NADA Faces Big Issues In The Big Easy
The National Automobile Dealers Association conference in New Orleans later this month lives -- from a news-coverage perspective -- in the long shadow of the Detroit auto show and even CES. Dealerships aren't as sexy as new cars, campaigns, and the technology automakers pack into their products to make them buzzworthy.
This year, however, the show is guaranteed to generate plenty of industry news and probably some headlines that go beyond the vertical. The confluence of trends directly impacting the traditionally staid and certainly redoubtable retail world -- nearly 18,000 dealerships in the U.S. -- could mean big changes, whether dealers want them or not. And that's big news.
If one word had to sum it up, it would probably be “autonomy.” That is nothing new for the business, which is often rife with dealer/OEM conflicts. Dealers are committed individualists, and their stores are their stores. They aren't Starbucks. Yet. And they don't like being told what to do, what to sell and how to sell it. At least they didn't before the numbers started heading up on Internet-driven sales (depending on who you ask, over a fifth of dealership transactions come by way of Internet leads), and since third-party sites like TrueCar began changing the ecosystem.
Dealers need help, and a strong communications channel with their OEM. That’s happening more now; take Ford and its FordDirect program, which was developed in collaboration with its dealer body and is both an in-house challenger to third parties and a suite of tools for dealers.
Indeed, it's not the OEM challenging dealer autonomy so much as what’s happening online. Dealers make little money from each sale, as a percentage. They make less money on a percentage basis than the guy who sells cigarettes at your corner deli. In fact, in many cases they make no money at all. And the pressure is always on. Dealers have to make their monthly numbers to get the critical incentives they need to keep people paid. The Internet can tighten the vice. And it also requires a whole new level of marketing expertise. Thus, the need for FordDirect-type programs.
Not to get too off topic, but one of the best dealership eye-openers in my memory is a recent "This American Life" episode that followed a bunch of guys at a Jeep dealership in Long Island. It's an entertaining piece of documentary news, really, but it shows the outsider the real game. Because the stakes are tremendously high (we aren't talking about a pack of cigs, but a product that costs maybe 20 grand). It’s a war, as one sales guy put it. Marriages break up over it. I don't envy them that business. I couldn't do it. Third-party sites that are "changing the ecosystem," as I nicely put it, are cutting margins even more by making dealers pay a big fee per sale. A dealership is NOT a storage facility for cars. They are the real-life humans (remember those?) representing the company, and they have a large and diverse role in the community. They are the life support system for your car, and they evince the lifestyle of the brand.
Yes, Internet leads make the bricks-and-mortar process a bit easier because those leads are, presumably, serious. And the fact that 90% of people have, in fact, done their research online before walking through the dealership doors means they have equal footing going in, so at least there is the possibility of an intelligent conversation. But the Internet pricing sites are all about pricing, and when it's all about the Lincolns (so to speak), what goes out the window is the relationship potential. It just becomes about the sale. And that is a major killer for the dealer because he or she is already competing with the Jiffy Lubes of the world for the critical after-purchase CRM business. And guess what? It also hurts the customer: when I buy a car, I am not just buying a product, I'm buying the dealership. If the Internet trains me to care solely about the numbers, then that price is all I see in front of me when I walk in. I might as well put nickels over my eyes before going shopping.
And maybe I’ll have gotten a great deal without haggle, which is ideal. But the less the dealership matters in the equation, the less the customer matters to the dealer, too. The more it’s about price only, the more the auto purchase resembles a commodity deal. The long-term implications of this are not good for anyone because a car is not a Kit Kat bar, especially as they become more and more technically sophisticated, and their telematics linkages make dealerships more and more important as service providers. The biggest challenge for dealers may be showing consumers that they are as relevant to the purchase and ownership of the car as the car itself. Ask any (former) Saturn customer if that’s true.