The Silver Lining?

Author’s Note: A Condensed Version of this Article Appeared in the Automotive News “Opinion” Section Page 14 April 13, 2020

These unprecedented frightening times may prompt some dealers to venture into new strategies and tactics that make them stronger and more prosperous in the long run

We all know the classic “innovators dilemma” in the automotive retailing world, don’t we? Dealers or General Managers may want to try something new, but in good times everything is working well, making money, so why do something different even if it looks promising? It might upset a good thing. As much as I hate to see this, being on the “innovation” side all these years, I do understand it as a rational approach, the downside is a risk and the upside is many times uncertain.

However, in a business crisis, which I think we can all agree we are in the progressive stages of with the COVID-19 pandemic, all bets are off, survival is the key, and the downside of not trying new promising strategies, when things aren’t working, is almost non-existent. As bad as it is, it forces one to get out of a comfort zone to change and adapt.

I’ve often quoted the Darwin assertion that adaptability to change is the key to survival, over intelligence or strength, and it’s as applicable to business in the throes of great change as it is to a species. Let me update that with a quote from Jim Bezos of Amazon (one company that is cleaning up in all of this mayhem) –

“When the world changes around you and when it changes against you – what used to be a tailwind in now a head wind – you have to lean into that and figure out what to do because complaining is not a strategy.”

The thing is, as the old securities trader adage says, cut your losses and let your profits run, or, more directly, “fail fast,” try lots of things that require very little investment, and close off the ones that don’t work, but take the few that do and make them full blown dealership policies, throwing full resources and support to institutionalize the change and comprehensively sustain it after the tornado has passed.

I think it is the responsibility for every concerned vendor to car dealers to help in any way we can to facilitate risk free, innovative strategic alternatives to help weather this storm, and to have their dealer clients come out the other side stronger, and more prosperous (with more market share) than before the calamity. Momentary discounts or freebies are nice, as are the OEM programs to help, and shows that, as they say, these folks “hearts are in the right place,” but let’s face it, that’s a band aid as opposed to providing some cures to help dealers adapt and offer sustainable growth changes.

One of the benefits of being an entrepreneurial cowboy (there are many drawbacks, but we won’t mention them here), is that I get to put my money where my mouth is, and if I believe something is good for dealers and their customers, I do something tangible about it. This is the mission that founded DriveItAway (my current start-up), and why I use it to further goals that I believe in.

As NADA has stated to appropriate government officials, banning all car sales, was unfair both to dealers and consumers. Some vital people to our society vitally need replacement cars, as vehicles are totaled, otherwise inoperative, or coming off lease (NADA has calculated that 1.8M vehicles will come off lease in the US between March – July 2020) for instance.

In any event, whether a “homebound” state or not, car sales are way down, and used car sales are bearing the brunt of the downturn, with overall average estimates of used car sales down an average of 44% nationally, on a month to month basis. Clearly, demand is down, and dealers are having to scale down operations, especially on the sales side of things, as they are concerned about their employees and customers health.

Naturally everyone is worried about the effect of the COVID-19 virus, and afraid of putting out a lot of cash, or getting into a long term financial commitment, such as a car loan or lease, at least until this emergency situation shows signs of dissipating. 

Here is where I think the confluence of issues create a situation where we can help as a vendor, and I naturally want to do everything I can so that dealers can safely and efficiently keep “sales” dollars flowing, employees at work, and continue engaging customers.

I feel very strongly about this, so I’m going to depart from my usual neutral observations this time in my usual articles and observations on the industry, to suggest a strategy that we know of and can offer up immediately (along with others in this business area) as a potential program to get things moving again in a positive way, create revenue now for dealers, reduce used car inventory costs, foster customer engagement (albeit remotely) and build a queue of sales in the pipeline, to snap back faster once things start to get back to normal. In fact, this continual talk of “doom and gloom” and doing nothing about it is really getting to me, so let me outline my thoughts to help.

As a dealer, take a deal maker or two from your sales side, and have them facilitate a long-term rent by the month program, with a customer buy out option, for vehicles on your used car lot, in lieu of an immediate sale for skittish consumers (almost everyone right now). A brief sketch of the process:

 1.    Allow a prospect to pick a vehicle from your online used car inventory, then instruct him or her to call or email for your folks to work the deal – monthly rental rate (which includes insurance and maintenance), allowable miles, the amount needed up front or security deposit, the purchase price and how much of the rental rate would be applied towards the purchase, should the customer want to pull the trigger and exercise their option to buy – think of it as an extended test drive, where the customer pays you for the privilege.

 2.    The vehicle, the rental terms, and the amount of the monthly rental payment going towards the purchase, are put on a turnkey self-service app, where the customer consummates the deal digitally including initial payment (and subsequent renewal payments). Once the deal is consummated, you register and tag the used vehicle in the dealership name (no sales tax is usually required), put the insurance ID card inside the vehicle and it is good to go. Note: depending on the customer and the credit rating, a dealer may want to install a hardwired gps unit in the vehicle, this will automatically track and bill for additional miles, and include a starter interrupt if renewal payments are not forthcoming.

 3.    The clean, disinfected vehicle is delivered to the customer’s door - from a distance the delivery coordinator validates the customer’s identity (with the license information uploaded in the app by the customer), does a condition walk around, and delivers the vehicle – that’s it, no paperwork, no direct contact, no need for close interaction (remember legally this is a rental, not a purchase, when/if the customer converts to a sale, additional remote sales work is required).

This is a win/win for everyone. The consumer is coaxed off the sideline, as this program is designed to satisfy their immediate transportation need while addressing their concern for health and financial welfare (not committing to a long term financial commitment or laying out a lot of cash) during this stressful period, while dealers continue to build customer engagement and goodwill during social distancing, while generating sales and revenue. Once things return back to normal a bit and public confidence returns (and most aren’t spending all of their money hoarding toilet paper) you have either built a sales queue backlog building momentum to bounce back more quickly, and/or you get your used vehicle cost written down dramatically, so that any subsequent sale on the unit is much more profitable.

Of course, this only immediately applies to owned (not floor planned) used vehicles, although before this crisis many floor plan lenders out there were willing to floorplan rental/subscription vehicles, and probably will be even more agreeable to do so now. Also, it does require a little training. However, as most of the transactional heavy lifting is done inside the app, it is not people intensive, so that a high volume of transactions can be done with just a few folks.

I think that long term in-app “touchless” rental, with an option to buy, is one strategy to try in these very challenging times, to move nervous buyers off the mark. It may take off in a way that subscriptions never have, and, is irrefutably much more profitable for dealers in this climate. The upside is that you garner income on used vehicles that would otherwise sit in inventory making no money (and writing them down accordingly) and build up a pipeline of sales as soon as consumer confidence returns (let’s hope soon). The downside in trying it, these days is not very significant, no start-up fees or fixed fees of any kind, no contracts, only a small revenue share on renter paid income that happens only after a renter starts paying you in the app.

Ironically, our own in-app, remote rent-to-own program was conceived targeting subprime buyers, those who either didn’t have the down payment and/or credit score, to buy a car immediately. Now, however, I think this applies to a mainstream audience, really anyone who either has to defer a conventional purchase (with multiple test drives) because the state has told them so, or, someone who would rather put off a full purchase financial commitment at present, but does not want pay a rental or subscription fees by the month and have nothing to show for it, as he/she really does have the intent to buy as soon as things get better. Sort of like the “post it note” discovery, it may solve a much larger, and much different, problem than originally intended.

Who knows, this may even usher in a new process for dealers that take a lot of the wind out of the sales of retailer “disruptors” Carvana and Vroom, as it goes one better than just their “innovation” of at home delivery and a seven day return policy – it’s a completely in-app experience with home delivery and a forever return policy, with an optional purchase. At this time, what could be more innovative, or customer pleasing, than this accommodation?