By Alan Krutsch, Ryan Adams Group
The U.S. auto industry has enjoyed a powerful recovery that began in 2010. Despite this growth, a small group of forward-thinking dealers are adopting a one-price, non-negotiating business model. Why would dealers change their business model in times of relative prosperity?
We’ve identified three factors influencing dealers to change business models. Throughout the article we are using examples from Walser Automotive Group which has employed a one-price model since 2002.
Customers Don’t Like the Current Car Buying Experience
In the age of Amazon our industry still clings to a negotiated transaction that has changed little since the 1960’s. According to the AutoTrader Car Buyer of the Future study, less than 1% of car shoppers surveyed chose the current process as their ideal experience. The IHS Automotive and AutoTrader 2015 Auto Buyer Influence Study shows negotiating to be the top frustration.
Because there are so few retailers that offer a viable alternative to negotiations most shoppers believe they need to negotiate to get a fair value. It’s no wonder. As an industry that’s what we have taught them. A related complaint is the time it takes to buy a car. The back and forth of price negotiations, waiting in line for the finance department are both unpleasant and time consuming. A majority of customers have done enough online research so that they enter the store with a specific vehicle in mind as well as what a fair price might be, yet the purchase process can easily stretch to 3 or 4 hours.
A negotiation-free selling system provides a speedier transaction and reduces the anxiety and uncertainty that back and forth negotiation can provoke. This allows negotiation-free dealers to meaningfully differentiate their dealerships based on a superior customer experience.
Walser customer specialists (sales people) handle the entire transaction including selling the vehicle, presenting the F&I menu, selling accessories and signing paperwork. By reengineering their sales process, they can consistently deliver a car from “yes to out the door” in 60 minutes.
The Workforce Has Changed
Millennials will soon represent 40% of the U.S. workforce. In 2017 they were 61% of all dealership new hires. They have different career aspirations than the generation that preceded them. They are risk averse. They prefer fixed pay plans to plans with a high variable component. They are more altruistic. They seek meaning in their career.
A job that requires them to earn their income by negotiating with the customer over the profit in the transaction does not fulfill those needs.
No discussion of millennials would be complete without mentioning work-life balance. A column in Forbes by Kaytie Zimmerman reported “…the 2017 Workplace Benefits Report by Bank of America Merrill Lynch, 59% of millennials report being worried about finding a career path that will support the lifestyle they’ve envisioned for themselves. If a majority of Millennials are feeling like their work and their lifestyle don’t jive well, they are likely to job hop until they do find the right balance.”
It seems clear that if we want to recruit and retain Millennial workers, commission-based plans and 55-hour work weeks are not going to get the job done. In 2015, NADA reported that average sales person turnover was 71%. Clearly the current model is not sustainable. Non-negotiating dealers have built HR strategies that include a career path, paid training, hourly or salaried pay plans, a team working environment and a 40-hour week. They are able to recruit from a much larger pool of candidates and report turnover lower than industry norm.
Walser offers a 10-week paid training program, a clear career path, and an hourly plus bonus pay plan. Customer specialists work a 40-hour week. Approximately 70% of their customer specialists have a college education. Turnover is significantly less than industry average.
New Car Margin Compression Continues, with No End in Site
Pick your favorite bogeyman: the internet, factory stair-step programs, over supply, over distributed franchise networks and the list goes on. According to the NADA Data 2017 November dealership profile, the average dealer lost $406 per new vehicle retailed. It’s unlikely that the auto industry can bank on consistent volume growth due to the cyclical nature of the auto business.
There is no sign that factories have a plan to increase dealer profitability, and price competition on the local level continues to be fierce. One can imagine that increased government regulation could stifle F&I profit growth, the current bright spot in variable operations.
One-price dealers have concentrated on sales productivity and costs. By employing an hourly workforce that delivers a streamlined sales experience average sale per rep have gone up and variable selling costs have been reduced. Andrew Walser, CEO of Walser Automotive Group, states that customer specialists at his 25-store group average 14 vehicle sales per month and that total personnel expenses, including salespeople, managers, administrative help and benefits, have been reduced to less than $700 per vehicle.
Customers are demanding more transparency and a faster, simpler, easier way of doing business. Adopting a streamlined, negotiation-free selling process is the way for a dealership to move into the future.
Ryan Adams Group is a consulting and training company that guides dealers who are converting from a traditional business model to one-price selling and single point of contact. Alan Krutsch is VP of Sales and Marketing. He can be reached at email@example.com or 1-612-308-8539.