by Kerry Dowling
Dealer News Today has spent a good deal of time recently talking about the ways dealerships have had to reimagine how they operate. Though this was largely necessitated by the Covid-19 pandemic, many are now realizing that the changes they made to meet customer needs and demands during this time are actually good business decisions for the long term. Most notable of these changes has been the introduction or advanced use of digital technology. Dealers quickly realized that the need to collect, integrate, access, and use real time data to facilitate both sales and customer satisfaction was integral to survival. Those already using this technology were better positioned to continue business while those without this ability recognized that waiting was no longer an option. The array of digital products, systems, and services for the automotive industry is impressive and growing daily. If you follow Dealer News Today podcasts, you’ve already heard from some of the best in the business including executives from vAuto, iRecon, and Dealertrack – all of which fall under the Cox Automotive umbrella. If you missed them, they are worth going back to for a listen.
In addition to digital integration, reimagining also took other forms. While preparing to handle sales and service within the guidelines of the new normal naturally took precedence, many stores also used this time to take a long hard look at internal operations. In a recent podcast, Dave Cantin reminisced about his days owning a dealership and his lessons learned about new car inventory management. During a snowstorm, Cantin noticed a snow plow maneuvering around large numbers of cars on his lot. When he asked why those cars hadn’t been moved for the plow he was told that they were missing either keys or gas. This was an ‘aha’ moment for Cantin as he realized that he had taken his “eye off the ball” when it came to his new car inventory management. These ‘not ready for sale’ cars were part of his 30 million dollar new car inventory and that was, understandably, simply not acceptable to Cantin. This story was part of a larger conversation Cantin had on that same podcast with Brian Finklemeyer, Senior Director of New Car Solutions at vAuto. Finklemeyer drew interesting parallels between the ways new and pre-owned car sales are handled at the dealer level. Finklemeyer quoted a JD Power survey that found 12% of model combinations represent 75% of new car sales-even more extreme than the 20/80 rule. With margins this tight it makes sense that dealers would closely scrutinize their allocation, inventories and new car sales data before placing new orders. Interestingly enough, that is not usually the case. According to Finklemeyer, this type of attention is closely paid to pre-owned sales data but not new car sales. He has observed robust activity on the vAuto tool showing used car inventory managers massaging prices, merchandising promotions, and managing their inventory on a daily and more granular level-in essence, watching, analyzing, and acting on real time data. Finklemeyer describes the attention paid by these managers as being akin to money managers watching the stock market. They have a vested interest in a profitable outcome. Why? Because used car managers are compensated based upon how much floor plan profit they make. Not so for new car managers. Despite being entrusted with $8 to $12 million worth of inventory, this area has very little oversight and accountability. In fact, Finklemeyer’s company did a study a few months ago asking dealers how much time they spend managing new car inventory (allocations, inventories, and prior sales) and the average came back at around 2 hours per month. The irony here is that a dealer later told Finklemeyer that number was exaggerated with the real number being substantially less than 2 hours per month on this task. So you have the pre-owned guys who live and plan by daily data versus the new sales guys who spend less than 2 hours a month assessing their allocations, inventory, and prior sales. Finklemeyer astutely compares this to a brokerage or investment house. If you have $15 million to invest do you want to park it with a firm where pay is based on reported performance or a firm where there are no performance reports or consequences if your money is invested poorly? I think we all know the answer to that and yet dealers don’t have the same expectations with their multi-million dollar new car inventory.
Dave Cantin has an expression from his days as dealer that is very apropos to this conversation. In regards to new sales management, be it desk, inventory, or general managers, Cantin advises them to “Act as if the business is yours”. He believes these managers must do a better job of understanding their allocations, their inventories and their prior sales reports to know what are their constant sellers and then order based upon this data. This is especially true with the pandemic slowing down new car production. Cantin’s philosophy is one way to ensure that aged inventory won’t exist on your lot.
Finklemeyer echoed Cantin’s idea by suggesting that dealers act as if new car sales are an investment or brokerage house. He believes one way to accomplish this is to make floor plan profit a part of new sales management pay plans. If they are directly compensated based upon how much floor plan profit they make then new sales numbers would rise while aged inventory numbers would diminish. For Finklemeyer, the act as if you’re a brokerage means new car managers knowing, using and analyzing real time data as they would to load up on top performing stocks or, in this scenario, to identify and order the 12% that represent the bulk of their sales. Both Cantin and Finklemeyer attest to floor plan compensation as the driving force behind pre-owned sales figures and low aged inventory. There is no greater motivator than pay tied to performance. It’s not only good for the business, it makes for a better, more knowledgeable, and driven employee. If a model works, as this one does, in pre-owned sales, it stands to reason it will work in new car sales, which leads us right back to Cantin’s philosophy. When managers are called upon to “act as if the business is yours”, the good ones will and your numbers will reflect it.