The automotive industry, and more specifically the automotive franchise retail business, has been stuck between two worlds before the novel Coronavirus took over – the OLD world and the NEW world.
In the old world, dealers were resisting change. They were holding onto a car business that despite the advent of the World Wide Web in the late 90’s, a disruption that forced dealers to become more transparent with their pricing and embrace consumers in a whole new way, there was one thing dealers were able to hold onto all this time.
Dealers have been able to require customers come into their facilities to do business – for both sales and service.
But with COVID-19, that “old” way of doing business is experiencing tremendous disruption.
In late January of this year, right about the time that President Trump had put a block on incoming flights from China, we were preparing for NADA by putting perspective on 2019 from a fixed ops viewpoint, and dialoguing about the idea that 2020 was going to be a progressive year for dealers and their fixed operations.
Here is Brian Servatius from RevolutionParts at 3:37 in this video providing an overview of his company’s recent annual benchmark report on the auto parts business – with Coronavirus not on anyone’s minds.
“From a RevolutionParts perspective we were really excited to see two big milestones. Our biggest year in sales for our dealer customers ever, at $328 million in merchandise volume over the year, and closing out 2019 we did cross over a billion in parts of accessories sales since inception.”
Brian also said that Amazon and eBay remain the top two sellers in the industry partly because they have been committed to the industry for years. He says there is still a lot of room though for dealers to make the most of this area.
“Those two marketplaces – Amazon and eBay – have been committed to this category for a long time. […] When you combine them that’s about seventy percent of the US parts and accessories e-commerce market. On eBay we pushed almost $28 million in sales from our dealers and then over $10 million on Amazon as well. But there are big opportunities, big marketplaces, a ton of eyeballs and a really good channel for quick plug-and-play access to a lot of parts accessories buyers.”
One thing Brian stated in that conversation was that only about 15% of franchise dealers are set up properly to sell auto parts online – a percentage that we all imagined would likely be much higher a year from now, but not necessarily for the reason we might think so now.
Here is Owen Moon from FIXED OPS DIGITAL at 12:06 in the same conversation responding to that, and asking Brian about ways to help dealers tap in more to recall work. Owen says that selling parts online is a bigger focus for his company going into 2020, and says that some brands are more closely associated with the accessory market than others.
Moon also talks about the new drive to enhance recall marketing for dealers in order to bring customers in as well.
“Using your website to segment information and get right to that Subaru airbag recall, as an example, would be kind of a cool aspect where the customer doesn’t have to really search. All they have to do is go right to the recall that came out and boom there’s a list of all the parts that could be affected. I think that’s where we’re trying to help make things easy for the customer, he says”
Strategies to Get More Service Technicians
At NADA, a couple themes had come up, one of which was the impact that a shortage in service technicians causes on fixed ops profitability, and the importance of grooming and recruiting future service technicians.
Don Frick, VP of Fixed Operations at Chariot Auto Group out of Indiana, said this during my conversation with him at NADA in February inside the QB Business Solutions booth with Founder & CEO Lumena Litts.
“It is getting more difficult on the fixed operations side to turn a profit for a variety of reasons, among them the cost of labor because of a shortage in techs. We have to bump up what we’re paying to attract them. We’ve definitely got some pressures going on with our margins.
And what is Don’s dealer doing about this?
“We’ve had to start at ground level. I’m actually speaking with students in Junior High now, and we are aligning with high schools to bring students in on internship programs to introduce them to the opportunities that exist.”
Don is not the only dealer responding to this challenge in this way. Here is John Bernath from San Tan Ford in February at NADA as well…
“Warranty costs are going up again and margins are always shrinking on new cars, so the pressure for fixed operations to perform and profit is probably about as much as it’s ever been. We’re putting what we call a rubber band on customers after we sell them a car to get them back for service. And with that becomes technicians. It’s a shrinking group of people that we are having to pay more, and when we have to pay them more we have to charge customers more. “
Bernath says that his dealer is getting down to the high school levels and getting the trades back in the schools within their communities and try to show people that don’t want to go to college that there’s an opportunity for them. Bernath says that manufacturers are getting behind them with this approach, as well.
NADA was held on the second weekend of February, and by this time the US was still the only country who was blocking flights from other countries.Nobody at NADA was talking about the novel Coronavirus. None of us had any idea what was about to happen to the auto industry.
We were all talking in a pre-COVID-19 economy state of mind.
The Sudden Impact of COVID-19 on Fixed Ops
On March 24th, about two weeks after the COVID-19 “Doom’s Day” when the NBA decided to cancel their two evening basketball games just prior to tip-off, a move that caused a ripple effect not only in professional sports, but a nationwide quarantine and economic shutdown, our fixed ops masterminds got together for the first time since the novel Coronavirus had become the unassuming disruptor it is today.
Here is Ed Roberts, from Bozard Ford Lincoln in St. Augustine, Florida, describing at 5:09 in this video the new protocols implemented in his service department and the immediate impact of COVID-19 at his store.
“The only thing that’s the same is that we’re working on cars. Everything else has changed,” Roberts says. Every other aspect of our business has changed, from how we take customers in and what we’re doing inside of our buildings.”
“We have had to send some people home for various reasons. I have about 12% of my staff off at the moment,” he says. “ We are keeping a log of everybody and where they’ve been and we’ve even had to turn customers away because of health risks. Everybody has got to step outside their comfort zone.”
“One of the key elements to making all this happen,” explains Roberts, “is that you need to lead your people. They’re all looking for answers. They don’t know what to do and they want to be told what to do. If you want to get ideas from them then, then you should.”
The question at that time, or debate really, was should car dealerships be classified as essential or non-essential? All states were permitting the servicing of vehicles but some were prohibiting the sale of vehicles. This caused most dealerships to furlough workers or even have layoffs. And as Ed explained, service business was down about 20% at the time.
Bozard Ford Lincoln Vice President Jeff King explains at 7:35 in the video, that the health and safety of your own people – your staff – are the guiding principles of whether or not you can be open.
“We’ve been diligent making sure that we are following every guideline that is put together. I would say overall we have about 35% of our people out of the building not working, but the health and safety of your own people is the guiding principle of whether you can be open or not., King stated”
How Essential Are Dealers?
Whether or not you think that car dealerships are essential businesses, most dealers I talk with are not seeing a disappearance in demand. Yes, some dealers are seeing a decline in business, but most are seeing a steady stream of website visitors and customer inquiries.
“Our thoughts were sort of validated today,” Moon stated, “in that according to WordStream and their data, keyword searches for parts and service since COVID-19 had come into play have increased more than 40%. So it’s more important than ever,” explains Moon, “to get your information out there to let customers know what to expect when they get there, or if you have a pickup and delivery service that you didn’t think too much about which is now an essential service. Any way that you can communicate with customers without requiring them to be there is critical.”
Supply Chains and Stocking Up
Supply chains of all kinds across all industries are naturally impacted by the economic shutdown. In fact, RevolutionParts’ Sales Manager Matt Carothers brings this up at 24:10 in this discussion while talking about different ways that COVID-19 will impact parts departments.
But Ed Roberts, being the savvy fixed ops director he is, explains at 25:13 that they went from ordering 27 days out to 60 in anticipation that supply chains are likely to be affected by the COVID-19 economy.
The COVID-19 Economy and New World Thinking
As explained in the beginning of this article, dealers have been able to hold onto ideas and practices such as requiring customers to visit showrooms and wait in customer lounges, despite all the rhetoric, education, and urges from industry pundits and thought-leaders to embrace new thinking.
But in the COVID-19 economy and the foreseeable future, much will change. Home delivery and pick-up and delivery services can be expected to be more standard, not only for parts but for people, as well. How vehicles are received, handled, and returned to customers will probably always be done with certain new safety protocols. And of course, how dealership staff members communicate and interact with customers in the new world with increased use of video, texting, and digital tools.
As Moon stated at 35:50 in this video,
“I think it’s going to catch up with a lot of dealers who haven’t embraced some of these ideas. Some of these technologies are going to become more sticky now. Many digital technologies that dealers have been resisting are likely to be quickly embraced and adopted.”
“It doesn’t always have to be face-to-face these days,” explains Moon, “and I think we’ve seen that come to fruition.”