A Golden Age of Auto Sales is Coming

Jeff Williams

When the renewal of the car park accelerates, will your dealership experience a retention boom or a defection bust?

If the pandemic has taught us one thing, it’s to be very careful making predictions!

Yet as leaders, we must “look ahead” of our people to help them prepare for the future. We earn the authority to lead and fortify that leadership first with our vision, our ability to “see ahead” and “think ahead” of our people, and second with our courage, our willingness to take educated risks and shift our organization in a new direction.

Absolute Results is a global company, and my responsibility to the hundreds of staff and thousands of dealers we serve, is for me to continuously expand my vision of the auto industry. That’s why I read dozens of articles every day, why I am in conversation with OEMs, dealers, and distributors around the world every week, and why I travel globally to gather market insights firsthand that help our team and clients prepare for the future every 90 days.

Over the last six months of research, dialogue and global travel, one thing has become very apparent to me…A Golden Age of Auto Sales is coming.

Wikipedia defines a golden age as “an era when great tasks are accomplished”. “A Golden Age” can also connote technological break throughs, success and prosperity. In simple car jargon, a golden age is a hey day of sales driven by technological advancement and unprecedented consumer demand. If my prediction comes true, both the national and global “car parks” that normally renew every 11 to 12 years, could renew in as little as 8 or 9 years. Read on for some of the factors that I believe will drive this accelerated renewal:

First, there’s all the exciting new product coming to market over the next three years. While most of us have witnessed and contributed to the momentum of sales success driven by new model launches in the past, the next 3 years will overshadow anything we’ve seen before, because the technology powering this new product is so much more sophisticated and has so many lifestyle integration points. The 25 new OEMs coming to the North American market will further accelerate this product momentum, and despite their small starting size, they will all leverage something like the “Tesla-esque” disruptor narrative, pushing the market to innovate. As we have witnessed in the past, many affluent consumers will purchase their product almost as a form of entertainment or bragging rights.

Next, we have the pent up demand from the microchip and supply shortage. The North American Seasonally Adjusted Annual Rate (SAAR) has dropped to 15 million this year, the lowest levels since the Global Financial Crisis(GFC) of 2009. Estimates show that more than 4.5 million less vehicles will be manufactured worldwide and 1.5 million less vehicles sold in North America this year. 

These are incredible numbers. After the GFC hit North America in 2009, the economy took more than three years to recover, and then it took the auto market five more years of booming sales to catch-up to the pent-up demand. While the last 18 months have had their share of financial casualties, it appears that the lost sales from the pandemic and microchip shortage will rebound faster and further than those after the GFC.

To further accelerate the pent up demand in the market, Canadian consumers have saved a higher percentage of their disposable income over the last 18 months than at any other time in recorded history. The average personal savings rate since March 2020 is over 14%. Add to those incredible savings, the “perception of wealth” created for millions of Canadian homeowners, who saw their principal residence grow in value by 30% or more over the same period, and there’s pent up consumer demand combined with cash to spend. Though credit remains cheap to access, there’s also the potential of even less reliance on credit to fuel consumer spending patterns.

Pending government incentives on EVs will also add economic “fuel to the fire”. US President Joe Biden’s government is proposing an EV purchase tax credit of up to $12,500 on a single vehicle purchase. It remains to be seen if North American federal governments will place carbon penalties on domestic OEMs as they have in Europe. Regardless of how the government economic incentives or penalties are positioned, it’s likely that the momentum created by billions of government dollars infused into the domestic economy will provide enough momentum to generate demand for new vehicles that far exceeds the 700,000 unit spike in sales that the Car Allowance Rebate System (CARS or “cash for clunkers’) created for the North American market in 2009.

Finally, social pressure will drive sales in the upcoming years and is a force to be reckoned with. In North America, the pressure to “keep up with the Joneses” often fuels sales, whether it’s the latest Apple product, new smart home appliance, recreational items or automobiles.  In Europe, a social pressure to be environmentally responsible, is emerging and gaining significant momentum. There, both individuals and businesses are driven to project a progressive, environmentally conscientious image, and the use of gasoline or diesel powered vehicles contradicts that image. This is a significant factor accelerating renewal globally. Time will tell if and when that sentiment will hit North America.

These five factors, among others, point to the advent of a Golden Age of Auto Sales. This is an exciting prospect – if dealers can keep their customers.

Get your portfolio ready.

As we reflect on the factors that will fuel this Golden Age of Auto Sales, it’s clear that now is the time for dealers to double-down on retention and to invest in fortifying their portfolio of customers.

Yet, the automotive business is a conquest-driven retail culture that over-emphasizes and celebrates new customer acquisition, largely ignoring retention. This is why dealers typically have large monthly conquest marketing budgets to generate leads and attract new customers (often exceeding $500 per vehicle sold) while retention budgets are rare. Seldom do dealer groups, performance groups or OEM scorecards focus on retention.

Lease renewal rates are the only metric many sales departments use to measure retention. Dealers with a strong service manager also track the first and second service appointment after delivery, but that’s where it stops. Even the methods the OEMs use to measure retention vary by region. As a result, overall portfolio retention numbers are difficult for most OEMs and dealers to measure, and you can’t grow what you can’t measure.

Perhaps this lack of focus on retention comes from the assumption that, as long as the product is good and after-sales service is attentive, the customers will purchase again. Hence the familiar adage “sales gets them and service keeps them” which relegates the responsibility of retention to service, which quite frankly, isn’t working.

When Absolute Results audits dealer portfolios across Canada, the US, Europe and Asia Pacific, we rarely find dealers who achieve more than a third of their monthly sales from past customers. While dealers with a strong lease portfolio will forecast lease renewal sales, I’ve yet to meet a dealer group that has a standardized way to evaluate and forecast future sales based on their entire portfolio’s size or make up.

With dozens of new OEMs and hundreds of new products coming to market, the “new product noise” will get so loud, and will undoubtedly become a major factor in defection, especially when consumers have cash to spend and the government heavily incentivizes EV technology.

OEMs and dealers without a comprehensive retention strategy, whose focus is predominantly on new business acquisition will probably lose more customers than they gain in coming years. Keeping customers is really hard work, but it can’t be overstated that now is the time for dealers to double-down their focus on retention. 

Let’s be honest – In some ways the cost of retention is higher than the cost of acquisition, or more accurately it’s a different cost – it’s an investment. New customers can be purchased with advertising dollars and incentives; but it takes a long term commitment to continuously developing good processes and people to increase customer retention.

The industry is evolving from a transactional model to a more customer-centric approach, and to grow retention, dealers and OEMs need to prepare their portfolios today for potential future sales. For most sales teams, that’s a massive shift from the industry’s current 30-day “hero-to-zero” and “what-did-you-do-for-me-today?” mindset. However, if dealers can execute portfolio plans that grow sales teams’ engagement with customers during the ownership cycle, they will retain more customers and grow their portfolio sales monthly.

So how are top global dealers globally putting portfolio plans in place that address this lack of focus on retention, so they can keep more of their customers when this Golden Age of Auto Sales arrives?

Strategy #1 – Turning down marketing and turning up communication.

Traditionally, sales teams have taken a “don’t-call-unless-you-think-you-can-sell” approach, avoiding contacting customers after delivery. Years later, when the customer comes close to an equity point, or the end of their financial contract, however, sales marketing kicks in and the customer gets offer after offer, seemingly until they buy or unsubscribe.

Conversely, portfolio focused dealers look for meaningful ways to keep in touch with customers throughout the ownership cycle. They map out a regular cadence of communication with each customer and make significant changes to their messaging to include “goodwill” or “helping” messages.

They also design communication about future product and technology, combined with surveys and links to online product posts, which are great ways to keep customers engaged and anticipating a brand’s new product. New product-experience events where customers are invited to learn and browse, rather than to purchase, also add value and keep the customer coming back to the showroom.

Strategy #2 – Building bridges between sales and service.

Traditionally there has been a “Berlin Wall” between sales and service, often created by poor communication and conflicting departmental profit agendas. However, research shows that customers who return to their selling dealer for service throughout their ownership, renew up 5 times more than customers who don’t. That’s a huge difference to the bottom line, especially when combined with the profit of a busy service department. Clearly, it’s time to break down the wall and for these departments to really work together.

This retention statistic works in another way, too: when brand-loyal customers who purchased elsewhere visit your dealership for service, they are five times less likely to buy again from your competitor. Wow, these service visits should be seized as an opportunity for the service team to make a sales team introduction. 

Portfolio-focused dealers also create Customer Experience Manager positions, and a key function of that role is to ensure that past customers are acknowledged when they return to the dealer for service. 

Strategy #3 – Re-structuring sales teams

Some dealers take an even bolder approach, redesigning their sales teams structure and compensation to align with their customer’s agenda, and putting customer experience and portfolio management KPIs into the pay plan. This is especially important as online shopping increases, and as the new models become increasingly sophisticated. It will take more patience, more communication, and many more digital interactions to both keep a customer and to complete a sale.

In both Europe and Australia, sales professionals are often paid a substantial salary, plus bonuses for volume, additional product sales, and CSI scores. Absolute Results has helped many of these dealers to link a “daily portfolio work plan” to salary. This makes portfolio management a key pillar of their job descriptions. Portfolio sales often generate a higher bonus for the sales professional.

Other sales teams hire a Retention Manager or allocate a BDC agent to assist with portfolio communication. It’s also not uncommon to see North American dealerships transforming their BDC into a virtual sales team with portfolio renewal as a key focus point.

Dealers, it’s time to get your portfolio ready for the future. Don’t lose your customers when this Golden Age of Sales hits. You have spent too much money and worked too hard to earn their business the first time.

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Jeff Williams
Author

ABOUT

Jeff Williams is the CEO of Absolute Results and has dedicated the last 20+ years to helping dealerships, OEM’s, and sales people across the globe rethink how they sell cars. His three greatest passions are his family, his business, and his charity work.