Leadership 101: The Changing Landscape of Automotive Retail

There are a lot of amazing and dramatic changes happening in automotive retail right now- a lot of things happening that are current, things that are moving in a certain direction into the future, and you want to be aware of it so that you can do something about it.  

Here we are, this is somewhere in the middle of 2021, and the car industry is nothing like it was two years ago. And two years from now, it’s going to be nothing like it is right now. And there are a whole bunch of factors that are going to make all that happen. But let’s just review some of the things that are happening right now in the industry. Let’s start with the big one, the elephant in the room, the one thing that’s changed the whole market, COVID. 

COVID has been something that probably no business, certainly no car dealership has ever gone through. When COVID first hit North America, sometime in March of 2020, nobody knew what to do. There were a bunch of waves that happened after the initial explosion of COVID. First of all, let’s talk about the rental car market and the rental car business. The rental car business is a big supplier of pre-owned vehicles in automotive retail. I’m not sure what the percentage represents, but I’d be surprised if it was less than 40 or 50%. At the very beginning of COVID, if you were a rental car company, all of a sudden you stepped back and said, “Wait a minute, nobody’s travelling, and everybody’s working from home, who the heck is going to need a rental car? And how long is this going to last? Is it going to last a year? Is it going to last two years?”

When COVID first hit North America, nobody knew what to do.

Most companies don’t have treasure troves of cash to sit on so that they can operate indefinitely and lose money. The first thing rental companies did was say, “Wait a minute, we need to generate some cash, and we need to really look at the risk associated with operating in the future.” So they did what was logical. The first thing they did was they cancelled all of their incoming inventory, or at least a good portion of it. All those cars that were ordered from manufacturers now got cancelled. 

The next thing these rental car companies did, typically was, they dumped a bunch of inventory onto the market, because they don’t want to be sitting and holding a bunch of cars that are just parked. Parked cars, in any car business, just depreciate, and you don’t make any money on them. Plus, they needed cash just to operate. So kill off the future orders, dump a bunch of inventory to generate cash, probably lay off a whole ton of people, and that was the knee jerk reaction to COVID when it initially happened.

What’s the next thing that happened? Well, what about new car manufacturers? They are looking at it exactly the same way. They’re saying, “Woah, wait a minute, we just lost all these orders from the rental car companies, people are going to be working from home, the economy’s going to go into the toilet. Nobody’s going to be buying cars. Not only that, our factories are either being shut down by us or by the government because of COVID, so we’ve got a real issue here. We’re going to do the same things that the rental car companies did, we’re going to cancel a bunch of future orders of various products for their vehicles, computer chips being one of them, and we’re going to produce less vehicles, a lot less vehicles in order to shrink our operations.”

Everybody had the same response to COVID, which was to dump as much inventory as possible onto the market and cancel future orders.

Now what if you’re a car dealership? I can tell you, if you are particularly heavily involved in the used car business, the moment that COVID happened last March, your asshole tightened up quite a bit getting ready for what was about to happen. You’re sitting there, and you have all these used cars. Used cars typically depreciate, that’s the way it goes. You have rental car companies dumping cars onto the market, which means that valuations are going to go down, the value of your inventory is going to go down, the demand is going to go down. Those were all the logical conclusions for a lot of used car dealers out there. “Hey, wait a minute, we’ve got to continue to operate, we’re going to need some cash. The demand is going to go down, the supply is going to go up, that means unless we sell some cars and shrink our operations, we’re going to be in trouble.” So everybody has the exact same response to COVID, which is to dump inventory as much as possible onto the market and cancel future orders. So there you have it. 

Meanwhile out there on the internet somewhere are these giant used car startups. They’re silently soaking up inventory that’s available in the marketplace because they have cash, they’re playing the longer game. They know COVID’s going to end and they see this potentially as an opportunity to capture a good portion of the market. So all of these problems come together and then shockingly what happens is that you have prices go down initially, demand goes down initially, all the production and ordering go down. But the moment, say a month or so later, the market returns, you have now pent up demand. So all of a sudden you have a reduced availability of inventory but people are returning to the market, and not only are they returning to the market but all that business that was lost in March, those people are now returning to the market looking to buy. Demand spikes. 

And what we’ve seen over the last year is a reduction in available used car inventory, driving up used car prices, particularly on certain vehicles like trucks and SUVs. And really, I don’t know about anybody else who is significantly in the used car business, but these are times you’ve really never seen before, prices are very high. The good news is, everybody’s in the same boat, and probably those online retailers that soaked up all that inventory aren’t quite ready for prime time yet. So if you’re a smart used car business person, whether you’re attached to a new car dealership or not, you’re probably surviving this fairly well. On the new car side it’s been pretty tough. A lot of new car dealers, that depend a great deal on trucks have really lost a massive amount of business. They’re sitting there with no inventory, and the manufacturers are not really there to help. 

Sometime in the next six months you’re probably going to see a spike of available inventory.

A lot of new car dealers have decided, “Hey, I think it’s a good idea to get into the used car business to try to supplement our revenue.” But newsflash, a lot of new car dealers just don’t know how to sell used cars, so that really only makes the situation worse. So here we are, nearing the end of COVID, and things have changed quite a bit, the inventory is still hard to come by. But in a matter of, probably the next six to twelve months, there is going to be a return to normalcy in the market as more new cars become available, trucks become available and rental agencies have now re-upped on their orders. You’re going to see more inventory available. In fact, what you’re probably going to see is the opposite of what happened at the beginning of COVID. Sometime in the next six months you’re probably going to see this spike of available inventory, and that’s going to have a very dramatic short term reduction in the prices which could hurt, so be careful. But it will return quite quickly, it will find it’s watermark, and inventory evaluations will return to some kind of normal level. 

So that’s COVID. That’s the impact that it’s had on the market right now, so that’s just one of your headaches. What are the other shifts in the landscape that can really, either positively or negatively impact you as a car dealership? Let’s start with the big one being third-party lead generation. So out there in the used car landscape, primarily in the used car landscape, you have companies that are selling third-party leads. So they’re generating leads that are mostly generic; somebody wants a used car, somebody wants to get financed, and then they’re reselling those leads to dealers. And the reason dealers are buying them is because they do convert in some kind of a dependable way, whatever that number might be. And honestly, the dealers don’t know how to generate those leads in a significant way on their own. 

But the problem there is that dealers buying those leads are at a huge risk in two ways. The first way is that those leads can just be garbage leads. You’re paying upfront for leads and the lead generator is controlling the quality of the lead, so you’re at risk for buying garbage leads. The second problem is that you’re buying leads potentially from a company that is going to open up virtually right next to you in your own market, and eat your lunch. So one day, they’re selling you leads so that you can buy cars, and then the next day they’re saying, “Sorry, can’t sell you any leads because we’re going to sell cars directly to your customer”, basically putting you out of business. So that’s a massive risk if you are a used car dealer in any significant way, especially if you happen to operate on the lead generation side buying leads and converting those leads. You’re about to get a big wake up call when that company selling you those leads, opens up a competitor on the internet, right next to you, in your market. That’s a serious problem.

Dealers buying third-party leads are at a huge risk.

What other problems are there? The other problem of course is that you don’t have any control over your brand, as a dealer or as a used car dealer. It’s all happening online, and if you want to advertise your used cars, and you’re not buying leads from a third-party lead generation company, then you need to host your website and your inventory somewhere. You’re probably hosting it on a used vehicle listing service of some kind. In our market, there’s AutoTrader, there’s CarGurus, there’s Carpages, there’s a whole host of providers out there that are excellent providers with excellent products, but the only problem is, you don’t own the product, you are just listing your vehicles on their website. 

Even if they’re hosting your website, you have limited access to utilizing your website for marketing purposes. For the most part, it’s under their control, they have a site that they host for you. It’s probably some kind of a predesigned site with a back end that they control, that you have limited access to so you can upload products on their site. You can make additions, you can make it look any way you want it to look, but the one thing you can’t do is control where it ranks on the internet in any significant way, and you can’t really maximize its ability to provide digital marketing for you. It’s a very sluggish way to do it, operating with a third-party vendor. 

These vendors, no matter who they are, even though they’re hosting your inventory and providing you the site, are primarily serving the public, which is cool, that’s a good thing. But they’re providing access to inventory to people visiting their site. So it’s their customer really, even though you the dealer are paying them, and you are actually their customer. Their product is designed to attract users, and they can’t attract users if the product isn’t designed to serve those users. So that means that those users become the primary driver of everything that used vehicle listing services do, whether it’s easy access to sorting by price, whether it’s telling you whether you’re getting a good price, or not a good price. Whether it’s optimizing the inventory, if you’re a used car listing service, you’re no longer just a dealer with 100, or 200, or 300 cars, you’re now a website that has literally 100,000 cars or more for sale on your site. You become a presence on the internet, that allows you to easily become very high ranking when clients are searching for products on the internet. 

Online vendors that host your inventory are primarily there to serve the public.

If I’m looking for a used car and Google or Yahoo, or whoever is looking to rank a site based on the relevance and the content of used cars, who’s going to go first? Well, I can tell you it’s not Bob’s Used Cars in Idaho, right? It’s going to be Auto Trader or some large corporate entity that has a ton of content- your content, the dealer’s content. Car dealerships everywhere, what are we doing? We are helping third-party lead generators either generate garbage leads and giving them a ton of money, and making our little pittance on the end of it, or we’re actually paying third-party lead generators a significant amount of money for halfway decent leads and they’re going to use that revenue to turn around and put you out of business. Or potentially, we’re paying a giant used car listing service to host all our inventory on the site, and they’re using that to optimize their site and then drive your pricing down, because now you have to compete with everybody on the planet as far as price on your inventory. You’re stuck.

And finally, having some control over your marketing becomes a really difficult task. Think about now, as a used car dealer, you see all these problems, you want to sell used cars, you want to sell new cars, and you want to control your marketing but where are you going to go? What are you going to do? How do you solve that problem? “You know what, I think I’m going to hire my own agency, that’s what I’m going to do. I’m going to hire an agency because I’m a car dealership, and I can sell cars, I’m good at selling them, I’m great at closing. I may be even great at marketing but I don’t know a freaking thing about search engine marketing, and I don’t know about social media marketing, and I haven’t got a clue about how to manage my digital products online, so I’m going to outsource a bunch of this stuff. I’m going to hire an agency and I’m going to try and generate my own leads.”

Here comes the agency and what’s their objective? Their objective, just like everybody else, is to make money. They know they can’t make money unless they help you, so there is a quality element to it. They are accountable to you for results. But several things are going to happen the moment you hire an agency. The first thing is, they’re going to want you to spend a lot of money. No agency is going to come in and help you as a dealership to fix a branding campaign on Google, that might cost you $500 or $1,000 a month. It’s not worth it to them. If they do, they’re just going to do a horrible job. Then you’re hiring these companies that want you to do search engine marketing which is a great thing but now they’ve got to learn about you. You’ve got Ed’s marketing agency and they’ve got hair salons, and they’ve got beauty parlors, and bowling alleys, and Italian restaurants, and all these things, and they come to you and they have a process. They’re going to learn all about your business. Every time they’re coming to you, they’re learning from you; how they’re going to market your business, your car business, your used car business, your new car product, and creating something for you. It’s a long, expensive affair. In the end, they end up owning all your crap, and not only that, they feed you a bunch of reports that put spin on it, to make it look good so that they can keep getting more money from you. It’s like a spiral downwards. It’s like a money pit.

The objective of an agency is to make money.

There are some quality agencies out there, believe me, I’ve dealt with a few of them, great people. But they all have one thing in mind: they want you to spend as much money as possible, they want to show you the results that make it look as good as possible, and they always want more money. Then you decide, “You know what, the agency thing, that’s not going to work. What do I do now? Maybe I’ll hire somebody. How do I find that guy? How do I find that special person, that man or woman that can come in and run my digital space; do my search engine marketing, do my branded marketing, do my social media marketing, manage my Google business page, manage my review content. Where do I find that person?”

Maybe I pay a headhunter, I pay them 20, 30, 40, 50 grand, to find the right person. Maybe I get out on some employment website and I do a good job, I hire the right person and they come in. I do all the work, and all the due diligence, I bring in the right person, and probably that person’s cost me a lot of money, I don’t know how much but let’s just say, 60 to 100 grand a year or more, and now they are doing all of my stuff. What happens if I lose that person? What do I do then? So now I’ve got to retain that person somehow. How do I even know that person’s doing a good job? Because just like that agency, I only know what they’re telling me. So I don’t really know. I could go through all that effort to hire that person, not really see any results, and then be standing there going, “Wow, what do I do now?”

So there you are, you’re in the wilderness, dealers right now, after coming through a very difficult year, something that we’ve never been through. All the impact of COVID on the rental car companies, on the new car manufacturers, on the new and used car dealers, and then while all that’s happening, you have giant used car entities, online used car dealers that are trying to infiltrate the market, basically trying to put a lot of other dealerships out of business. And then you’re trying to figure out how to market and how to advertise but everything is moving online. Yeah, radio’s still relevant, and TV is still relevant. These things are good, if you’re there and it works, I mean, that’s great. But the reality is, any significant marketing plan has to include digital. And there’s nowhere to go, because you’re either everywhere, or you’re nowhere. And you’re either going to an agency that you don’t know if you can trust, or you’re buying a third-party lead from somebody, and you have no idea about the quality of the leads, you have no idea what they’re saying to these client’s when you’re getting them. It has nothing to do with your brand. Or you’re paying some other third-party lead generation company to put you out of business, or maybe you decide you’re going to hire a specialist and you’re still at risk because you haven’t got a freaking clue whether that person is actually doing the job or not.

So what’s the answer? What's the solution to all the problems? If you stay tuned, and keep watching, Zymbyo is going to show you that solution. 

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