Often the most valuable trading lessons arise during a recession
Commentary by Bob Aldons - Northstar Chrysler Jeep Dodge
Peter Aitken tells of the Mike Shaw story - a dealer in the US who changed the face of his business during the GFC.
At Northstar Motor Group Redcliffe, we were fortunate to 'see' the global financial crisis actually coming some 6 months before most other auto dealers In Australia. My business partner had been meeting with some very senior people from the ANZ Bank and their finance arm Esanda and pursued a cost reduction program which saved us about $1.2 million dollars per annum.
It's a truism - you learn better practices in tough times that you do in good times. We were guilty of adding to our staff count without much consideration, we were spending on incentives, equipment that wasn't being utilized productively and advertising like there was no tomorrow.
We hadn't reviewed our supplier charges for almost 5 years and our stock levels of new and used cars, and spare parts was through the roof. the fact was that we were burning cash at a great rate. And it's not funny at all that we probably have not survived the GFC if we hadn't cut the cloth to fit the suit.
That fact is that we did, We allowed natural attrition to reduce our staff count in the main only having to retrench 1 person, everyone and I mean everyone stepped up to another level and Northstar Motor Group not only survived, but continues to prosper.
If you're in the market for a new luxury car, the all new Chrysler 300 will be with us soon. I was fortunate to see the vehicle this year in Las Vegas and just been privy to the earlier marketing concepts from Chrysler Head Office. To say it will be an exciting vehicle and an wonderful launch is an understatement. new Chrysler 300 launches to the public on July 4th 2012 - coincidentally American Independence Day and the date of the final State of Origin Match for 2012 at Suncorp Stadium.
If you'd like to find out more about 300, visit www.lovemychrysler.com.au or call into the Northstar dealership at 320 Anzac Avenue Kippa-Ring on the beautiful Redcliffe Peninsula.
How often have you been able to secure higher profit returns for your dealership as you are pulling out of a difficult trading cycle? Often these trading cycles occur for reasons well beyond normal trading control, just as we have seen the recent GFC (global financial crisis) adversely impact on just about every trading sector.
So what normally happens during these difficult times? Often it depends on both the severity and the duration of the economic downturn. As an owner of a retail dealership it becomes a case of trying to cut your cloth to suit the situation. The obvious early targets are the large variable and semi-fixed expenses within the dealership such as staffing level, in particular non-productive staff, inventory reductions to lower interest costs and the many arms of advertising.
I wish to share with you today an article I came across in the US Automotive News this week covering a number of actions taken by Mike Shaw, owner of Mike Shaw Automotive in Denver, Colorado.
Last year Mike Shaw’s group retailed 5406 new (increase of 45% over 2010) and 6370 used (increase of 59% over 2010). He now owns seven dealerships that sell Buick, Chevrolet, GMC, Honda, Kia, Subaru and Toyota.
During 2007, with the advent of the GFC and recession starting to rumble into the US economy, Shaw made the tough decision to cancel the $1.5 million the group spent on newspaper advertising spread over their six dealerships.
At the same time they doubled their advertising spend on the internet to $360,000. By deduction, the prior spend on internet marketing of $180,000 represented just 10.7% of the combined advertising spend on newspaper and internet.
At the time of doubling the internet spend, actions were taken to increase the number of staff in the internet department and Shaw made internet sales the cornerstone of the group's marketing strategy.
By January 2009, the group had taken drastic action to either layoff or act through attrition 350 of their 650 staff. In Mike Shaw’s words: “I’ve been through tough times before so we moved fast, we cut advertising, we cut personnel.
“You name it, we cut it to survive."
On the process side, one action the group took in 2009 was to introduce the V-Auto used vehicle inventory management tool. This is a pricing and inventory tool used widely within the US to ascertain the advertised price of similar make/model/mileage/condition vehicles. Dealers are able to obtain prices for similar models within their PMA, city, state or other states. The tool then allows the dealer to set a price based on the basket of similar advertised models.
For instance, you may have a late model Honda Civic to advertise and the median advertised price of similar mileage/age Civics is say $15,000. You may seek to position your Civic at let’s say 95% of the median or $14,250 at a lower gross margin as you have made the decision to go for quick turn on the stock unit.
The other key advantage the tool offers is for the dealer to select the ideal fast turning stock for their yard. As a result ROI is increased and interest rate lowered.
Of all the changes made by Mike Shaw, he today acknowledges the internet strategy has made the biggest difference. His dealerships were working with the internet since the early 2000’s but Shaw admits at that time: “they were not very robust”.
“We started out like most people, just taking some salespeople and telling them they were now in the internet department so make it happen.”
However, by 2007, floor traffic slowed markedly and internet leads began generating more sales.
Some of the actions taken by the group in 2007 were:
• Stopping all newspaper advertising
• Doubling internet advertising
• Implementing the V-Auto inventory and pricing tool
• Listing every new vehicle as well as all used vehicles on all third party sites
• Doubled the number of photos on each vehicle to 40
• Increased internet sales staff in each dealership depending on size, from 3-6 people
• Introduced written scripts to capture pertinent customer information on family size/annual miles driven/whether the customer wished to trade
• Internet salespeople were trained to respond to emails and telephone within the hour
• When the prospects arrived at the dealership, the internet salespersons handled them
• Each internet salesperson was expected to handle 100-120 leads per month
Since 2007 the internet response time has been reduced to 15 minutes and each internet salesperson is expected to handle 80 leads per month.
One of the most noticeable shifts in salesperson behaviour is their pronounced preference to work within the internet department as that is where the leads are coming in, no longer is the showroom floor or used yard the favoured place to work within.
Currently, moves have been made to concentrate on three-person internet departments handling at least 150 leads a month, scheduling appointments and following up with customers. This pod does not handle in-store sales (walk-ins). Another advantage of the smaller set up is training is easier to implement.
Scott James, president of the Mike Shaw Group says: “it has now become easier to train a top-notch group of internet salespersons. Since they are not selling in-store sales, it frees their time to concentrate on follow-up, which is the key ingredient to internet success.”
Last year the group converted between 8-10% of their internet leads to sales. However, in their Corpus Christi, Texas operation - with their newer three-person internet department - they were able to achieve a closing ratio of 15%, the best in the group.
Finally, Mike Shaw says: “Leads and sales generated by the internet are no different from the way dealers have sold vehicles for years. It’s all about finding out what the customer needs and taking care of those needs.
“It’s nothing more than how we used to sell cars on the phone, with 3" by 5" cards and follow-up - the only difference is it’s all done electronically”.
I found this a very relevant article in the sense here was a dealer adapting to the change in trading circumstances, making some decisive and bold calls but importantly at a time when the trading conditions are more favourable has made the decision to further enhance their digital marketing practices.
Food for thought for our average NZ dealership?
The other day I discovered a very comprehensive text book on the subject of digital marketing: “The Ultimate Web Marketing Guide” - 584 pages, written by Michael Miller, published November 2010, worth hunting down.