The goal of every car dealership is, of course, to sell cars and make a profit. However, a recent survey from the professional automotive journal kfz Betrieb and the Bank Deutsches Kraftfahrzeuggewerbe (BDK) has found that in Europe’s automotive market number one, Germany, more than every fifth appointed car dealer hasn’t earned any money on new car sales in 2018 and 8 % even lost money, with zero percent in return on sales or even less, in the new car business in 2018.
Similarly, a recent survey from the US amongst more than 400 dealers, done by MaxDigital, states that 60 % of the interviewed dealers reported that “new car profits are down”. And although data from the US can not just be transferred to the European Automotive market, this survey nevertheless provides valuable food-for-thought also for the European automotive market – and shall therefore be included in this article.
Looking at these data, two basic questions arise which we want to discuss in this blog post. First: Why are dealers currently finding themselves in this situation of shrinking profits; and second: What can they do in order to secure more profits in the future? Because of the special situation with diesel cars in Germany and Europe at the moment, we will exclude the used car sales business and only consider the question of shrinking profits of dealers in new car sales. Let’s start with having a look at discount routines.
Price negotiations with customers in an ever more generous discount culture
Many dealers struggle with decreasing profits due to a more and more extensive discount culture in saturated automotive markets. A mystery shopping study conducted in Germany in 2017 by market researcher Dr. Freitäger and published in the professional automotive journal Automobilwoche, found that 90,6 % of the dealers offered generous discounts even though the mystery shoppers did not have the task to take negotiations to the limit. In fact, 66,3 % of the dealers offered a discount voluntarily, without having been asked for one. Good deal for the customer, bad deal for the dealer.
What is needed is a change in the discount negotiation routine, led by dealers who are entering the discussion with a lot of confidence and strong arguments for a certain price they want to achieve. However, this can only work if dealers possess more information than the customers have gathered themselves during their online research. Yes, here it gets tricky, because today, 25 % of customers research between 4-7 hours online and every 10th customer even spends 20 hours online to gather information.** So how to gain a competitive edge in this information gathering process? Via smart digital tools for automotive retail.
Using new technologies
Today, there are various new IT systems on the market that help dealers to sell more cars, faster – and many OEMs and NSCs give dealers a recommendation which system to use best. In order to stay ahead of the sales curve and in order to be able to play the information trump card in price negotiations, dealers should be open towards new technologies and use all opportunities offered.
A good lead- and sales acceleration software will always enable dealers to interact with customers the best winning way. It will enable them to retrieve the right information at the right moment – instantly. It will give them full insights into a customer case, into the purchase history, into the specifications and benefits of the vehicle of interest and a clear, structured and ready-to-use branded plan for executing a persuasive communication strategy throughout the whole customer journey.
When dealers know when to contact a customer, with which specific content, which links with background information to send to customers, via which channel and with which arguments, they will build up trust. And customers who trust a dealer are more likely to buy and have the feeling that they got a fair price offer.
If dealers combine such a lead- and sales acceleration software with devices like tablets or mobile phones, they will benefit even more, because they will have all needed information literally at their fingertips at any time and have the opportunity to react to customer inquiries instantly, creating a good experience for the customer from second one on.
Training for salespeople
Let’s have a quick look at the survey findings of MaxDigital in the US. Again, though sales related data and survey results from the USA cannot be transferred to Europe one to one, their findings still give some interesting impulses, useful for the automotive market in the EU as well.
The interviewers of this survey have asked automotive sales people what they think would be the reason for low profit margins. 7 out of 10 dealers then answered that they feel they lack training and information for confident negotiations with a customer. 45 % of dealers even said that they are ready to change the sales process for achieving higher margins in the future.
Not having the survey data on this question for Europe available, it will still be a good advice for OEMs, NSCs and dealership managers to have a closer look at the situation of their sales teams and evaluate if they could be supported with a targeted negotiation training, or a refresher.
Another area with a lot of potential for increasing profits is the aftersales business. Looking at the European key market Germany again, a survey from kfz Betrieb and BDK has found that every second workshop has achieved rising revenues (survey conducted June 2018) and 40 % have said that they have steady revenues, as good as in the previous year.
However, upcoming developments like autonomous driving, electrification, mobility solutions and connected cars will affect and change the aftersales business in the near future, with new players trying to enter the market. So dealers need to prepare for the upcoming changes in order to secure customer loyalty also in the future (read more on the future of the automotive aftermarket in this EASI’R article).
Reevaluating sales processes for achieving more efficiency
In many cases, not only a weak bargaining position and a too generous discount culture are the pain points for low margins, but maybe also some inefficiencies in the sales process, which could easily be solved. One way to gain higher profits is to establish seamless sales processes that enable dealers to sell more cars, faster – in a shorter period of time. When dealers are equipped to drive customer interactions the best winning way across all applications they use, like CPQ, DMS, CRM, lead and sales acceleration systems, and if they don’t need to navigate away from the present application anymore and get rid of multiple logins into different systems and multiple data entries, they will be able to sell faster and will be able to focus on their core competencies: Listening, consulting, and providing customers with everything they need in order to make the right purchase decision – at the right price.
This is exactly why we have developed EASI’R lead- and sales acceleration software. Learn more about EASI’R on our website at www.easir.com or contact our Sales team at email@example.com to learn more.
*Source: kfz Betrieb and KÜS Sachverständigenorganisation
** in Germany