10 Things to Consider Before You Blow Off the Idea of Transparency

Dealers are constantly looking for ways to get an edge in the digital age, yet many continue to follow the same sales and advertising practices that they’ve been using for decades.

The problem is that the game has changed and consumers have access to much more information and choices than ever before. In the past the dealer controlled all of the information, but today it’s just the opposite. Any information you offer is now carefully scrutinized and validated by a vast amount of online data. As a result, the likelihood of old-school sales practices backfiring has increased substantially.

So what type of “old-school” practices am I talking about? How about pricing vehicles without disclosing that there are rebates that most people don’t qualify for; trade-in values where the selling price is increased; trade under-allowances; withholding information on phone pops and internet leads (“just get ‘em in”); write-ups and F&I presentations (four-squares & payment packing); bait & switch advertising; and non-disclosure of vehicle histories and add-on fees?

I have spoken to many people who think this new-fangled transparency talk is just nonsense. After all, we've been doing business the same way for decades and it’s been wildly successful. If it ain't broke we’d be stupid trying to fix it.

I get it. I’ll be the first to admit that I spent most of my career as a poster child for the “but we've always done it this way” mindset. My thinking has changed though. I’ve had the privilege of meeting some amazingly-smart automotive thought-leaders who have taught me that there’s more to success then the “whatever it takes to make a deal” mentality. While the business-as-usual way of thinking sure is comfortable, I’ve come to realize that it’s probably not the key to long-term success.

So before you discount the idea of transparency in your dealership, you may want to consider these 10 potential benefits.

Increase Lead Conversion - The ultimate goal is still to “get ‘em in” and close the deal, but for an increasing number of shoppers, transparency is the only thing that will get them in. Not being upfront about details used to have its benefits. Up until recently, the salesperson could control the selling process because he or she controlled the information. Today, it’s just the opposite - consumers have all the information they need at their fingertips. If you resist answering customer’s questions, chances are you’ll never hear from them again.

Increase Closing Ratios - Higher levels of satisfaction with the selling process result in higher closing rates and higher sales. A recent survey by Maritz Research of over 163,000 Americans found that 64.0% are completely satisfied when one person with pricing authority negotiates a car deal vs. 20.7% when two or more with no pricing authority are involved.

Improve Your Reputation (your REAL reputation, not necessarily the one you “manage” online) - A dealership’s reputation is difficult, if not impossible, to maintain when staff members depend on “old school” practices. Customers often make decisions during a vehicle sale transaction that they come to regret after the “ether has worn off”. You can be sure they’re telling somebody about the transaction.  Or perhaps they’re telling thousands of people online?

Avoid Legal Problems - State & federal regulators frequently target “non-transparent” dealer practices as unfair and deceptive. These practices include bait and switch advertising, failure to sell at advertised prices, payment packing, vehicle history disclosures, yo-yo financing, improper fee disclosure, and misleading pricing.

But it ain’t illegal if you don’t get caught, right?

The new reality is that “getting “caught” is no longer likely to be just a fine and slap on the wrist. Regulators now have a new trick up their sleeve - using the media to humiliate those dealers caught in order to intimidate others. There’s plenty of political capital in going after car dealers for ambitious regulators. These regulators want press, and the tougher and more far-reaching the press the better. As a result, the severity of the offenses is often exaggerated (think about what the FTC did to those 5 unfortunate dealers last year). You need to ask yourself what the cost of that kind of negative publicity would be.

Increase Customer Satisfaction - Lack of transparency and old school tactics invariably diminish the customer experience. Nobody likes surprises. Sure, you made the deal but are your customers truly satisfied with your processes or do you just wear them down?

At the end of the day higher customer satisfaction translates into more repeat and referral business.

Increase Customer Loyalty - Customers only have loyalty if you earn it from them.

Transparent processes help build customer loyalty and retention. You’ll find that customers will be willing to spend more when they feel they’re buying from a business they can trust.

Your Customers Have Unprecedented Access to Information in Real Time - A recent JD Power report highlights a growing trend called 'Showrooming' where prospects sitting in your showroom are actually price competing your deal with another dealership using their mobile devices. Consumers not only have more access to information but also have access to more dealers. In the past, consumers were limited to dealers in their local area. The increase in the amount of information available to consumers has brought consumers a quick and easy way to analyze not only different prices via internet quotes but also to identify who they want to do business with. Customers simply have too many choices and will quickly discard dealers they feel are hiding something. Holding back information will only make them trust you less.

Reduce Chargebacks – What happens after the ether wears off and the customer goes home and reads the contract? I’ve found that the percentage of chargebacks and cancellations is directly related to transparency in sales and finance processes. For instance, staff members who participate in payment packing typically have a much higher chargeback rate. Once customers figure out that the “protection package” wasn't really only a “few extra bucks a month”, they want to know why. You can only hope they don’t ask an attorney that question.

You’ll Stand Out From Your Competition – Let’s face it, there just aren’t a great number of dealers who are transparent yet. Progressive dealers can easily differentiate themselves by marketing their transparent processes and demonstrating their honesty. Consumers will respond - after all, how many consumers prefer old-school tactics?

Transparency is what consumers have been begging for so why not treat them the way they want to be treated? – Here’s a hint: it’s happens to be the right thing to do. In my opinion, subjecting customers to old-school processes doesn’t give them the respect they deserve. Just because you can doesn’t mean you should.

The good news is that transparency can be the pot of gold at the end of the rainbow. A transparent business model can greatly enhance your sales, reputation, customer retention, and bottom line. But first you must find the vision and courage it takes to break down deep-rooted stereotypes and embrace transparency.

I’ve said it before and I’ll say it again: Transparency is not a dirty word but complacency is. Do you have the vision and courage it takes to embrace transparency and go from being good to being great?

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Comment by Tarry Shebesta on April 11, 2013 at 10:11pm

The transparency we and our dealers find success in is providing real payments and rates the customer actually qualifies for. This, not the actual price, is what most shoppers are after.

We have also proven that focusing on the payment actually produces higher front/back end profit while providing the best possible customer experience.

 

Comment by Mike Stoner on April 11, 2013 at 7:36pm

In the early days of dial up internet access (1996) as the GSM of Washington States largest volume dealer it was clear to me that total transparency was what the customer wanted. I developed and implemented a transparent sales negotiation that combined with a handful of "Tested Sentences That Sell" resulted in a $6,000,000.00 increase in NET profits.

We increased per car gross by $1,800.00 per car and most of it fell straight to the bottom line. Simultaneously our CSI (historically lowest in our region) increased to the point where we were well on our way to winning the first of several successive Presidents Awards. Complaints to regulatory agencies stopped completely.

This link is to a video of a GSM of a Chevrolet store currently utilizing our program. A totally transparent negotiation that produces for them over $4,000.00 per car and has been doing so for over 10 years. http://vidmails.com/p.php?s=d19d154e27

Mike Stoner

www.theshopperstopper.com 

Comment by David Ruggles on April 11, 2013 at 6:04pm

That's what Ford said when they bought all the stores in Tulsa, OKC, Indy and SLC.  They were going to show us all how its done.

Comment by Daniel B Oliver on April 11, 2013 at 1:28pm

Well said Jim. Sage advice. Should be on the desk of every dealer principal.

Comment by Jason Mickelson on April 11, 2013 at 1:24pm

First, Mr. Radogna, great post designed to help dealers in the new age of selling cars.  

I liked Mr. Ruggles idea of defining transparency. Merriam-webster.com it as (omitting definition 1 that has to do with light passing through an object): 

a : free from pretense or deceit : frank
2 b : easily detected or seen through : obvious
2 c : readily understood
2 d : characterized by visibility or accessibility of information especially concerning business practices 

This is a refreshing term.  When we focus on the second definitions, it appears that these follow along the lines of treat others as you want to be treated.  Does anyone have a problem with any of the second definitions as it relates to selling a vehicle?  

Customers rarely argue about price when they were treated properly in the early steps of the sale.  If you develop enough need, the price doesn't matter because it value has far exceeded the cost.

Does anyone think that transparency might be clouded by inexperience?  When I think of the word transparency and re-read Mr. Radogna's post, it triggers a different response inside.  Some have mentioned transparency as related to discussing real cost or profit with customers.  This blog doesn't mention the words gross, profit or invoice.  It has nothing to do with gross or invoice.  NOTHING.  What is has to do with is offering information.  Many stores are lacking sales professionals trained in asking questions and listening. Customers ask the questions, which gives them control and at the end of the presentation they are not sold.  That is the gross killer in sheep's clothing.  In my opinion, we cannot blame transparency for a weak investigative process. 

Comment by Jim Radogna on April 11, 2013 at 12:57pm

Thanks for all the feedback and kind words!

Comment by Randall Welsh on April 11, 2013 at 12:32pm

This is a link to an online article from Ward's Automotive about dealership clarity you may want to read on page 35: http://viewer.zmags.com/publication/98fe8eea#/98fe8eea/37

rwelsh@cimasystems.net

Comment by Scott Hengtgen on April 11, 2013 at 12:16pm

I would not say its not about closing ratios, but its not all about closing ratios. The more you close the more gross you achieve be it in car gross, F&I gross or service gross. Its not just about hitting a home run or the customer walks. When it comes to new vehicles cost is no secret anymore. The customer in most cases knows what they want and what they are going to spend. Its the salespersons job to control their expectations. A customer will pay more if they were handled right and given professional service. Remember its all about the customer, they can spend their money anywhere, why should they spend it with you?

Comment by Doug Davis on April 11, 2013 at 12:04pm

How do we make money in the internet age with transparency?

First focus on your major variable expenses: Salesman's compensation, Floorplan and Advertising.  Put those in line with what you are trying to accomplish.

Know how to still make money when you give up front gross.  Switch to leasing, underallow on the trade, sell accessories and optimize the back-end gross.

Train a great group of ISMs.

We sold 170+ internet deals per month (more than any direct competitor). It represented 70% of sales with a third of the salesforce.  Didn't purchase leads from any source.  Under budget.  Achieved more average total gross than the floor. 

Comment by David Ruggles on April 11, 2013 at 11:54am

Its not about closing ratios, its about gross profit.  How can a discussion like this take place without a common definition of "transparency?" 

My comment was "Our customers do NOT want to pay our overhead.  They prefer we charge the next guy extra and let him/her pay it."

They don't understand our cost structures.  But this conversation goes nowhere without a common definition of "transparency."  I am waiting for an invested dealer to actually say he/she is highly profitable by disclosing bare cost and negotiating the margin.  That is how a consumer would describe "transparency."

In a narrow legal sense, transparency is fully disclosing everything that should be fully disclosed.  That does NOT include our cost structure.

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