Small changes will help with profits
As a used car dealer in today’s environment, it can feel like the deck is stacked against you. How are you supposed to grow your business when rising costs, industry regulations, and customer challenges keep kicking you back to square one?
This is a tough industry, no doubt. But for those who are committed to finding win-win solutions, I believe the future is brighter than ever.
An honest look at the industry
There’s no way of ignoring the fierce headwinds facing used car dealers this year:
- Increasing costs to maintain inventory: Floorplan interest rates are sky-high, and it’s getting a lot harder to move metal due to consistent part shortages delaying the recon process. Lack of quality staff further compounds these problems.
- Shrinking pool of eligible customers: Rising interest rates to finance vehicles eliminate many previously eligible buyers. Not surprisingly, demand is also shrinking as buyers find themselves with higher bills and a paycheck that doesn’t go as far as it did last year.
- Electric vehicle (EV) confusion: As EVs gain mass appeal, some customers may delay the purchase of their next vehicle, with hopes of getting an electric car for an affordable price.
- Ever-changing regulations: From accounting standards to privacy rules to even the fees you charge customers, dealers are up against a growing mountain of compliance requirements.
- Growing consumer expectations: You can bet that any buyer who walks into your dealership has already enjoyed the convenience of Amazon, mobile banking or on-demand entertainment. Regardless of their credit score, car buyers now expect this type of seamless experience at the dealership. Every day, more customers enter the market who weren’t even born before cell phones took over our lives. A highly digital, mobile-optimized buying process is a must.
It’s time to own the customer lifecycle
While challenges may be abundant, the opportunity awaiting dealers is even more impressive. Used car dealers who adopt the “service with a smile,” mindset strategically leverage technology will propel their business forward.
Believe me, it’s possible to create a dealership that brings in recurring revenue like a well-oiled machine. But it will require optimizing every aspect of the customer lifecycle.
Approach customers as a lifetime investment
A lifetime buyer is worth their weight in gold. These are the customers you develop a real relationship with; the ones who are so happy with their experience that they place your brand in the “dealership” slot of their life. Every time they need a car, they come to you. Every time their family or friends need a car, they recommend your dealership. They leave you positive Google reviews, and it’s always a good day when they walk through your doors. It takes a mindset shift to recognize the lifetime value of each customer. Your investment today can pay off many more times down the line through referrals and repeat purchases.
Put the right customer in the right car
It does no one any good to sell to unqualified customers, leading to a repo. In my experience sourcing over $4 billion in loans, you’ll make far more profits by attracting repeat buyers who can afford the monthly payment. Remember, the purchase of a car is one of the biggest decisions a buyer will make.
So, take a deep dive into your underwriting process to determine what is right for the customer. It might sound overwhelming, but with today’s technology, you can use predictive analytics to learn which customer profiles perform best. You can also leverage the power of big data to find out the exact inventory that will attract those ideal buyers.
Don’t be afraid to say no
If your customer is a lifetime commitment, are you marrying the right one? Remember, every potential buyer should not necessarily get an “I do” from you. Some customers will cost you far more in headaches and expenses than one down payment is worth. Instead of skipping over dollars to pick up pennies, focus on attracting and retaining better-performing buyers. Your business will thank you later.
Make customer service No. 1
The only way to earn your customers’ trust for years to come is to provide a transparent, convenient car buying experience today. Big profits follow dealers who make impeccable service their No. 1 goal. Buyers who pay their bills know how they should be treated, and they don’t want to spend hours in a dealership wondering the whole time if they’re getting a good deal. One way to infuse transparency is in your company culture and reinforcing the importance of explaining the deal terms to make sure the customer fully understands what they’re signing up for.
Embrace digital retailing
Modernizing the buying experience by allowing at least some of the deal to be completed remotely, at the shopper’s own self-directed pace, is also a huge step forward.
Here are some areas to consider bringing online if you haven’t already:
- Trade valuations that provide an actual offer to the customer after they enter their vehicle info and upload photos/videos
- Live customer service from a human, through built-in messaging, chat or email widgets
- Digital F&I technology that supports hard credit pulls and allows buyers to choose from qualified payment options
- Online credit application with an instant decision based on your underwriting criteria
- Education about F&I protection products that are customized to the shopper and the vehicle they selected
- Accurate payment calculators tailored to the customer’s complete credit profile and vehicle of choice (rather than unrealistic estimates that leave the buyer disappointed and questioning your transparency)
- Interactive negotiation where a customer can change the deal terms and recalculate their payment, thus saving their own deal
- Digital contracting that enables the buyer to sign the contract remotely or digitally at the dealership, avoiding long F&I waits
Find low-cost capital
Typical interest rates on capital for a non-prime used car dealer can be exorbitant. Affordable rates are reserved for portfolios with better loan performance predictability. However, thanks to advances in artificial intelligence, machine learning and big data, the performance of non-prime used car loans can now be forecasted accurately. And that means low interest rates on capital are finally a reality. This is a huge development for the used car industry and enables dealers to keep more of their profits.
Improve your portfolio performance
With the amount of data available on non-prime loans today, predictive analytics has made it painless to not only forecast performance, but also give suggestions for improving those results. What if you could make a small underwriting tweak and reduce your delinquencies by 10 percent? Big data and the latest fintech make it possible.
Sell more without spending more
The millions of data points available in today’s fintech solutions also help dealers sell more cars to the right buyers. They can help you pinpoint the most profitable and fastest-turning vehicles, so you can stock your lot with the specific car your ideal customer is looking for. When you attract the right buyer and offer them the right car, a sale is exponentially more likely. Data helps you do it.
Get back to basics
It’s easy to get distracted with every piece of new technology promising to make your business easy. But “easy” doesn’t exist in the used car world. You’re better off focusing on value-adds that satisfy the needs of your customer. Then stick to those commitments without fail and see where you are a year from now. Only spend money where value is realized and makes an impact. Take a scalpel approach to your business and cut out unnecessary expenses and overhead to focus your dollars where it matters the most.
Invest in long-term equity
For each decision you make at your dealership, ask yourself if this is a quick fix or an investment in your next decade of growth. If you build your business with the mindset of selling it someday, you’ll make choices that optimize its value. Brand loyalty, high-performing loans, repeat customers, established systems and processes … these are all elements of a solid, scalable business model. So, whether you choose to sell or keep it in the family, your company will have the foundation for exponential success.
What will you start on today? Choose an area of your business that needs some work and decide on a micro-change to accomplish now. Repeat that tomorrow, and never stop. Your small changes will add up to a massive impact. And before you know it, you’ll have a resilient, recurring revenue machine.
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UCD Magazine is published by NIADA.