The Death of The Buffalo

When Lewis and Clark first crossed the Great Plains they wrote in their journals about the sheer size of the buffalo herds. Some stretched for miles. Think of sixty thousand large hoofed animals moving as one. The ground would shake and the sky would darken from the dust. We know how that turned out.

The Good Ol' Days:
In the '80's and '90's, Before Internet, the customer didn't have Edmunds giving them an invoice on the vehicle. Dealerships operated with impunity and the power was with the Dealership. The Golden Era of Front End Gross. The Brave New World of car sales has customers armed to the teeth with pricing, how to short circuit a 4-Square; it's not "give me the invoice price" but "how much below invoice can I get the car". If the customer wants to take the time he can agree to come in on one price and then shop the price at another dealer and then go back to the original dealer and so on and so forth. Eventually one of the dealers cries uncle and the remaining dealer has the opportunity to lose money selling a car.

There is No More Buffalo:
The days of plenty are over. The customer has the leverage and that leverage will drive front end gross ever lower; in fact most Internet Departments have negative front end gross. The manufacturers themselves are now using their profit to reimburse dealerships who make certain volume goals. And woe be unto you who is trying to sell the same car as a dealership that needs ten cars to meet its manufacturer's volume bonus. Car buyers want a car at or below $10,000 and they will try to get invoice on that.

The New Market Place:
Cheer up. Buffalo meat had too much cholesterol anyway. It's now about information and convenience. Customers can get about the same price at any dealer--Think Costco, AAA, etc. It's now about
convenience. We are told not to sell the car over the phone but if you were to ask the customer that is exactly what they want. The want to get and agree to a price and then come in to check their purchase and sign the papers. Simple and easy. And did I mention they don't want any "surprises". Those surprises are how a great many dealers make money, rightly or wrongly. There are new ways to make money, a dealership's Finance Department should be its profit center. In fact the best salesmen are no longer on the floor or in the Internet Department they are in Finance.

Do Everything Before They Come In:
It's time to sell convenience. Instead of four hours in the dealership try to make it one. Run credit, pick the car, and get the customer as much involved in the process as possible if the customer is involved in the process and feels comfortable then coming in should be the only commitment required. In terms of pricing that should be dictated by what the dealership needs in terms of volume but setting low, automated quotes is a good place to start. Shop the competition and always know where you stand. The profit is going to be in your pre-owned inventory. That should be where you put your sales talent. That's not to say that you don't sell convenience to pre-owned customers, not at all. The faster they leave the dealership the more gross you will hold.

Don't Plan The Funeral:
The car business will always make money. It is still one person talking to another about buying a car. Customers still get excited about cars--check out the people who went to the LA Car Show and tell me there is no enthusiasm in the car business. Selling cars is now about information and how selling leverages that information to make buying a car simple and easy.

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Comment by Garrett Osborne on May 10, 2012 at 12:00pm: Thanks for the comment Joe. For smaller dealerships it requires creative marketing strategy and leveraging their customer base. Business Intelligence is a real solution for the smaller dealers--plus rigorous follow up with Internet, show room, and phone customers.

Comment by Joe Clementi on May 10, 2012 at 11:34am: Garret, I love the blog as well. In our business, we have come to understand that the only constant change is change itself. Dealerships have to constantly find ways to separate themselves from the competition. Smaller dealers have more of a challenge trying to compete with the pricing that larger dealer groups use in their ecommerce. Volume incentives make the process of price competition inherently beneficial to larger groups. The real challenge; at least in my humble opinion, is the dealer’s ability to evolve their business plan.

Comment by Garrett Osborne on May 7, 2012 at 10:10pm: Thanks for the comments Marsh. As much as I see Business Intelligence moving the industry forward it is still about a customer, a car, and a whole lot of WOW.

Comment by Marsh Buice on May 7, 2012 at 9:48pm: Garrett, love the blog-so many are standing around defending how the business used to be when we should instead plan for the business ahead. No matter what how transactions are amended in this business, it will always be relational. Fast food restaurants didnt take over fine dining-there are segments for both pallets. In our industry, we have to serve it up fast with a small margin, but there are others who we wine and dine who pay a great commission based on their WOW experience. Great topic thanks for sharing.

Comment by Garrett Osborne on May 7, 2012 at 1:38pm: Thanks Bobby, this is spot-on. I do see trends that have manufacturers pushing new car volume. Volkswagen is especially agressive in its sales goals. You are right the basics don't change.

Comment by Tom Gorham on May 7, 2012 at 8:01am: Loved the article and it's true the auto business is not going to go the way of the buffalo. I agree with Ralph that there's profit to be made. My experience is that there is little difference between Internet gross profit and profits made on the floor. In fact Internet gross profit is often higher due to the time spent building value.

However the price wars between same-brand dealers are beginning to commodicize new cars and drain dealers. Manufacturer dealer incentives push prices down even further. Thanks Garrett. This is a great topic and needs to be discussed more.

Comment by Garrett Osborne on May 6, 2012 at 8:00pm: Delete Comment

Ralph as to point # 1 you are absolutely right. Point #2 concerning used car front end gross, it is my experience that Internet and Retail are relatively equal. In terms of new car\invoice pricing my experience with Volkwagen, Nissan, Toyota, Honda, and Chevrolet speaks to a consistent negative front end gross for Internet Sales. When I say invoice I mean new cars--because used cars don't have an invoice. The Internet is seen as a new car buyer arena and the percentage of new to used is 65% /35%--at best. My experience is all in the Greater Los Angeles area so your experience may be market specific. LA Internet car buyers usually have the APR and even money factor at their finger tips so it's not a reliable method for gross. Ultimately I think we agree, as I said in the blog, "The profit is going to be in your pre-owned inventory." Thank you for the kind words and culinary expertise.

Comment by Ralph Paglia on May 6, 2012 at 6:19pm: Garrett, although I love the overall guidance provided by your article, I must take issue with two points you made.

The first is about Buffalo Meat, to which I will respond with this quote from a news report on the rising sales of American Bison meat: "Despite the buffalo's shaggy, lumbering looks and 3,000-pound-plus girth, its meat is lean and nutritious. Farmers and grocers suspect the health benefits are a big reason why bison meat sales have been skyrocketing in the past few years."

My second issue is your assertion that most Internet Sales Departments are losing money on their front end gross... This is simply not what my experience has been either with departments I have managed myself, nor with dozens of dealerships i currently work with. In fact, it is my experience that most independent Internet sales Departments generate HIGHER front end sales gross than the showroom floor, especially on used vehicle sales. In many dealership's cases, the front end gross with Internet originated sales is considerably more than showroom initiated sales activity... In the case of used vehicles I have seen Internet Sales Teams out-gross the showroom teams by over $400 PUVR. Maybe that is not the cases with the dealerships you have worked with, but that is what i have been seeing, with more than a few exceptions, for the past 12 years, including the dealerships I work with today.

One last factor worth mentioning... The average credit score of consumers who initiate their vehicle purchase inquiry via the Internet is OVER 100 points higher than showroom customers who do not initiate contact via the web with a dealership... In many cases, this is a major financial factor impacting the profitability of a transaction.