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Jul 6, 201012:00 AMMad @ Mgmt

with Walter Simson

Let's Make a Dealership

Let's Make a Dealership

Mad @ Mgmt addresses the concerns of middle market companies, including banking, family & succession issues, turnarounds & performance improvement and economic life in general. Walter Simson is founder and Principal of Ventor Consulting a firm dedicated to middle market companies.

We know the problems of auto dealers (and their lesser-known big brothers, truck dealerships) all too well. Low sales, collapse of financing markets and a seemingly inexplicable urge of car companies to decrease, rather than increase, the number of dealers' outlets. These are the problems that have hit the news, but a vibrant auto dealership sector (if we are ever to have one) will need the dealers to implement serious management changes. They can't just hope for a quick reversal in business conditions.

Think of all the old television commercials where a big guy wearing a cowboy hat says, "come on down!" Previously, dealers were retailers, and a little television advertising or a few newspaper coupons were enough to stimulate the curious. The salesman's job was to watch the door for a customer cracking an opening, then meet, greet, inform and compete.

That model is gone, gone, gone. Now the dealer is not a retailer so much as a delivery point for a direct marketing channel. Why? Because 80% of all car sales start with the consumer initiating an Internet search.

"Customers use the Internet for vehicle research and to locate dealerships and inventory," says Michael Sweigart, CEO of Purpose Advertising, a firm that works with many dealerships to increase traffic. "This clearly demonstrates the need for a dealer to have website that can achieve high visibility on search engines," he says. In other words, the Internet is doing all of the informing, and much of the competing. What the salesperson needs to do is complete.

Now salespeople need to get Internet leads as quickly as possible, contact the prospective customer (usually via e-mail) and start the virtual meet-and-greet process before anyone else does. This is a controversial notion among old time retailers ... but it works. I know salespeople who consistently sell 20 cars a month by making 25 outbound calls and a similar number of e-mails or text messages (yes, text messages) each day to their Internet leads.

But on the other side, I also recently spoke to a dealer whose salespeople sell five cars each month (below the industry average of eight per month). This dealer was offended by Internet marketing of any stripe and refused to try it.

The people who take over his dealership will use it after he goes out of business. As a matter of fact, the new dealer will go further: "To consumers, buying a car is an exciting part of life," says Sweigart. "That's exactly what social media is there for: to allow people to tell their stories. So successful dealers will extensively use social media tools."

Another curious feature of dealers is that they pull out their profits every year. The National Association of Automobile Dealers (NADA) provides an annual, and extremely informative, fact book on dealers called NADA Data. The NADA Data section on financials has a telling statistic: Dealer net worth. Net worth, defined as the difference between assets and liabilities, has been static at the $2-something million level for as many years as I can remember, and in some years (like 2008 and 2009) it goes down.

Let's put it this simple way: The savings rate for dealers — over many, many years — is zero. All the risks of the business are borne by the financial actors who fund the vehicles, pay for the site renovations and carry the parts inventories. Static net worth means that the owners apparently have a unique business model ... rights to prosper, but no obligations to invest. And so, when the financial "partners" like GMAC or some of the equipment finance players decided recently that they were taking a breather from that irritating financing business, the dealers suffered. They complained loudly, but do they have only others to blame?

So my prescription for dealers would start with sales and business model, and end by challenging the traditionally-convenient financing mechanisms.

Have I been hard on the dealers? Perhaps. But that was nothing. Eventually I will take on the cupidity of the car manufacturers. What does "cupidity" mean? It means anything it rhymes with.

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