May Q&A: The State of the Industry
5 industry leaders discuss the present and future of manufacturers, sales, regulatory trends, consumer behavior, and dealerships
“What’s good for General Motors is good for America.”
This well-known and oft-repeated quote was attributed to Charles Erwin Wilson, U.S. Secretary of Defense during the Eisenhower years, and CEO of General Motors from 1941 through 1953.
Although Wilson’s alleged statement was later revealed to be a misquote taken out of context—he was actually stating the opposite position—it’s become conventional wisdom that still has a basis in reality. Simply put, the financial ups and downs of the automotive industry tend to mirror those of the country.
For example, the Great Recession of 2009 meant tough times for most OEMs and dealers, and lead to controversial government bailouts of General Motors and Chrysler.
Fortunately, those dark days are an increasingly distant memory, and automakers—including the Big Three—have enjoyed surging sales in recent years, capped by record-setting new-vehicle sales in both 2015 and 2016.
But as we all know, what goes up usually comes down, and vehicle sales are pointing down to the tune of close to half a million units in 2017, per NADA projections. Plus worldwide economic and political instability add lurking uncertainty to automakers’ financial health.
It’s not like the sky is falling, or is likely to. But it’s clearly a transitional time for the industry, one made more complex by changing consumer behavior, growing interest in autonomous vehicles and ridesharing, rapidly evolving technology, and more.
The way people buy vehicles and the types of vehicles they’re going to want in the future are increasingly different from past decades. This means change ahead for OEMs and dealers.
To get current perspectives on the state of the automotive industry and the business of selling new vehicles, we interviewed five leading automotive vendors, all of whom have witnessed both highs and lows during their careers.
Bill Wittenmyer is partner at ELEAD1ONE. With more than 20 years experience in automotive, he oversees multiple divisions within the ELEAD1ONE organization, including sales, marketing, OEM relationships, and large client accounts. Highly regarded for his nontraditional views, he is an active speaker at industry forums and provides news commentary that reaches industry leaders.
Mindy Howe is vice president, strategic accounts, at Autobytel. Autobytel offers the industry a full suite of high-quality lead products and advertising services, including AutoWeb Traffic, TextShield, SaleMove, Payment Pro, and WebLeads+. To contact Mindy, text or call (248) 842-3101 or email firstname.lastname@example.org. For more dealer training, tips, advice, and news, visit dealer.autobytel.com.
Gary Galloway is the head of products for automotive at Netsertive, serving as an adviser to top brand executives and their local partners. He provides key insights on digital trends and strategy for automotive marketers. He’s also an adjunct professor at the University of North Carolina at Chapel Hill, teaching digital marketing and communications.
Alexi Venneri is co-founder and CEO of Digital Air Strike, the award-winning social media and digital engagement company. Previously, she was president of Auto Media/Blue Flame 6 and a vice president at Dealertrack. An accomplished public speaker and best-selling author, she was named a Top 100 Leading Women in the North American Auto Industry for 2015 by Automotive News.
Ken Kolodziej, co-founder of String Automotive Solutions, has more than a decade of experience in automotive software. Known throughout the industry as a visionary thinker and self-proclaimed “data geek”, he has led String DPS to its position as the industry’s top marketing intelligence platform.
Q:How do you assess the overall health of the automotive industry, given the current economic and political climates?
Wittenmyer: The industry is in a good place, but has reached its peak on the curve. That is not to say that we won’t see positive months ahead, but if you are not making money right now, then you will most likely face some serious challenges in the coming year.
Our industry tends to weather political climates well, but is facing increased production, lower demand, higher incentives, increased lease turn-ins, and subprime credit growth. The pressures on new car sales are extreme in terms of profit margins and efficiency.
At the same time, the large volume of lease turn-ins is impacting pre-owned sales. To face these conditions, dealers need solid processes, efficient operations, and a strong focus on fixed ops.
Galloway: From an economic standpoint, 2015 and 2016 were both record years for the automotive industry. While many speculate that 2017 will be the year the sales industry plateaus, Morgan Stanley predicts that sales will rise another 2% to 4% this year.
It’s an exciting time in the automotive space. The industry is seeing incredible technology disruption that’s forcing dealers to rethink the way they sell. Uber has completely changed the taxi industry, and brought the idea of ridesharing mainstream. While I don’t expect self-driving cars will completely infiltrate our roads this year, basic autonomous features like cruise control and self-parking are now standard in almost any new vehicle.
Bottom line is that dealers need to be adaptive to this changing environment. With technological and economic factors changing the way people drive and purchase cars, it’s never been more important to really understand your customer’s entire buying journey.
Venneri: Despite highs and lows over the past 15 years, our industry is experiencing a resurgence as manufacturers focus on quality, efficiency, innovation, and autonomy.
It is an incredibly exciting time, not only from a record sales perspective—J.D. Power reports that sales numbers hit record highs in 2015 and 2016—but if our new administration makes it a priority to reduce regulations and taxes on our industry, this will stimulate not only more job creation but also continued innovation in our space.
Manufacturers are now very focused on developing and testing autonomous vehicles, with Cadillac making an interesting attempt by acknowledging a human is still required for safe driving.
Kolodziej: On the surface, things don’t look too bad. However, when you peel back the onion, you see some fundamental cracks in the armor:
- The SAAR is flat YTD, and the retail share of sold units is low.
- OEMs are cutting back or pausing production.
- Incentives continue to remain a high percentage of MSRP.
- 3 million off-lease vehicles are hitting the market this year.
- Interest rates are ticking upward, increasing the cost of money.
Taking all of these factors into account, any dealer who has not been planning to survive in a difficult market will be in for an unwelcome surprise. There will still be plenty of opportunity, but dealers will need to be more strategic and analytical to capture it and stay ahead of the competition.
Q:What do you consider the biggest challenge auto dealers face in regard to the future of their business, and why?
Wittenmyer: We would be foolish to ignore the Tesla business model and the fact its stock continues to far outgain even the strongest in the industry. It passed GM as the most valuable automaker without a franchise model even though it delivers far fewer vehicles, which should intensify our focus on the customer experience.
Let’s face it: Tesla is the only successful model in the industry that is charging and getting full MSRP on every vehicle. That, combined with the fact its stock is valued at the highest in our segment, is a telling indicator of consumer sentiment.
We need to change our approach to strengthen and preserve our franchise model. Consumers dictate our success with where they shop. That knowledge has to drive who we hire, how we operate, the way we communicate, and the level of service offered.
Howe: The biggest future challenge is understanding that consumers are still in charge when it comes to buying cars. Implementing internal processes that adapt to changes in buying behaviors is the key to success.
Consumers are spending more time online and on mobile devices, visiting dozens of websites when researching a vehicle purchase—and visiting fewer dealerships—so in addition to embracing technology to drive website traffic and leads, it’s important to optimize internal processes to break through the online clutter.
Be sure to highlight why the dealer’s brand and the dealership are the best to work with. Fully answer questions about the vehicle of interest, but also give information about comparable new vehicles in inventory so a consumer has options. And don’t forget that nearly half of new car purchasers defect to used, so provide information about comparable used vehicles.
Galloway: I find it fascinating that so many dealers still aren’t embracing digital tactics in conjunction with their traditional advertising strategies. In order to stay relevant in today’s increasingly digital world, marketers need to adapt a multi-channel strategy and create consistent, meaningful touch points with potential buyers.
Customers are only visiting 1.2 dealerships before making a purchase, and are arriving at the lot with an intent to buy. They have already done extensive research and know exactly what car they’re looking to buy. Dealers need to be focused on getting in front of potential customers before they step foot on the lot, and ensure information is consistently available at their fingertips.
Further, dealers should focus on fixed operations to keep customers coming back after their initial purchase. In order to entice customers, dealers can offer promotions such as a first oil change free of charge. This gets customers back to their stores, and could drive additional revenue for other services.
Venneri: With consumers doing most of their research online before visiting a dealership, one of the biggest challenges in terms of digital marketing is engaging with consumers differently than years ago. Some dealers are stuck relying on traditional media that simply isn’t working anymore.
Our Social Media Trends Study found 27% of sales customers watch at least two videos a week on YouTube, and only 17% watch commercials on television. This is great for dealerships that embrace transparency and new mediums, but challenging for those ignoring the new ways to engage consumers. Some are painfully unaware how much things like low star ratings on review sites are killing their traffic.
Consumers are demanding more transparency, which is what social media is all about. Consumers read and trust comments and reviews from “strangers” more than they trust any advertising. They are also mostly mobile, so dealers need to ensure that websites, forms, and price quotes are easily viewed or completed on a cell phone.
Kolodziej: To me, it’s complacency, especially on the technology and process front.
If dealer networks don’t evolve to fit the changing shopping and purchasing preferences of consumers, we’ll see massive disruption like we have seen in many other industries, and dealers will be left wondering what happened.
Franchise laws in many states are in place to protect dealers, but ultimately the whims of politicians are often dictated by the bankrolls of progress.
Q:If the Trump Administration rolls back gas mileage and emissions regulations, how do you expect manufacturers will respond after years of engineering and marketing their vehicles for efficiency and eco-friendliness?
Wittenmyer: Most political climates are temporary, and manufacturers have to look long-term. Most are on a three-year cycle and working on their 2020 models now, so room for change is most unlikely at this point.
Politics aside, we know that fossil fuels are limited and that consumers are increasingly demanding efficiency. While we may see some deregulation and loosening in the financial arena, the manufacturers will continue the course of providing strong products and improving fuel efficiency.
Howe: That’s the great unknown. Most OEMs say they will continue to invest in developing technologies to address MPG and emissions. They say they are doing this for the good of the planet regardless of regulations, and that message resonates with the millennials coming into market.
Keep in mind that the political stage may change during any election cycle, so to stop now may be a short-term consideration.
And car manufacturing is a global effort, so in the big picture, OEMs have to consider the situation worldwide, not just U.S. regulations.
Venneri: Despite any intent to roll back regulations, I believe manufacturers will continue to market the efficiency and eco-friendliness of their vehicles because that is what consumers expect and prefer.
Consumers, especially with the power of social media, can much more easily have their voices heard and dictate efforts of the industry. We’ve seen this with how our industry and market have responded positively to green vehicles. Forbes recently reported that the monthly sales of electric vehicles rose 70% in year-over-year comparisons in 2016.
Additionally, the Obama administration’s fuel-efficiency regulations remain in place until 2022, meaning manufacturers will be focused on reducing MPG ratings and producing more efficient vehicles for at least the next five years, and by that time a lot can change with an administration.
Kolodziej: I don’t think we’ll see a return to the Hummer years, for example, even if oil prices remain depressed. Not only have OEMs invested billions of dollars in R&D to make cars more fuel-efficient, but consumer sentiment has been trending toward fuel-efficiency in much of the developed world.
I think most consumers want vehicles that are more environmentally friendly, as long as they don’t have to sacrifice features, the driving experience, and/or the style. With the quality of today’s vehicles, I don’t think they need to sacrifice.
Q: Is the belief that a fast-growing segment of consumers wants alternatives to traditional vehicle ownership—Uber/Lyft, car-sharing, autonomous vehicles, and alternative-fuel vehicles—accurate or overhyped, and why?
Wittenmyer: These services face the same challenges as the rail and bus infrastructure in our country. While they work efficiently in metropolitan areas, they simply aren’t practical in rural communities because people and businesses are spread out over large areas.
We don’t see as much adoption of these services outside the U.S. because of strong public transportation systems. We will continue to see these services grow in American cities and struggle in rural areas where they are less practical for consumers. Also, we have to consider that much of the American public still likes the independence of owning and driving a vehicle.
Howe: While this is impossible to predict, it seems that every new study or poll shows these interests are increasing. But everyone has a different timeline.
Remember, millennials entering the market have never owned a car before, so car-sharing is attractive to them, along with Uber/Lyft ride-on-demand services that replace ownership.
Autonomy is coming, but the degree to which it’s coming is unknown. There are five levels, and how far it goes is in the hands of consumer acceptance. Just as important is an increase in consumer desire to buy a car online, or at least a good portion of the transaction.
Galloway: What people don’t often realize about these innovations is that it’s not going to be an overnight transition from consumers owning and driving their own cars to a full-scale adoption of car-sharing or autonomous cars.
With self-driving and connected cars, the shift will be gradual. While we’ll start seeing more of these innovations become standard in new vehicles, the expectation that autonomous vehicles and Uber/Lyft will take over in the next few years is far from reality. NADA consultant Glenn Mercer predicts that by 2025, all vehicles will have assisted-driving features, but just 10% will be capable of full-fledged autonomous driving.
While alternative fuels and hybrid vehicles are picking up momentum in recent years, we’re still a long way off from them being standard, as gasoline remains a practical and inexpensive option.
Venneri: The concept of ridesharing having a major impact on vehicle sales in terms of today is slightly overhyped. It will become more relevant in the future as there is less loyalty with younger generations to brands, and they gravitate toward technology and convenience.
Our study found that only 32% of sales and 30% of service customers aged 18–54 have used a ridesharing service. Surprisingly, many respondents have either purchased or researched the car driven by their Uber/Lyft driver, but less than 2% say the use of ridesharing services has reduced the number of vehicles in their household.
There is a big opportunity for our industry to embrace and leverage ridesharing as the future of test drives, and new lease programs that allow for a fleet of vehicles provide some interesting sharing options.
Kolodziej: I don’t see Uber, Lyft, and car-sharing options as necessarily threatening vehicle ownership. I see them as more convenient options than trying to hail a cab, for example, or cheaper than other means of transportation.
To me, the more interesting factor would be whether the change is a true generational shift in preferences. When looking at millennial research and information, as an industry we have to be careful we’re not misrepresenting information on this generation or misconstruing their current economic situation as a fundamental shift in preferences.
Q:What consumer behavior and purchasing trends should dealers pay special attention to in relation to their current and future marketing strategies?
Wittenmyer: We are still not paying enough attention to fixed operations; as an industry, we’ve taken it for granted. NADA says that the average service content on a dealer’s website makes up less than 3% of the total information. However, independent brands typically dominate the first three pages of Google’s local search for an oil change.
Fixed operations hasn’t historically been an area of marketing focus, or ad spend. From the consumer perspective, antiquated service processes don’t match up to the experience they receive on the variable side of the business.
We will continue to see retention numbers slide, unless we drastically improve the overall service presentation, technology, and process, and shift more dollars to marketing.
Howe: It’s important to drive traffic to a dealership’s website since consumers have so many research options on the path to purchase. At the stage when consumers are narrowing their consideration list sits publisher sites like Autobytel and traffic solutions like AutoWeb, which drive in-market traffic directly to a dealership’s website.
Next, dealers need to drive consumer engagement and link to the right pages of their site. In some cases, people do not buy the vehicle they originally intended, so linking to pages that offer a wider scope of inventory is smart.
Finally, offer helpful website tools that increase engagement, like a texting solution, virtual showroom technology, or shop-by-payment. While the goal is to drive them from a dealer’s site to the showroom, the more tools a dealer employs to allow the sales process online is of growing importance.
Galloway: We’re seeing a massive change in the way people purchase cars. Instead of visiting a lot, they’re now picking out their vehicle of choice online and having it delivered directly to their door. More and more customers are expecting these VIP-type experiences.
With this shift in buying behavior, it’s increasingly important for dealers to be deliberate with their digital marketing strategy. They need to stop relying on manufacturers’ advertising programs, and create campaigns that really resonate with their local audience.
Additionally, dealers are going to be under increasing pressure to demonstrate ROI from their marketing efforts. Tools like Google Analytics can provide incredible insight into what’s working and what isn’t. It’s about aligning proper advertising metrics with proper advertising objectives, and measuring them in a simple and insightful way.
Venneri: According to our study, dealerships need to ramp up reputation management efforts as consumers turn to social media and review sites like Cars.com, Facebook, and Yelp to do research.
In fact, nearly 50% of sales and service customers chose a dealership based on online search and reviews. Dealerships can expand their geographic reach if their social media and review site ratings are positive; 72% percent of customers would drive 20–60 miles for a dealership with good reviews. The top reviews sites for vehicle research include Cars.com, Kelley Blue Book, Edmunds, Autotrader, Google+, Yelp, and Facebook.
Online research is also moving heavily to mobile, meaning dealerships need to optimize content for mobile platforms—86% of sales customers aged 18–34 used a mobile device to search and read about potential dealerships.
Kolodziej: The world outside of automotive technology advertising and marketing looks vastly different than the world inside of our industry. Outside, there are a myriad of technologies that allow marketers to perform true individual-based marketing with amazing accuracy. This even exists in TV, believe it or not, with advanced audience segmentation already covering 40% of households.
Consumers want to research products themselves and to have control over the purchasing process . . . nobody wants to be bombarded with “hard sell”/“in-your-face” advertisements.
Looking at both of these trends, I see a golden opportunity to provide consumers with the information they need across devices, in the manner in which they want to receive it. This way, dealers can still have their messaging out in front of the right people, but in a less intrusive and more strategic manner. For example: Google is the 900-pound gorilla in auto, but there are so many other options that could serve dealers better.
Q:When you envision the state-of-the-art dealership of five years from now, how does it differ from today’s typical dealership?
Wittenmyer: We’re starting to see glimpses of how dealerships will look in five years in some forward-thinking dealer groups today.
While the actual stores and facilities likely won’t change that much, processes and technology will be the biggest areas of improvement. The digital landscape will obviously play a much more significant role in facilitating a purchase than physical locations.
Howe: State-of-the-art dealerships will view their marketing and communications efforts as an integrated approach, much like successful dealers on our program are doing now.
The most successful dealers will be those who reach and engage with large volumes of in-market car buyers, and drive those car buyers directly to their own websites. Successful dealers will then convert those visitors into buyers with excellent engagement tools, online shopping tools, and a stellar internal process.
It’s simple. Sales is a people business, and progressive dealers will continue to try to find ways to engage with and transact with car buyers in the way that they want to transact.
Galloway: While it’s widely known that dealerships will shrink in physical size over the next few years, NADA consultant Glenn Mercer predicts that they will still remain the primary avenue for buying cars. We’re expecting things to evolve, but the dealership model will remain largely the same.
As I mentioned previously, it is a very exciting time for the automotive space. Technological advancements are forcing dealers to adjust their marketing strategies, but they can ultimately be an advantage for these stores.
With a forward-thinking approach to sales and willingness to adjust traditional methods, dealers will be able to easily stay relevant in the evolving market, and engage with customers in a more meaningful way than ever before.
Venneri: As millennials continue to increase their purchasing power, it’s going to take more than TV lounges and free donuts to win these tech-savvy customers. Dealerships need to build relationships with customers through seamless integration across all customer-facing channels, and immediate responses are required by this constantly wired, multitasking generation.
Millennials are also more open to interacting with businesses online. In fact, our Social Media Trends Study showed that 89% of millennials would “like” a dealership on Facebook to support it after a good experience. Consumers, in general, are moving in the direction of wanting to complete the entire car-buying transaction without ever going to a dealership—mostly on mobile.
Kolodziej: If dealers want to continue to thrive, they need to do two things consistently better:
First, streamline the purchase process, soup to nuts. It’s unreasonable to expect consumers to continue to put up with a highly inefficient purchasing process when they can get most everything else with a few taps on a smartphone screen. Either the dealer ecosystem gets it right, or Amazon will.
Second, ensure dealers are laser-focused on customer lifetime value/customer loyalty, especially around service. You need to provide a frequent touch point for customers, and you need to make them feel special and deliver a seamless experience, otherwise they’ll look elsewhere . . . for service and for sales.
Too often, we focus on the bells and whistles, but the fundamentals will set the stage for long-term growth.