Today’s educated consumer empowered by knowledge they acquired on the internet has little patience for a self-serving dealer message.  A click of their mouse will answer their questions and find a vehicle that fits their needs leaving little reason to visit a dealership. Truth be told, the brick and mortar auto dealership is not necessarily the most efficient business model for cost conscious consumers or profit driven auto dealers to achieve their respective goals.

Future solutions for the auto industry must improve the customer experience while increasing profit margins for dealers; in that order. Most auto dealers and technology vendors will legitimately jump to their own defense and cite the many value added services they provide their customers at their facilities beyond offering the best price and product.  At first glance, I agree.

Auto dealers who take a second look at their facility from their customer’s perspective will discover a different future for their auto dealership to more efficiently serve their customer’s needs:

• They must compete with online showrooms – including their own – along with third party consumer centric resources to provide relevant transparent information in a timely manner

• They must reduce fixed and semi-variable expenses associated with operations, cost of sales and marketing while passing along the savings to their customers in the form of reduced prices

• They must provide additional products and services to better serve their customers’ needs and develop residual profit centers

• They must collect and manage a data base of past, present and pending customers to deliver personalized targeted messages to maintain relationships throughout the ownership cycle

• Their facilities must be “Experience Centers” providing services not offered online; such as comprehensive test drives, repairs, maintenance and custom after-market products

• Their in-facility sales and service processes must be efficient, designed to match their customers’ online experience and exceed their expectations

Relationship based selling will always factor into the shopping process for a new or pre-owned vehicle.  Next generation social media and online reputation management tools provide a perfect platform to accomplish this goal.  However, the next logical step in the evolution of the retail auto industry to maintain this consumer focused path demands re-purposing the role of today’s auto dealership.

• They must compete with online showrooms and provide relevant transparent information

The internet has leveled the playing field for small and large dealers by providing a cost effective marketing platform that is not limited by geography, facility size or inventory.  Bigger facilities, inventories and advertising budgets represent more of a financial burden than a benefit for dealers.  Consumers can now search inventory nationwide across all makes and models with the confidence that they can do their shopping online vs. making a trip to car row.  It has also allowed consumers access to information previously controlled by dealers which opens the door for them to question the role of their local auto dealer in their shopping process.

Yesterday’s radio, TV and newspaper generation were not willing to invest tens of thousands of dollars sight unseen on what was an emotional decision for a vehicle that often defined their personality.  However, a growing reliance and confidence on the internet by today’s text and internet driven youth who see a vehicle as a necessary evil to commute to work might not be as demanding.  More relevantly, the next generation of car buyers is at a real risk of not enjoying the financial independence of their parents and their buying decisions will likely be governed by their reduced financial resources.

Combine consumer confidence in their self-researched product and price information with transaction tools that allow them to purchase their vehicle online subject to a final test drive at the dealership, their home or office and the line between the real and the virtual dealership continues to blur.  Further supplement customers online experience with a video conference that adds a personality and friendly face to the facts and then allow shoppers to share their thoughts with their online friends before, during and after their decision to buy and you start to wonder why a customer would invest their time and gas money to travel to car row to purchase their next vehicle.

Forward thinking auto dealers are shifting their focus to their virtual showrooms and digital marketing plans through the use of best in class online applications that replicate real world shopping experiences. Consumer preference to watch an informative video vs. reading a brochure or even flipping through online pictures has been satisfied with video production platforms like SiSTeR Technologies.  SiSTeR Technologies produces and distributes vin-specific vehicle videos with integrated links to credit applications, trade-in appraisal tools and competitive comparisons sourced from credible third party providers across multiple makes and models.  These resources allow consumers to make buying decisions that previously required a trip to the dealership.

• They must reduce fixed and semi-variable expenses and pass along the savings to customers

Growing economic concerns and expectations that credit and incomes will be negatively impacted suggests that the luxury of individual vehicle ownership may necessarily change.  Increasing unemployment and gas prices have the potential to drive populations into urban communities where public transportation is more widely accepted.

The experienced decline in growth of rural communities and the introduction of fractional ownership of vehicles on a pay as you drive basis represent a cost effective transportation solution that could trump individual vehicle ownership.  Selecting your vehicle for the day parked conveniently next to your home or office billed through your mobile phone could replace monthly payments and service needs previously supported by auto dealerships operating under what could become a dated business model.

The OEMs are also adjusting their manufacturing and distribution processes to produce universal vehicle platforms that will accommodate international markets with minor adjustments to fit regional demand.  Just in time parts deliveries to computer driven production lines designed to accept real time vehicle orders placed by customers through virtual showrooms vs. local dealer inventories with their related floor plan costs promise to reduce costs to consumers and boost sagging profit margins for dealers.  These efficiencies in manufacturing and distribution once again point to the need to change the role of the dealership in the retail auto industry.

Simply put, a future with limited financial resources for consumers and dealers will dictate a change in the role of the automobile and the auto dealers that sell and service them.  That is not to suggest that auto dealerships, both real and virtual, will not play a role in the future retail auto industry but rather that their products and value added services for consumers must accommodate the needs of their customers.

A shrinking market will likely result in a reduction in the retail dealer network needed to service it.  This is already being realized through government intervention, as experienced by Chrysler and GM Dealers, and natural market demand for dealers to consolidate their franchises into shared facilities closer to where their customers live and work to leverage shared resources and reduce costs to maintain operations.

Commercial real estate investors, including auto dealers who own their facilities, need to consider the highest and best use for land and improvements.  When the math is applied to the debt service and operational expenses required to support a ten plus acre dealerships it becomes obvious that smaller facilities limited to service and support of online vehicle sales and marketing platforms provide less risk and greater reward for dealers.

Specialized commercial real estate services targeting the changing real estate needs of the auto industry, such as a division within Colliers International - the Colliers Automotive Real Estate Services, (CARS), - have positioned themselves to evaluate auto dealerships to determine the land and improvements highest and best use.  OEM requirements for suitable locations of their franchises and local zoning regulations limit dealer options to relocate or share their facilities with multiple franchises.  However, concessions have been made to accommodate dealers with sufficient resources and market share to insure their profitability which suggests that consolidations of facilities will be granted as the market dictates it.

• They must provide additional products and services to better serve their customers’ needs and develop residual profit centers

New vehicles will also necessarily change to accommodate future customer needs and fuel sources. Restrictive CAFE standards and consumer demand for more fuel efficient vehicles due to escalating fuel and maintenance costs are already impacting the marketplace.  A prime example is the introduction of electric vehicles (EVs) that are being produced in anticipation of federal regulations and market conditions that will nudge consumers into accepting them in the foreseeable future.

It’s no surprise that the newly empowered, data driven consumer has put dealer margins under pressure. Reduced profit margins on the sale of  new vehicles combined with the reduction in required maintenance means that dealers must develop new profit centers to make up for the anticipated loss of revenue.  In addition, finance and leasing restrictions brought about by federal regulations imposed on the banking industry will further reduce profit centers in F&I reflected in caps placed on dealer reserves on contracts and warranty sales which will further impact the profitability of brick and mortar facilities.

One source of new revenue comes from what many would consider an unlikely source: the electric vehicle or EV. Despite the controversy surrounding its introduction in late 2010, reminiscent of the similar debate when the Prius was launched a decade earlier, most pundits now only debate  “how many” and “when”. This collision between the transportation grid and the electric grid will inevitably generate new products and services for savvy entrepreneurial auto dealers.

Leveraging the ability of the Internet to capture consumers’ interest in EVs and translate that into both vehicle and aftermarket sales opportunities, Electric Vehicle Business Development Strategies (eVBDS) has developed a unique business model that embodies the new  “virtual-to-real” process. George Stellweg, eVBDS CEO, explains “Through our consumer facing dealer centric marketing platform, EV Dealer Exchange allows dealers to reach in-market customers anxious to learn about the different EV’s and associated new technologies.”

Partnering with electric power product behemoth Schneider Electric and home improvement retailer The Home Depot, eVBDS enables auto dealers to sell Schneider’s residential EV chargers directly to their customers at the point of sale, with Home Depot providing distribution and installation services.  Replacement EV batteries  and future product offerings that enhance the EV driving experience represent future sales and customer support services that extend beyond the dealer’s facility and initial vehicle sale.

The introduction of a new generation of home energy management systems will enable home owners to gain more control of their energy usage, and system developers like Schneider view EV owners as the logical “early adopters”. “eVBDS provides Schneider Electric and The Home Depot with an extensive retail channel of auto dealers who have unique relationship with EV owners” says Forest Williams, eVBDS COO.  “HEM systems are just one example of the new opportunities for dealers to extend their brand beyond their existing franchises, enabling them to control customer satisfaction and retention beyond the vehicle sale.”

• Their facilities must be “Experience Centers” providing services not offered online

This new found market for auto dealers to sell home energy management systems will reduce their dependence on their brick and mortar facility as their products and services extend into the home.  Auto dealerships will be re-defined as Experience Centers with test drive courses that allow customers to feel the instant acceleration and high tech features and benefits of EV’s to justify their existence.

These re-designed facilities will also provide state of the art service facilities offering personalized after-market accessories vs. fancy showrooms.  These experiences, products and services can’t be offered online and they will provide a value proposition to visit the dealership to enhance the online experience for consumers while offering dealers profit centers that extend beyond the initial sale of the vehicle.

• They must collect and manage a data base of past, present and pending customers

Technology driven sales processes that allow a dealer to build and manage a customer data base collected from online resources suggest a shift to this more liquid and sustainable asset that is not dependent on their facility and the associated expenses.  Direct marketing to a loyal data base of customers for future sales and service is an extremely cost effective marketing solution for auto dealers. Extending the auto dealers’ online footprint beyond their own website by posting their inventory on third party marketing platforms, being listed on specialized websites like the EV Dealer Exchange portal and contributing to online discussions promoted by various social networking communities will provide new sources for potential customers to add to their data base not limited by their physical location.

This shift to leveraged online exposure represents another reason why dealers must rethink how they are using their facilities which should be concentrating on fixed operations vs. vehicle sales.  Attracting in-market online shoppers may or may not result in a vehicle sale today but adding them to an internal ongoing marketing plan to service their vehicle regardless of where they purchase it stands a better chance of maturing into a mutually rewarding relationship than the old school philosophy of buy or die.

Customer satisfaction and retention is a key element to increasing service absorption which also impacts vehicle sales before, during and after the initial contact.  Automated consumer focused data base marketing platforms, like Driving Loyalty, allow dealers to alert customers of required service, factory recalls, in-equity alerts to trade-up and anything that relates to their investment in their vehicle. In addition to automated emails and letters with personalized information regarding past purchases Driving Loyalty provides a personalized website for each customer that posts their sales and service history in an easy to use interactive website.  Customers can research in-stock vehicles and get their trade-in value as well as exact out the door prices and payments without involving a salesperson or visiting the dealership.  The dealer is notified of any online activity by their customers that suggests the need to contact them with additional information or to provide a gentle nudge to do business from the convenience of their home or office; win-win!

• Their in-facility sales and service processes must be efficient and customer centric

Finally, the future auto dealership will have to match the online customer experience much like the first wave of dealer websites were challenged to replicate the real world shopping experience.  Vendors have already accepted the challenge to accommodate today’s educated consumer by empowering the dealership sales staff with information delivered on an iPad on the showroom floor.  IntellaCar is an example of a best in class mobile sales presentation platform that provides a salesperson with the same tools that the customer used online to educate themselves before they visited the showroom.

The wow factor of a salesperson being able to answer questions with information sourced from credible third party resources presented the same way that the customer researched them online creates a level of trust that helps the customer make a buying decision.  Presenting competitive comparisons across all makes and models also eliminates the need for the customer to visit a competitor and provides a path for the salesperson to close the sale on the first visit.  This kind of efficiency is necessary to build value in the dealership experience and represents yet another fundamental change in the value proposition offered by a real world shopping experience in tomorrow’s newly defined auto dealership.

It should be noted that the role of the salesperson also needs to change to accommodate consumer demand that they provide added value to their shopping process.  IntellaCar addresses that need by operating as a training tool that accelerates the learning curve of the dealers’ sales staff as they absorb information along with their customers during every presentation.  Employee retention is improved as salespeople become productive faster and the dealer has the confidence to know that his sales processes are consistent and professional through the use of built in analytics in the IntellaCar platform that monitors its use.

In summary, the future of the auto industry does not suggest the elimination of the auto dealership of today but it does anticipate the need to re-define the role of the auto dealership of tomorrow.  I have personally invested in or partnered with all of the vendors cited in this article in support of the changing role of tomorrow’s auto dealership.  Of course there are many other equally forward thinking vendors focused on the future of our beloved auto industry with a shared confidence that it will survive all obstacles.  Frankly, I decided to write and post this article to surface vendor partners that I have yet to discover with the hope that I can contribute to our shared visions and success.

If you represent or know of a vendor platform that provides a solution to some of the challenges facing the auto industry that I have referenced please add your comments to this post, contact me directly at pzads@bellsouth.net or call me at 561-962-2738.  I also welcome any contrary opinions or visions for tomorrow as I recognize that I don’t know what I don’t know and my participation in sites like this one is designed to listen and learn so I can presume to continue to teach.

After all, what are friends and partners for!