How Auto Dealers Created TrueCar, Carvanna and Vroom...

“Nature abhors a vacuum.” There would be no reason for “disrupters” like TrueCar, Carvana, and Vroom to exist if dealers provided customers with what the majority of them want. This includes

Eliminating negotiations and move to a simple, transparent sales process
Eliminating wasted time in the sales process
Money-back guarantees
Market-based pricing
The convenience of having a car brought directly to the consumer

In are era of margin compression, how can dealers afford to pay TrueCar? Typically at least seven people get paid for selling a new car:

Dealer Principal
GM
GSM
Sales manager
Salesperson
Porter
BDC Manager

If you apply your costs correctly, it is almost impossible to make money in your new car department with the high transaction expense and low salesperson productivity (around 9-10 average).

There is a crying need to attract a younger, less expensive sales force - salespeople who can sell a minimum of 16-17 units a month. But you’re not going to attract this type of salesperson to a traditional negotiating dealership. If you don’t make a change to a One Price Selling sales process (like TrueCar), you’ll be inviting more unwanted competition into the new car arena.

The pre-owned market is where outsiders are really setting their sights. CarMax has already proven that if you give customers a simple, fast, transparent sales model you can sell a ton of pre-owned cars. If you don’t change your sales process you’ll be selling less pre-owned cars. Have you noticed your trade-in ratio is dropping? Take a look…Consumers now have so many outlets to choose from they are no longer highly reliant on trading in their cars to dealers. Think AutoTrader, CarMax, Beepie, and CraigsList… Less trade-ins will be the norm unless real change takes place with your pre-owned strategy.

Why is it so hard for dealers to get this? Why don’t they understand the need to become modern auto retailers?

Most dealers recognize that the market and consumers have significantly changed. Yet, they stay married to an archaic process that invites Silicon Valley startups to capture more and more of their traditional market.

Again, why don’t the majority of dealers address consumer demand and change their sales model??

I think the primary “anti-change” culprit is the longevity of the sales management teams found in most stores. In general, the older one gets the more “change resistant” they become. Yes, radical change is scary; but necessary.

Progressive dealers should address the necessity of recruiting a younger management team that they can train in the right skills to manage in today’s environment.

To attract a younger sales force you need sales managers who look more like they are one of their peers. Then train the new management team in the necessary skills to develop a great sales staff - coaching, training, giving recognition and more. The best way to make this transition is to have a store leader, Dealer Principal or GM who is a “change agent” committed to the process.

Frankly, when the new car market takes its inevitable downturn, interest rates rise, and margins continue to compress, it will be too late to make the necessary changes to adapt and cope with new market realities. It is easier to keep market share than steal it back after you’ve lost it. The best time to create change is when you’re on top!

It is time to reinvent the sales process and sales management structure. Those who have already done it are reaping the rewards. Join the 21^st Century. If you’d like to schedule a webinar with me to review what changes are necessary to thrive over the next few years please either email me (markrikess@gmail.com or give me a buzz – 916-715-8129).

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Comment by mark rikess on February 23, 2016 at 5:58pm: I guess CarMax has it all wrong. Not sure what dealership you work at Brian but the vast majority have not been able to build a sales for their future. If the dealership would have done a great job of recruiting salespeople in their early to mid-20's ten years ago the majority of their staff would have a 10 year book of business and many of the sales managers would look more like today's customers. The industry has lost a generation or two of sales people and managers, much of it do to a way of selling cars that doesn't appeal to Gen Y. Thanks for the comments.

Comment by Brian Bennington on February 23, 2016 at 5:38pm: That's a pretty strong advertising pitch, Mr. Rikess. (What's with the no capitalization of your name? Is that a new way of doing it?) Anyway, as to the proliferation of "disrupters" or third party negotiators, they've been around a long time, originally in the form of leasing companies, but they're bigger now, because of more diverse media, the Internet, and the dollar power to afford national advertising. And, they're definitely adding to "margin compression." (Love that term!)

However, I don't quite understand how these "younger, less expensive sales people" are going to nearly double production, plus you didn't mention much about the cost and complexities of training them. (Sorry! I forgot that's what you do.) I'd be the first to agree it easier to train "order takers" than sales people, but that old adage that "you get what you pay for" is also true in auto sales. As to the "archaic" old-style selling process, if it doesn't include relationship-building ongoing customer follow-up, it's not being done correctly to begin with. As to older managers resisting change to something like "one-price" selling," they've primarily lasted because they deliver what their bosses want, which is as much profit as possible.

I've been through "downturns" before, and the customers who will get you through them are the ones who keep coming back because of the relationships the dealerships, and especially the reps, have built with them. Finally, I don't think it's ever "too late" to lower your prices to beat your competitors, Forgive me if I seem to be "raining on your parade," as while your presentation may be viable in some situations, personally, I'm too competent to ever want to work in a "one price" environment and I know the best sales people feel that way, too. After all, "Youth and enthusiasm is never a match for experience and treachery"! (Just joking!)

Comment by Michael Abrams on February 23, 2016 at 3:54pm: Mark:

Very insightful assessment and a very good reason to consider a less cumbersome approach similar to what you have been teaching for years.