The automotive industry has shown incredible resilience throughout the year, proving we’re adaptive and creative. It has forced us all to review the fundamentals, and to ask ourselves what will help set us up for success going forward.
In this presentation at the AADA Moving Forward virtual convention, Lee Peters, Partner, Deloitte, and Ren Blanning, Head of Executive Business, carsales, examined how the industry responded through 2020 and the resilience shown by dealerships, detailing what mattered most this year, and predicting what will matter most going forward.
Mr Peters said Deloitte had collected data from over 1000 Dealers every month, with that performance metric giving an insight into the “heartbeat” of the Australian retail automotive industry. The “golden period” of growth in new car volume, finance and insurance and Dealer performance and profitability had topped out in 2015, with “challenging times” in the years since.
He said many Dealers had expressed to him a desire to “get back to normal”, but while this was desirable in most aspects of life post-COVID, returning to the performance trend of the past few years was far from ideal for the industry.
With 36% of Dealers reporting a loss in 2019 and four out of five customers “not entirely happy” with the purchasing process, the industry had then been hit by a “once in a hundred years” pandemic.
“The economy here in Australia has gone down in an elevator, but will need to probably get up via the stairs,” Mr Peters said.
He said a “W-shaped” recovery was most likely, with bounces up and down for the economy over the next couple of years. However, there were three other possibilities, from a quick bounce-back “V-shaped” recovery back to where the economy had been trending, to a “U-shaped” recovery over a mid-to-longer term, to the worst case scenario of a “true and permanent reset” of the economy at a lower level. The industry needed to be aware of and plan for all four contingencies.
At a macro industry level, year-on-year sales have been declining over the past two years. However, figures had recovered almost back to where they had been, and he was optimistic about where the volume level would go from here.
The “Four Ps” of Prepared, Patient, Present, Proud had underpinned Dealer resilience through the months of March, April, May and June, respectively. Being prepared when the pandemic hit in March, patient through the April shutdown, present when customers returned in May, meant Dealers could be proud of a strong performance “explosion” of 6.93% in June.
“We need to be aware that this is one of the most unique periods that we have ever seen. This is not the new normal, this is a really unique period. The pandemic, the shutdown, the pent-up demand, the government stimulus – whether that’s instant asset write-off, superannuation abilities, JobKeeper 1, JobKeeper 2, and eventually JobKeeper 3 – the low stock levels enabled higher gross to be achieved,” Mr Peters said.
“Similar to the GFC, the real, hard core, cost-out measures that Dealers took, and then rather than spend money on holidays, people were buying cars. All of those elements put together really did show that this was one of the most, if not the most, unique periods the industry has ever seen. And the results reflect that.”
New car sales were going in the wrong direction when it should be easy to sell with customers ready to buy, but gross margins were pleasing. From an average stock holding of 70 to 80 days’ supply in 2019, we’re now down to around 50, with that number falling to 38 in June.
“The more optimal stock holding levels has given Dealers the opportunity to really focus on margins, and that’s translated through to gross, and ultimately through to selling gross,” Mr Peters said.
Used car sales per salesperson had peaked, while gross profit per used car had followed the new car trend of increased margins.
An exciting juncture
Ms Blanning said the industry was at “an exciting juncture”, provided Dealers understood the factors influencing the marketplace.
“Buyer behaviour: do you understand the shift? The metrics that matter: how are you using these in your business? Tasks to take you forward, because the time to reassess and effect change is now. The question is, as retailers, how are we responding to buyers’ behaviour, and why do we need to?” she said.
On carsales.com customers can choose to connect with Dealers via email (45% of enquiries), SMS (22%), or phone (33%).
“The percentage of email-based enquiry is still slightly edging out the other two mediums individually, however this number has dropped quite considerably over the last three years,” Ms Blanning said.
“One of the key things you can do as retailers to maximise your customer connection is respond in the customer’s chosen medium. Lead mediums change a lot between demographics. Think for a second about buyers in their twenties. If they choose to communicate with a Dealer via text – something they’ve grown up with – do you think they’ll respond well to no return text, just multiple phone calls and voicemails?
“No. They want to communicate in their own style. If we’re wanting to engage with a buyer we need to respond within the buyer’s comfort zone, not ours.”
On the other hand, if a customer had been excited enough about a vehicle to hit “contact now” on their phone, Dealers must be available to answer that call immediately.
“It is such an easy win,” Ms Blanning said. “We need to be appropriately resourced to answer these calls every day we’re trading. Ask yourself, are you measuring the Call Connect contact rate in your business? The benchmark here is 100 percent of calls during acceptable business hours answered 100 percent of the time.”
Ms Blanning pointed out that 42% of used car enquiries nationally in October were made outside of standard 9-5 business hours, with a significant portion coming between 8am and 9am.
“How many of us are still going about our traditional ‘open the dealership’ routine at this time? Are your salespeople walking around the yard with a keyboard, unlocking cars, pulling out bollards and setting up the blowie-man? Are we holding that traditional 8.30am sales meeting at this time? The question here for you is how can you better resource to meet your customers’ needs when they want to speak to you?” she said.
Ms Blanning stressed that digital showrooms never close, with 58% of consumers’ carsales sessions occurring outside business hours. Quality images, vehicle-specific comments and a market-targeted price ensured Dealers would not miss out on these eyeballs.
Having an active inventory, with leads spread evenly across stock, should be the goal. Dealers needed to know their average used cars inventory holding, their “view-to-lead ratio”, and an accurate closing ratio. Inventory management is changing, with a tech-savvy, data-focused, analytical, process-driven person required to maximise this area.
Ms Blanning concluded that Dealers need to evolve. Improved productivity will lead to greater profitability, and customers are the leading indicators for success. Dealers prepared to undertake the “restructuring journey” are already reaping the rewards.