Digital Dealer
By John Holt
Profit centers, operational efficiency, and the dealer's e-commerce edge
Last issue we discussed invoice pricing on the Web and its impact on dealership profits. To briefly recap my closing point: even though the availability of invoice prices online has cut into the dealer's initial sale profit margin, it's important to remember that 70% of dealership profit comes from providing goods and services after the sale [Source: Gartner Group, July 2000].
In this brave new world of automotive e-commerce, that one key statistical fact clearly demonstrates the edge dealers have over dot-coms. Because the Internet maximizes after-sale dealership profit centers, it gives you a competitive advantage the dot-coms just don't have. And if Internet technology (and the resulting availability of invoice prices online) has meant smaller margins on the front end, it more than compensates on the back end in terms of operational efficiency. That's not just a consolation prize for dealers who are taking a hit on vehicle margins. Bear in mind, many dealers are finding that while their initial sale profit margins may be lower, overall gross profits and unit sales are up as a result of the increased public exposure and improved operational efficiency the Web offers.
Yes, modern dealerships can and will win the online competition with the dot-coms. Just like the dot-coms, digital dealers can offer customers easy access to information online with well-built, well-maintained Web sites. But, unlike the dot-coms, dealers stand behind their online business with real-life services and human contact. And it's precisely in relation to these service-based profit centers that the Internet turns out to be the dealer's best friend. Too often, people think of the Internet's usefulness only in relation to two of the five dealership profit centers: new and pre-owned vehicle inventories. But that 70% profit figure mentioned above is solidly based in the other three dealer profit centers: parts, service, and finance/insurance services. What's in it for you?
Parts: The Internet is revolutionizing the management of parts inventories. With online communications and inventory pooling, dealerships everywhere are now able to run their parts departments with greater efficiency and profitability. When a parts department can receive orders via an online network, inventory doesn't gather dust.
Service: Being able to promote your service department's services, personnel and special areas of expertise is only one facet of how the Web can help this particular profit center. Offering exclusive service specials to your online customers gives them incentive to patronize your business. Customers also appreciate being able to book vehicle service online. It's convenient, they don't get put on hold, and it's more efficient on the dealership end of the operation too.
Financing/Insurance: The Internet allows consumers to research financing and insurance options through your dealership, but at a comfortable remove (i.e., from their computer at home). This lets customers do the legwork, saving the dealership personnel time and effort without revenue loss. By and large, these are two areas that people like to sort out for themselves as privately as possible before talking to the dealer. More and more dealerships are profiting by brokering online financing and insurance.
These same kinds of benefits extend to the other profit centers too. For example, love it or hate it, many dealers are discovering that online pricing cuts down on a lot of back and forth pricing calls from customers. In addition to the increased operational efficiencies the Web offers, its promotional uses and the corresponding impact on dealership branding have been tremendous. Just one example: J.D. Power and Associates recently discovered that car shoppers who research prices online typically drive an average of ten more miles to make a purchase than consumers who don't use the Internet. Translation: the Internet is expanding the range of the dealership.
So much for some of the specifics. Here's the big picture: I have long believed that dealers have the assets, skills, and experience to be the dominant players in a digital world. As the great dot-com shake-out of 2000 continues, one fact is evident: dealers are winning the war. Most of the dot-coms that were briefly household names will soon fade from the landscape.
Having said that, it's absolutely clear that dealers must continue to strive to serve their digital customers better, by maximizing the customer service potential of all five profit centers. Web content must be kept up-to-date, dealership URLs need to be aggressively advertised, customer e-mail has to be answered consistently and quickly, and staff should be trained on widely understood best practices. It's incumbent upon dealers to recognize the irreversible consumer trend toward the Internet, embrace the medium more fully, and make it their own. Believe me, you have nothing to lose, except your competition.
John Holt is the president and CEO of The Cobalt Group, Inc., the largest provider of Internet solutions and business-to-business services for the automotive industry. Cobalt operates the automotive industry portal MotorPlace.com and the PartsVoice.com parts locator. holt@dealeronline.com
