how it’s helping auto buyers buy easier. Read it through and think for yourself about what would happen to the sales staff at dealerships if this strategy were to continue and to amplify. Here’s the article: https://advertising.amazon.com/blog/auto

There’s a great and growing opportunity for all of the team members at dealerships today to protect, expand, and enrich their careers by focusing on improving processes, people skills, and customer experiences – through working to create frictionless customer experiences as I’ve written about in my blog back in 2018. 

https://www.pureinfluencer.com/2017/10/12/the-1st-rule-of-a-frictionless-customer-experience-fcx/

But, if instead dealers and general managers continue to be distracted, let’s say by the time and money in marketing their dealerships, a conversation like the following will most assuredly take place:

“Look Mr. Dealer, you’ve saved so much money in transaction costs and technology by leveraging the Amazon platform to achieve your goal of allowing your customers to fully purchase from the comfort of their home, and have our partners deliver test-drives and vehicles to them. You’ve reduced your payroll expense by reducing your sales management and sales staff dramatically, and we’re glad that your dealership is much more profitable. Did you know that nearly 95% of your entire market uses our platform everyday to make purchases of some sort every week Our technology knows so very much about your entire market. Things like when they’re shopping for home appliances, when they’re having a baby, when they’re single, when they’re moving, changing jobs, and so much more. You’re currently spending on average $20K per month for less than double-digit paid search traffic. That traffic typically converts less than 2% of the time to leads from your website. Since you’re on our platform, we can advertise to your entire market more efficiently and at the same time lead them to your buy-online and home-delivery features in our platform. Our cost to you for the same, if not greater reach, and more actual sales, will be between $500 to $1K per month. And, since you use our platform anyway, there’ll be no management fees either.”

What smart dealer or General Manager, that’s already using one of the bigger “shopping” platforms wouldn’t take that deal? They all would and they’d be wise to do so. And then, just like that not only are his marketing vendors eliminated from the equation, but so too are the dealership Marketing Directors and Internet Directors. Since the platform is handling all of the transactions, leads, follow-up, reviews, retargeting, quotes, advertising, service scheduling, etcetera… the dealership begins to be much more profitable. Fixed Operations begin to sore, and variable grosses and profitability grow month over month with the reduced sales management, sales, BDC staff, and ad spend reduction. All very good things for the ownership and senior management. For their sales staff however, not so much.

More and more we’re faced with dealers and general managers who are excellent at building and running dealerships, and at the same time novice and naive about what a technologists’ ultimate goal is. Instead of creating better cultures and solving the “people process” problems that shoppers and customers have long been complaining about, dealership leadership is distracted with technologies and marketing spends that will never solve the original issues. It’s no different than people saying: I hate going to the DMV to get my registration renewed, it’s miserable in there. And then, voila, the DMV used technology and the internet to allow us to do those transactions all online. They didn’t fix the problem of the cold, callused, often times condescending DMV agents per se, they just reduced the need for us to go there and deal with them. Is THAT what we want for our dealerships? Eliminate the need for consumers to come “deal with us?” Surely the dealership ownership and upper management win in that scenario. That’s what technologists ultimately want too. Is it what our sales staff wants? Try laying that scenario out for them in your next Saturday morning sales meeting and see what they say about it.

And worse, not only are most dealers distracted by vendors pedaling “digital retailing” and marketing solutions, a few of them are literally advocating for the vendors themselves!! Literally selling, doing their heavy lifting for them as if they were on the vendors’ payroll. Are they? They’re cheering on Google as if Google wasn’t merely a vendor, but as if it were a direct cash investor remodeling the dealers’ showroom. There are dealers out there today that waste hundreds of thousands of dollars with Google, use the word “Google” more times in a day than most of Google’ employees, and still can’t log into their own Google Analytics account to identify cannibalization of their own dealership name. It’s no wonder why Google is willing to fly these dealers into their facilities, heap them up with Google swag, even put a few dealers on their speaking stages, all the while Google’s laughing all the way to the bank. They have dealers doing their bidding and promotion that don’t have the slightest idea of how to audit and hold Google accountable to their egregious spends. It’s like bank owners cheering on their rich new neighbors that got rich by robbing … the bank owners’ bank… because the owners couldn’t log into their security cameras to see that they were being robbed by their new wealthy neighbors. Good grief! 

In all seriousness, a distracted dealer body is ultimately what’s going to cause the end of “the car business” as we know it today. Not technology, not ride-sharing, not all of the various models of ownership, but distraction. Not disruption, distraction. Distraction from what consumers want today and have been asking for for decades… a better environment, better trained people that want to make the experience in the dealership better. As long as our attention is not there, then we’ll be sufficiently distracted for the likes of a Larry Page, Jeff Bezos, or perhaps both, to come along and solve the fragmented landscape of digital marketing, retailing, and infrastructure that will at some point soon be the new lament of dealership owners. It’s how it’s happened in other industries, and as long as we continue not to try to best Starbucks or Apple in “customer experiences”... it’ll soon happen to us. 

Grandpa… did Daddy help his sales staff with their resume building?