What Will Happen When Dealers "Favorite Customers" are Gone?

I just finished reading Arnold Tijerina's great summary of this week's Automotive Customer Centricity Summit, which made me think about changes that will undoubtedly occur when most dealers favorite customer no longer exists.

Who is that customer? From my 31 years of retail automotive experience, I believe it's someone with a challenging FICO score who is not very car savvy. They're able to get financed, but only with a 25% down payment and 60 months at 14% apr. They're also willing to trade in their decent used car way below book. They didn't shop online, or look in the paper to compare other dealer's prices. In short, they're the highest grossing deals in most stores. Anyone want to disagree?

What's wrong with this being a dealer's favorite customer? I hear this retort a lot when I challenge a dealer's business strategy. They defend their practice by saying they were able to help this type of customer get a new car when others probably couldn't. Then I ask them, "Mr. Dealer, what if that customer were you? Would you like knowing a dealer made $3,000 more than usual on the deal just because they could?" (The responses vary dramatically from there)

This is not a post to criticize dealers. I'm just trying to create awareness that, like it or not, this favorite customer is going away - quickly. There will still be lots of credit challenged car buyers, but that's the only part of their description that will remain. These customers are going to be much more informed, prepared, impatient, and cynical. Above average grosses may still be possible, but they certainly won't be as easy.

I hope dealers start taking this change seriously, and working on new profit centers that are born out of building consumer trust, respect and appreciation. Read what George Liang, President of DCH Auto Group, said at the Centricity Summit about the future sales process. I think he is spot on. I also think dealers need to spend less time looking to auto industry peers for answers and more time searching out success stories they can replicate from other retail environments. Like what Tony Hsieh did with Zappos, or what Starbuck's CEO, Howard Schultz, talks about in his latest book, Onward.

There is much to learn from other retailers about surviving and thriving when your favorite customer dies off. As dealers learn to accept this change as something they can't fix using business practices from the past, the more innovative they will become in dealing with the new consumer. I look forward to taking part in it.

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Comment by Joe Tareen on June 21, 2011 at 8:21pm: good points...One thing I never understood. What part of the F&I manager's extra effort to secure the deal for the customer ensure the loan won't be defaulted. The higher the risk, the higher the reward for the bank and the dealer, because the customer has to be pay that much extra in interest. Isn't that the reason why the author in this article refered to them as the "favorite customers" in the first place?

Comment by Arnold Tijerina on June 17, 2011 at 11:56am: Just to play a little devil's advocate here... these "credit challenged" customers may be better informed, etc. but that doesn't mean they can get financing on their own. These customers are typically very difficult to get financed and require a lot of work on the part of the F&I department... many times having to call in favors to the banks that buy a lot of their deals. It doesn't matter how "informed" they are, they still need the dealers help to buy a car and it still takes a lot of work on the dealer's part to get that done. If the customer requires a greater amount of the dealer's time, isn't it fair that the dealer would make more gross? I know if I work more, I expect to get paid more. Frankly, many of these customers are thrilled that the dealer was able to help them buy a car at all. I would argue that most of the time, while the deal may leave the dealership with a high gross, the reality is that the bank isn't willing to take as much risk on that customer so the deal typically gets cut back whether its via LTV or a high bank fee so, while it may feel great to a sales manager to roll a high gross deal with a credit challenged customer, those deals typically don't stay "high gross" at all. I would argue that it is a NECESSITY to hold a lot of gross in these deals, especially if you spot-deliver, just to insure that should any of these issues arise, you are able to keep the customer in the vehicle without either unwinding it or having to call the customer to collect more money down and/or increase their payment.

Comment by Marsh Buice on June 17, 2011 at 9:31am: Cheril, "favorite" customer means easiest-truthfully what we thought was tough in 05/06 was easy. You are right, there are more credit challenged customers out there, for that matter many managers and sp are in the same boat from the latest reset-tion. We have to adapt to all customers, the "they's" are "we's" and we have to embrace them bc they matter. Thanks for the reminder for us not to be so judgmental and cynical