The National Automobile Dealers Association (NADA) held its 2021 Show online in February, and unsurprisingly, the focus was heavily tilted towards digital marketing and online activity.
BDO’s Steve Le Bas, Partner – Head of Motor Retail, and Malcolm Thixton, Partner – Motor Retail, ‘attended’ the Show and produced a comprehensive report.
One of the key takeouts was that like the UK motor retail industry, the US has rebounded very strongly since Spring 2020 and like the UK, Dealers have adapted well to the new way of working and interacting with customers.
As in the UK the turnover of staff in the industry remains too high and the Dealers that are the most successful are the ones that have cracked the employment proposition by offering a career path, investing in the right training for the staff and provide timely and constructive feedback to allow continued development.
In the US they are forecasting increased M&A activity in 2021. This is in line with what BDO reported in their recently released Motor 150 report. “It was encouraging to hear that multiples have not changed significantly in the US and as always the franchise is the key driver for the multiple valuation,” the BDO report says. “It was also interesting to hear that only 12% of businesses transition to the third generation in family ownership and in the US this could increase M&A activity.”
Glenn Mercer delivered his updated review on the ‘Dealership Of Tomorrow’, concluding that the dealership model is in good health, remains profitable and will continue to develop via evolution rather than revolution. Glenn will continue to update his review and deliver it to the AADA 2021 National Convention & Expo in Brisbane in September.
Likewise, Jared Hamilton of Driving Sales will bring his presentation “Build Millennials and Gen Zs into Your Highest Performers” to this year’s Convention. As he did at the NADA Show, Jared will explain why without the right skilled people Dealers will never be able to access the full value of their business. You need to optimise your greatest asset – your people and in particular the Millennials.
Ford CEO Jim Farley said that he sees that the biggest impact for Ford in the future will be connectivity, rather than the electrification of vehicles.
COVID-19’s Effect On Franchise Value and the Buy/Sell Market
Erin and Ryan Kerrigan of Kerrigan Advisors delivered a presentation highlighting that dealerships profits had rebounded since the lows of March 2020 to record levels during the US Summer, indicating that the industry was both resilient and nimble.
The record level was achieved through increased margins and reduced expenses, rather than greater volume. The average used to new ratio increased to 1.15:1 compared to a five year average of 0.8:1. However, Erin stated the P&L is still in a state of flux and questioned whether these increases in profits were sustainable and could then increase future value. She concluded that they probably were not and were being led by lower headcount. In the US in September 2020, only 56% of Dealers were fully staffed and the average units sold per month per sales person had increased by 60% from 2019 to 16 per month.
This together with online sales activity up by 50% has led to online sales being 20% of total sales in US dealerships.
Therefore, when looking at profits on a sale or purchase transaction it should be considered whether the profits are sustainable and multiples should be applied to adjusted earnings pre-COVID-19 and expected future performance as the economy reopens.
As in the UK, Ryan expects transactions to pick up in 2021, meaning further consolidation and expectations as the large groups will become more powerful in the sector. Only 3% of family enterprises transition to the 4th generation, compared to 30% to the second generation, and 12% to the third.
Improve Employee Experience to Improve Customer Experience
In his session, Chase Abbott of Cox Automotive argued that the best way to improve customers’ experiences was to improve the experience of employees. He said that with dealership staff turnover at an all-time high, the traditional method of employing staff is not a sustainable employment proposition for the industry.
- 80% of dealership sales people turnover annually;
- 20% of dealership staff are likely to look for another job in the next six months;
- 1/3 of non-management employees do not feel engaged or excited about their jobs;
- 54% of employees say it is harder to do their job effectively now than before the coronavirus outbreak;
- sales staff are the top driver of customer satisfaction according to surveyed consumers; and
- top performing Dealers have turnover rates that are 17% lower than Dealers in the bottom quartile and are three times more profitable than the average.
Mr Abbott said that in order to recruit and hire effectively, Dealers need to consider their sourcing processes, pre-employment assessments, cross dept interviews and have a clear on-boarding process. They should reduce repetitive and morale draining tasks, equip staff with tools to be productive, including cutting edge technology, improve use of AI and ensure all processes are up to date.
He said Dealers should enable flexibility for digital sales as there is a 30% higher close rate for digital retailing leads and a 26% higher gross profit. They need to cater for every type of customer, with different processes for online, walk-in and hybrid experiences, and staff need to understand which type of customer they are dealing with.
Other suggestions were a need for greater coaching and career progression opportunities.
Business outcomes of highly engaged teams:
18% more sales productivity;
23% more profitability; and
18% less turnover for high-turnover organisations.
Future of the Auto Industry
In this session, Ford CEO Jim Farley and NADA chairman Rhett Ricart focused on Dealer/OEM relations, which have never been more important.
Mr Farley acknowledged the continuing changes facing the industry from electric vehicles, with 10% of all cars sold in Europe now electric. Customers are demanding increased range of these vehicles and the number of EV models is now approaching 150.
Tommy Gibbs outlined his “Six strategies to improve gross and volume in your used car department”, saying that the focus must be on turning stock as quickly as possible from the day it is purchased through the time to get it ready for sale. He urged Dealers to report profit per unit split between vehicles held for under and over 30 days to demonstrate to their teams the difference in profit which is always significantly higher for faster moving stock.
Dave Pieuch of Automotive Consultants Group Inc, said obsolescence control was the number one issue and prevents higher first time off shelf fill rates. One commentator noted that if there had been no sales in six months there was a 49% chance of no future sales, and no sales in nine months meant a 67% chance of no future sales. If a part does not sell for 12 months of more there is a 98% chance that it will not be sold.
The simple fact is that all parts will eventually become obsolete, current parts obsolescence exceeds industry guidelines and obsolescence needs to be managed before it happens.
Ensuring you have the right part at the right time and that parts stock is reconciled on a monthly basis means there are no year-end surprises – either up or down.
In most dealerships the service department generates around 70% of the parts gross profit. But if the part is not there service profitability will drop. The average service department loses a minimum of 10%-15% of productivity due to low parts first time off shelf fill rates.
Cracking the Code to Remote Selling
Joe St John of Autofi said consumer behaviour has definitely changed and COVID-19 only served to accelerate this change.
To ‘crack the code’ to remote selling, Dealers must rethink their traditional methodology and adjust to new customer expectations and buyer journeys. They must influence customer decisions by adopting a “buy anywhere” approach and embracing transparency.
The digital experience must eliminate friction. Convenience is the key to this. The traditional brand promise does not match modern customer expectations. Customers come to a Dealer’s website to learn more or to buy a vehicle, so Dealers must eliminate clutter and misleading call to action buttons. A website should only have two or three call to action buttons and Dealers should look to continually streamline the user experience and create a purchase-focused buying journey, making it easy to obtain pricing and other information transparently.
BDO invites Dealers wishing to discuss any aspects of the NADA Show in greater depth to contact Mr Le Bas or Mr Thixton.