Increase Gross Profit Per Vehicle in a Transparent Market
In the past five to 10 years, you’ve likely seen a radical shift in your retail business model. Most notably, consumer access to information has reshaped your pricing and sales strategies. Today’s most successful dealers are well versed on 60-day turns, price to market, and invoice being transaction points on new vehicles.
Although these market-shifting realities have caused gross-profit pressure, they’ve also created the by-product of discipline, efficiency, and focus on process and execution. Even more importantly, they’ve created a focus on the consumer as a winning strategy.
And although you’ve likely done well in adjusting to these new market dynamics, 2014 NADA data shows flat dealership margins for each of the last three years: 2.2% net profitability before tax. The flat profit margins coincide with total seasonally adjusted annual rate growth for light vehicles of 29.4% from 2011 through 2014, and projected retail growth of 3.5%, or 17.1 million units in 2015.
So the question becomes: How can you increase profitability in a transparent market, where margin percentages hold steady while volume rises? One solution is to create your own market via proactive, data-driven engagement. Here’s how:
- Engage your customers before they enter the market. Today’s data mining technology enables you to constantly monitor your customer portfolio. By systematically calculating your customers’ financial position in their current vehicle, residuals, trade values, and OEM incentives, you can proactively engage customers with a customized and time-sensitive upgrade. The net result is that you can pull your customers into market by offering them a chance to upgrade their vehicle at the same monthly payment.
- Convert service-not-sold customers to grow market share. In addition to mining your current customer database, new data mining features allow you to access owner credit and vehicle data on service customers who did not buy their vehicle from you. Access to this audience increases your targeted data mining service drive sales opportunities by up to 50%.
- Start with MSRP . . . yes, MSRP. With proactive and data-driven engagement, you are now in a position to drive gross profit per vehicle. Specifically, you’ve created a compelling upgrade opportunity for your customers, pulling them into market and not reactively competing with their broader shopping process. This dynamic is not just theoretical; a sample study of 300 top-performing dealers showed a gross profit per dealer uplift of 48% for data mined sales versus non-data mined sales.
- Focus on the consumer. The previous three techniques are great tools to drive profitability, but even more importantly, they enable a positive customer experience. By proactively engaging your customers with relevant opportunities, you’ve catered to what they demand—a personalized experience. They bought a new, upgraded vehicle without changing their monthly payment and avoided more than 16 hours of Internet shopping, test drives, etc. Don’t underestimate the value of this experience.
- Process, process, process. Needless to say, none of the previous strategies happen without focus and discipline in your execution. The good news is that you’ve already adjusted to the new market dynamics, so working with your data mining provider on training and executing a game plan is something you are familiar with.
So, although transparency has changed the market, gross profit per vehicle does not have to be a thing of the past, thanks to data-driven proactive engagement and effective processes and execution.
Brian Skutta is CEO of AutoAlert, Inc., North America’s premier data mining, lead generation, and sales opportunity provider. Skutta brings to AutoAlert more than a decade of leadership in helping auto dealerships sell more vehicles and retain more customers. He has a proven history of successfully managing innovation and growth, most recently at VinSolutions and Autotrader.com’s Trade-In Marketplace. Reach him at email@example.com or visit www.autoalert.com.