Dealership Marketing

When is enough enough? Where do we draw the line on expense cutting?

Alex Snyder
Posted onDec 23, 2008 at 10:29 AM
Updated onUpdated on Dec 23, 2008 at 7:56 AM

As most of you know, I am part of the third generation of Snyder’s at the Checkered Flag Automotive Group. My grandfather founded the company in 1964 after he himself was part of another third generation of Snyder’s at a department store we used to own in Downtown Norfolk since the late 1800’s (closed in 1969).  He is the wisest man I know. He was born before the Great Depression and only has the kind of memories one can have of that time when you’re not even a teenager. He has lived through a few recessions and has had to make some tough business decisions in all of them. He has been the top operator, in both businesses, most of his life. Many of our recent conversations have revolved around the current economic issues and just how unpredictable things are.

Checkered Flag has made some serious moves toward the lean side in efforts of survivability. My grandfather says it is too hard to envision what the next month may bring. The turmoil in the market, changing gas prices, mass lay-offs and consumer fears have turned any future strategizing on its heels.  He said he has never witnessed anything like this before.  This is a frightening statement from a man who is so grounded and experienced.

I know Virginia is only a small microcosm of what is happening across the United States. The VADA (Virginia Automobile Dealers Association) recently met with Southern Virginia dealers to discuss what they should do should a manufacturer declare bankruptcy. It was the first non-pep-rally meeting from the VADA. I heard it sent the Chrysler dealers out with a lot more gray hair.

I bring these examples up to let you know that we are also in the same boat a lot of you are in.

I just don’t know, and I don’t think anyone does.

I speak to a lot of people around the nation on a daily basis. Lately I’ve been receiving at least 2 emails a day from various Internet Managers, or vendors, asking how to get a dealer principle to not cut such and such product.  I have been asking that same question myself. So, I want to put it out in the open: Where do we draw the line on what to cut and what not to cut? Bring your comments!

If you’re worth your salt at all, you probably leaned your Internet budgets out before things in the market ever got bad – this is just something any good operator would constantly be working on.  I’m sure most of you have a threshold for a quarterly performance closing ratio that you hold all your lead vendors to.  You gauge your SEM spending based on the number of clicks you get based on past trends.  You look at your people based on their closing ratio and have numerous measuring tools for your own website.

I’d like to see this turn into a thread of comments that can help all of us find some direction in this crazy market.  Let’s talk about:

  • Reporting – using it to show value before just saying “kill it”
  • Statistics – where are you falling off?  Maybe we can help show why.
  • Conversion – is a different consumer attitude killing your conversion ratios?
  • Branding – what is a performance-based ad and where do you continue to brand?
  • Consumerism – it has changed.  We are dealing with a totally different buyer now.

    Anything else you want to discuss
Alex Snyder
Who knew an argument with Jeff Kershner, in 2005, would lead to Alex becoming a partner with him on DealerRefresh. Where will the next argument take ...
W
Alex, thanks for the great article! You bring good points from a unique perspective.

>> Consumerism -- this is something the last few months, as the big 3 have shown their struggle more and more, has dramatically changed in our area. Consumers always have felt the buyer's market we're in; however, lately they're bolder by the minute. And when we show that we feel the same way in the showroom -- the down numbers, cutting deals to mini deals first bat, talking to customers about how bad business is, etc-- we rub that attitude off on them and it gets worse.

It's gotten worse. Truly, our numbers are very close to what they were this time last year (used cars is better). And even if yours aren't, attitude makes all the difference to how our customers react when they enter the showroom. We help them feel like they can have the whole kit-n-kaboodle when they walk in because they know dealers are struggling.

Since our numbers really aren't that bad (we've bought out a local Ford dealer in the process to help), I try to encourage everyone to talk like business is great as always! Let our customers know we're not going anywhere, and top-notch service is worth something. Of all times, anyways, we need the gross now more than ever.

I think that goes along with conversion ratios.

>> We've constantly been measuring our results, and when something doesn't perform we move the money into something else that will. The difference now is that we're not putting extra money out there to try new things.

But really, we get tight this time of year every year. Except this year we don't know if business will pick back up to where it was or not.

-- William
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    Budd Blackburn
  • December 23, 2008
Hi Alex,

I can see why dealers are so anxious when it comes to spending in general. I think you nailed it when you asked for thoughts and feefback on reporting, statistics and conversion
Imagine if every marketing company that pitched a dealer today was required to walk in with their written guarantee as to the results they would deliver?
It would be a different economy don't you think?
I think the spiral effect of fear and lack of advertising spending has run its course and now its time to stand up and take advantage of this market.
The current Market desperately needs leadership, courage, and most of all marketing dollars in play stiring up the buyers that are definately here today.
I own along with a partner a marketing company named Team Velocity, and As crazy as this may sound, our company is growning like never before. Its growing because we are willing to guarantee our results.

To us a written guarantee is easy, especially when you actually do something that works.

I believe all dealers begining today should require a written guarantee from all their marketing partners.
This would do 2 things, it would eliminate the pretenders and make it easier on companies like Team Velocity, that are serious about growing a dealers business.
This is the best market of all time to TAKE market share away from your competition, as most of them are asleep at the wheel waiting for a sign from above that all is well.

Thanks, Budd
P
Great question with unlimited correct answers since the question is the first step to the solution! Recognizing that our present economy is unique, and that surviving to sell another day will require hard decisons to minimize exposure and preserve capital and hard assets - including but not limited to key people, is the first step. Unfortunately, the next step may still find you falling off the cliff!

Rather than recap the obvious need to focus on ROI rather than the initial expense and the importance of a P&L engineered with journal entries accountable to specific percentage guidelines to insure profitability based on department and individual accountability it is important to recognize that those wisdoms only apply if the US dollar and the basic infra-structure of our "capatilistic" society remains intact.

A simplistic example is that many GM's have "memorized" certain expense guidleines from the cheat sheets supplied by the OEM's to develop an acceptable NET ROI for the dealership but few of them recognize that if the Gross Revenue from sales and fixed operations dosen't meet certain minimums there won't be enough cash flow or revenue to maintain them. Unfortunately, you can't force the market! Advertising, for example, can be ball parked at 12-15% of Gross Income to maintain minimum market share and presence but that may swell to 30-40-or 50% if you only sell 4 new cars a month and 10 RO's per day - as some domestic dealers are now faced with.

Cuts made as a "re-action" to these new levels are not actions unto themselves and therefor they will only lead to more reactions and a downward spiral unless a longer objective and "end game" is applied now - while a dealer's minimum working capital requirements and market share responsibilities are being met. If not, the decisions may be taken out of the dealer's hands and into the OEM's who unfortunately have a different agenda in today's troubled times.

The likliehood of "hyper-inflation" and depression resulting from our "floating" dollar that is no longer supported by Gold reserves or even Military options to preserve and protect our interests suggests that our economy will be impacted by forces beyond our control. The falling price of oil hides an exposure of Russia and other oil based economies to force a conflict to restrict oil production to get the prices and their economy back on track. Recent shifts of american based corporations and their assets off shore have also left industries tied to the mainland US - like retail car dealers - on their own. Now that I have scared the heck out of you - let's answer the question posed by this article.

Expenses must be cut to preserve minimum working capital and preserve cash flow long enough to survive at least one - maybe two years - without any expectations of profit. Sorry, but you asked! Those dealers that can't survive losses for one to two years by drawing down on in-house assets - not dependent on credit lines or encumbered assets but actual available cash - are at risk of going out of business. The consolidation efforts being forced by the OEM's is a reaction - not an action - and the "trickle down" impact will force undercapitalized dealerships out of the business. If you are not currently positioned to survive 1-2 years with no profits, and if even after expense cuts your current debt service and minimum fixed and sem-variable expenses place you in a negative cash flow - then the best advice is to look to cash out now while the decision is still yours. If you are a domestic dealer seek the highest and best use for your real estate with the expectation that there is no "blue sky" left to your franchise and protect the assets that you have before they are gone.

Now, for the good news! If you have properly analyzed the ROI on every expense within their own limited areas of responsibility and you control expenses to minimize your expenses to preserve as much cash flow as possible and you are still able to maintain your debt service, staff and minimum working capital and you survive the forest fire that is about to take place then you can expect to benefit from the new growth that will surely follow. Those dealers that survive will increase their market share and when the market comes back - AND IT WILL - they will recoupe their losses ten fold. The trick is to be one of those dealers that survive!
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    Reis
  • December 23, 2008
Alex,
I am still under the idea of mindset in your workplace. If you believe in something enough it's probably going to happen. Good or Bad. While I'm in the Midwest and I cannot speak for the coasts other than I think the coasts probably get hit harder than the midwest in terms of "economic crisis" simply because it seems that midwesterners typically live within their means a little better. I've been to both coasts many times and it just seems that not everyone and their mother can afford a BMW or Mercedes like they tend to portray. We have BMW, Nissan, Hyundai and Pontiac as our new car franchises and I oversee all internet functions of all 4 franchises including used. I now have a few sales consultants under me. Internet Traffic is barely down from where it was a year ago or even 6 months ago, but appointments definitely are. I've found myself taking an extremely active role in T.O's whether that be over the phone or in person when we do get our customer's in. Very early and often. If you can get involved and represent that your dealership is doing just fine and has not seen the kind of downfalls that other dealerships have. As long as your sincere when you say anything I feel that most of the time people will believe you. Even if your dealership is hurting. I believe Philip when he say the dealerships that do make it through will increase their market share by a ton, but Strong leaders will guide their troops through. Not the other way around. That's why is the Us's and Them's. Be the General LEAD the troops the right way and do what we know works. Qualify the right way, show the right cars, make the customers fall in love and you will make it through. Whether you make as much as you always have is still completely up to you.
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    Alan
  • December 23, 2008
Yes the customer has changed. Dealers need to start selling cars the way customers want to buy them and not how the dealer wants to sell them. You're right William that consumers are bolder by the minute. They have more information at their fingertips than ever before. I would like to know just how dealers derive ROI on their internet vendors and traditional advertising. How do you catagorize a sale as coming from one vendor over another when the customer makes a general statement such as: "I found you or your car on the internet"? How do you determine ROI on radio advertising, newspaper advertising and TV advertising....and billboards for that matter? What did you cut and why? Thanks!
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    JIM
  • December 23, 2008
Well here are some of my thoughts.

The internet marketing system is completely foreign to the automobile industry. The internet demands planning,review,corrective action when necessary. Dealerships have relied on taking what comes with little long range planning. Of course this is not everybody and is slowly changing. (at this point)
If you are not reporting your results to th General Manager on a Monthly basis I believe this is a big mistake. Show your return on investment. It takes out the guesswork and prevents quick uninformed decisions.

Conversion. I strive for 15% conversion on

1. Leads submitted to my web address, this includes sem,seo and pay for leads.
2. 15% on phone up leads generated solely by the Internet department. On a monthly basis

While I have not obtained this allways I have been within 1.5 percentage points the entire year.
Branding. Great topic.. This is the new frontier. I am right now exploring that option. If I can brand effectively will I need other lead sources?

Consumerism-People are the same today as before. Have you changed? Master the basics,believe in your product,believe in yourself. Yes they have more access to information. But so do you!!!Make it happen do not wait for it to happen!!

Hopefully this was some value from a internet persons point of view. Happy selling!!!
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Alex,

Our dealership has always looked at performance of advertising sources to decide whether to keep or shut down the vendor. We look at Closing ratios, Cost per vehicle sold, Gross vs Cost, etc.

In addition we have never really spend a lot on branding since it is hard to see what you get as for the ROI (not that it is bad)

What we have started the last several months is let all our vendors know that if we do not get help from our vendors we will have to shut them down alltogether. We send all our vendors letters asking for a decrease in price (keeping the service the same) or increase in service. This has worked extremely well with some vendors including our CRM vendor, credit pulling vendor, oil vendor, etc.

That said, when looking strictly at the Internet, I think you can really negotitate with your vendors and monitor the quality of the leads you are getting.

Regarding Consumerism:

I have noticed that although lead volume is about the same from third party and our own website, we have seen a decrease in closing percentages. Customers are telling us they are "just looking" more then before, which tells me that our customers are being more carefull because of the economic situation. The want is there, but the need has been lowered.
W
You know Alan, extracting that information about where EXACTLY a customer came from is a struggle for our dealership. I take a look at the sales log and track to see where that customer submitted information online to see where the sale came from, but if they didn't submit info, I have no way of telling. Customer survey sheets in F&I or at the time of write-up, or in our CRM, or anywhere have failed miserably.

My attempts to tell everyone how important it is to know this information (which would of course strengthen the fact of how low our ROI is on newspaper and TV) have not gone un-noticed, just without action. I'm going to have to try harder to get my dealer's attention on this fact so that it will get enforced.

Especially now, we need to know how to squeeze the most out of every penny spent in advertising. Thanks for giving me some motivation to persist in this!
W