Archive for the ‘Marketing Matters’ Category

Cashing In: Tom Kontos on Liquidity & Depressed Values

At a time when cash is king, it’s more important than ever for everyone carrying used-vehicle inventories—manufacturers, captive and non-captive automotive finance companies, banks, commercial fleet management companies and dealers—to take advantage of the auction industry’s ability to generate liquidity. Auctions have the unique capacity for creating cash quickly through the robust, competitive bidding process this industry fosters both in the lanes and online. And let’s not forget the impact the auction industry has on the Big Three and its captive finance arms. Auctions play an important role in creating liquidity for these companies by remarketing its used, program, off-lease, repo and company vehicles. The remarketing of these used units, which is a regular part of the domestic manufacturers’ operations, can be accelerated as cash needs dictate.

On a daily basis, the auction industry establishes resale values for thousands of vehicles. Consignors are at liberty to sell or refuse to sell at these established values. Dealers also have other options—they can return offered vehicles to their stores and mark them down for retail sale. But most consignors are just delaying the inevitable by “no-sale-ing” their units. Moreover, they are also denying themselves of needed liquidity to fund their front-end lending operations or even of needed capital for their businesses.

While many may be thinking now is the wrong time to be selling used-vehicles due to the record wholesale price decline in October, the current need to generate cash may be more important than obtaining maximum vehicle values. This is especially the case at a time when auto asset-backed securities markets have collapsed and other sources of capital are severely restricted.

Moreover, not all segments of the wholesale market are experiencing weak demand. For example, demand for many of the sub-prime repossessed units — which tend to be older, rougher and, as a result, less-expensive — is relatively high at auction right now. This may be attributed to two things: the preference of some dealers to conserve floorplan capital, and the relative success retailers in the buy-here-pay-here space are having. The latter are often perceived as “lenders of last resort” for the credit-challenged car-buying public. Also, older units are in shorter supply at auction. This is because franchised dealers are holding on to trade-ins that they would have previously wholesaled. This is done in an attempt to retail these units for the attractive grosses they generate.

Often, sub-prime financing companies that have to satisfy certain covenants with sources of capital are basing sales strategies on liquidity considerations rather than retention considerations. As previously stated, this may be an appropriate and commendable strategy to provide “front-end” liquidity for retail lending. Dealers may also find it best to liquidate aged or unwanted used-vehicle inventory to generate cash in order to weather potential economic storms.

So at a time when the government, the financial community and the automotive industry are all seeking ways to inject liquidity into the market, the auction industry represents a ready source of cash from ample volumes of used-vehicles.

Wholesale market values may be depressed at present, but there are pockets of healthy demand for certain types of used-vehicles and auction companies can advise remarketer of those opportunities. In these unprecedented times, the need to create liquidity may ultimately supersede the desire for price maximization.

Tom Kontos is Executive Vice President of Customer Strategies and Analytics at ADESA, Inc.

How to Avoid Marketing Blunders

by Mary Wisniewski

Imagine running a car promotion before telling employees about the deal. Sounds silly, but this marketing blunder has actually happened.

Several years ago, marketing consultants Gravitational Marketing worked with a dealer to create a radio promotion. The very first morning it aired, the station contacted the marketers. Their listeners were confused after calling the dealership: Its employees were unaware of such a deal. “This is a classic mistake where the dealer fails to communicate what the program is this month,” Travis Miller, co-creator of Gravitational Marketing and co-author of Gravitational Marketing: The Science of Attracting Customers, says. With the incredible amount of marketing initiatives a dealer deploys, a few are bound to go Amelia Bedelia wrong; however, most are preventable.

The number one mistake dealers make is taking the same marketing approach as everyone else and expecting great results. Same is lame, says Miller. Frank Myers Auto Maxx is one Gravitational Marketing client striving to break out of the “same” marketing tactics. “Everyone does the same things,” Tracy Myers, owner, says. “Everything they are selling is a commodity. When selling a commodity, it is very limiting to what you can offer the customer.” The Winston-Salem, N.C.-based dealership strives to create stronger relationships as a way to step out of the abyss of dealers nationwide. Take its movie nights. People come to the dealership to eat popcorn and watch family films on a widescreen television. For another relationship-building tactic, Myers patrols social networking sites, spending 1.5 to 2 hours on the Web daily. Part of knowing what works well is also knowing what does not work at all. In the past, outside companies have led to poor results for Frank Myers.

“No one knows your business like you do. Outside companies can have the greatest and latest things, but maybe it won’t fit into your culture and won’t work,” Myers says. When Myers has hired outside companies for direct mailing needs, the outsiders have failed 95 percent of the time, even when it was a good piece, he says. “We don’t have a franchise. We are an independent dealership. The family name is our brand. If we use a generic direct mail piece and don’t personalize it with our culture and our consumer, it won’t work,” says Myers. Outsiders are not the only marketing obstacle dealers face. Industry insiders say the biggest marketing blunder dealers make is holding onto the past.

What worked best for the past three years does not mean it will work for the next three years, says Brion Stapp, dealer principal at Stapp Interstate Toyota – Scion. To keep on top of the changing marketing climate, the Coloradobased dealership, for one, hosts quarterly reviews to ascertain where to spend marketing dollars. Television and Internet are the top two best marketing mediums for Stapp Interstate. Most dealers, however, have not developed or concentrated time on Internet strategies.

“Most dealers are behind the times,” says Jason Mattia, chief financial officer and founding partner at automotive Internet consulting company AutoEngage, Inc. The ex-auto dealer says most dealers realize an auto online presence is critical but still view it as a secondary part of their business.

Gilbert Chavez, president of Carzeus Consulting, LLC, shares Mattia’s sentiments.

“[Dealers] don’t know what to do,” Chavez says. “They aren’t embracing technology or Internet strategies. They aren’t embracing [them] because they are panicking. They are going to something that worked for them in the past.” Chavez cites a dealer who recently tried to “dominate” cable as one such misguided marketing endeavor. “You wouldn’t be in the car business without a healthy ego,” Chavez says. “It’s great that you are aggressive in marketing in a down economy; however, if he dominates cable, he thinks he can dominate the market.”

Chavez encourages Internet marketing strategies, instead. This is because a dealer would know if he or she hits its target, for one. “With online marketing, it’s a laser. It’s a bullet,” says
Chavez.

Perfecting the Pitch for a Troubled Time

by Marcie Belles

For years, dealerships sought “outgoing and friendly individuals, with excellent communication skills and thorough knowledge of various cars and car options” to sell vehicles. These days, with vehicle sales on the skids, dealership sales and finance managers need the know-how of a credit counselor, and the creativity of a consultant, combined with a dash of realism.

Hourlong decisions about moonroofs or premium wheels are largely gone; now car buyers focus on new versus used — or whether to buy a car at all. So F&I managers are spending more time explaining down-payment requirements and the inner workings of credit scores. They have to find alternatives to leases and extended-terms. Some have even stopped selling certain insurance products.

“Most people are used to buying cars with no money down,” said DJ Dancer, finance manager at Jack Diamond Lincoln Mercury, in Longview, Texas. “Those days are over. Without $1,500 to $2,000, a deal is hard to get done.” Some lenders might require down payments as high as $4,000 or $5,000, he added. Credit scores and interest rates are another sticking point for finance managers. That’s where the credit counseling comes into play. “We have to explain the banking system more than before, especially credit scores,” said Jimmy Guerra, finance manager at Fiesta Auto Center. “We tell [customers], ‘If it’s low, you’re going to have a higher interest rate until you refinance. After six [on-time] payments, you can get a better interest rate.’”

In some cases, a new car at a 0 percent interest rate costs less than a one- or two-year-old used car. But, still, finance managers are tasked with convincing customers to take that step — one that some find too daunting. “With the standard rate on used, the monthly payment could be $40 less on new,” said Jon Lind, vice president and general manager at Burlington Ford Lincoln Mercury Inc. “But we have lots of guys who don’t want to step into a new one, so they continue driving their [current] car.” That’s a dynamic that has been addressed somewhat by the federal government’s Cash for Clunkers program.

Another obstacle for dealership F&I managers are lenders’ more restrictive financing options. For Tim Dunlap, finance manager at Hare Chevrolet, in one of the most difficult changes to the sales pitch has been the near-elimination of leasing as a financing option. “We’ve lost our captive for leasing,” he said. “You used to be able to get a new Tahoe for $350 or $400 a month. Half our new cars were leased.” Now the Noblesville, Ind., dealership relies solely on US Bank for leasing.

Harbor Chrysler Jeep Dodge, meanwhile, has stopped selling credit life and disability insurance. “It takes care of the confrontation,” said Finance Manager Dave Dutcher. “We tell customers, ‘Go to your insurance company.’” The Michigan City dealership limits its insurance offerings to GAP and warranty coverage. Harbor Chrysler, too, has instructed dealership personnel to quote loan terms only as high as 72 months, because some lenders have shied away from longer terms like 84 months. “We don’t let our salesman go there,” Dutcher said. “We try to work them into a shorter term. In some cases, though, the customer says, ‘I’ll buy this car for $300 a month — I don’t care how many lifetimes it takes.’ In that case, the sales manager has to get involved and say, ‘You’re looking at the wrong car.’”

In recent months, Mike Anderson Auto Group General Sales Manager Terry Osborn has also had to bring offer customers doses of reality. “We try to give the customer what they want” in terms of vehicle selection, he said. “On occasion, we have to show them other options. Sometimes it involves dragging them to a vehicle and saying, ‘Here’s what you can have.’”

Aggressive Marketing in 2009 May Be the Key to Survival

by Victoria Fierson

Fluctuating market conditions have made it difficult for dealers to determine the best marketing strategies. Some are aggressively marketing their brands in an effort to boost sales, while others are taking a more conservative approach and scaling back.

For the upcoming year however, more creative marketing strategies may be a way for dealers to offset their losses. Kurt O’Donnell, general manager, Herb Chambers Saab located in Boston, Mass., says difficult economic times are a great opportunity to promote customer-driven products. His dealership is currently offering customers who purchase 2008 or 2009 Saab models a pair of skis that retail for more than $1,000.

“Promotional products are a great idea, but it’s important that dealers use products that are easily traceable.” — Will Brown, Fidelis Marketing Inc.

“In tough times it is always beneficial to use a vehicle-tovehicle strategy,” says O’Donnell. “That means anything that gives customers added incentive, like buying a car and getting free skis, is usually very successful.”

O’Donnell says effective marketing strategies are tailored to a specific region. “In the Northeast, skiing is very popular,” he says. “This was something I thought customers would really respond to. Just for agreeing to go on a test drive we give customers two free lift tickets.”

Solomon Ski Company approached Saab dealerships around the New England area with the promotional idea. Most of the dealers opted to participate and fund the ski promotion. “Dealers have “co-op” dollars, which are funds allocated for brand marketing,” says O’Donnell. “The manufacturer matches how much of our co-op money we give and we felt this would be a great promotion to offer.”

O’Donnell says in his opinion, promotional products are the most effective way to boost sales. He also started doing a radio spot in December. “During the holiday season people spend a lot of time in their cars so it’s a great time to market, but you need good bait,” he says. For 2009 he anticipates his marketing efforts will be geared towards gas assistance or lower interest rates.

“It really depends on the market conditions, but I think our focus will be on finding a leasing program,” says O’Donnell. “GMAC doesn’t offer leasing programs, so we’ll be looking for a bank that does.”

Dealers are likely to only fund marketing strategies that they feel produce the best results, according to Clarke Hammond, HR Director and Trainer, The Bass Group, an automotive marketing group based in Waco, Texas.

“We’ve been seeing dealers both scaling back and doing everything possible to sell cars,” says Hammond. “It’s really a question of are you going to live out of faith or fear?” Some dealers haven’t changed their marketing at all. For Rick McGill, general manager, Foss Toyota located in Casper, Wy., his dealership’s marketing strategies are winding down because of the season, not the economy.

“We’re offering the Toyota-thon now, which is the same thing we have been doing for the last 10 years,” says McGill. “Toyota is cut and dry; they come up with a marketing strategy and stick to it, but dealers can do individual marketing if they want to.” McGill says during December his marketing efforts usually slow down because people are spending money on gifts, not cars. “We’re doing the same thing we have always done,” he says. “There is no need to scale back any further; business hasn’t dropped off that much.”

For aggressive dealers now is a great opportunity to capture market share according to Will Brown, development director, Fidelis Marketing Inc., an automotive marketing company based in Folsom, Calif.

Brown says scale-backs and aggressive marketing even each other out. “Promotional products are a great idea, but it’s important that dealers use products that are easily traceable,” he says. “You want to know what exactly is working and what’s not.”

Brown says marketing strategies for 2009 should focus on avenues that will allow dealers to trace their marketing successes. “Direct marketing strategies that focus on dealer-specific brands and vehicles lines will be important in the upcoming year,” he says.

Driving Volume to Dealerships

By Elizabeth Kephart Reisinger

While people may have listened in the old days when E.F. Hutton spoke, in today’s marketing environment, customers are more likely to take their advice from friends and neighbors instead of strangers.

The proliferation of information and marketing mediums has made the old standby advertising of radio spots and the occasional television commercial as likely to attract customers as going door-to-door. Dealers and marketing experts agree: to be noticed in a crowded market, the same old marketing tactics just won’t do.

KNOW YOUR CUSTOMERS
Getting people in the door is clearly an important component of the marketing challenge. Dealers then must find out who’s coming in the door and why.

While most dealers ask the customer detailed questions about car-buying history, they rarely ask how many other drivers are in the household and what those people are driving,says Scott Toland, president and an instructor at The Marketing Academy, a company that has been working with auto dealerships on marketing strategies since 1983. Toland cites the 80/20 rule, noting that 80% of a dealership’s business will come from referrals and repeat clients; only 20% of potential customers are responding to advertisements. Therefore, a dealership’s customers are important spokespeople.

LOOK OUTSIDE THE BOX
Stephen Burks takes a similar approach reaching out to his customers, buyers of luxury and exotic vehicles. Burks, marketing director of Springfield, Mo.-based Motorcars International, has found that experiential events – such as hosted events with yacht dealers and investment bankers – work well for his high-end clientele. Most dealers would do better by partnering with institutions such as financial advisory firms.

To get innovative ideas, he often looks beyond the car market.

“I may go out and grab a high-end magazine, such as Modern Luxury, and see what they’ve done for events,” says Burks. “By studying the other parallel markets and their methods, I can develop some opportunity off of that.”

Ray Davis, chief executive of Umpqua Bank in the Pacific Northwest, has said on numerous occasions that he looks at  top players in other industries — not to other banks — for ideas on improving his company: Umpqua has won wide acclaim for its approach to customer service and marketing. Some Umpqua Bank branches, for example, are considered community centers in their neighborhoods, hosting knitting classes and book clubs as a means of improving the bank’s position in its footprint.

SPEND MONEY TO MAKE MONEY
Walser Auto Group’s advertising message is tied to its sales philosophy: The sales staff is not paid on commission and the sales floor is a negotiation-free, hassle-free environment. The 52-year-old company with 10 dealerships in the Minneapolis metropolitan area centers its marketing on one slogan: “The Walser Way.”

“We’re more interested in telling people what it’s like to buy from us,” says Paul Walser, the company’s owner and chief
executive. His media strategy, which excludes television ads, focuses on 60-second radio spots, targeted print ads, and
occasional billboards. “We don’t have a big visual story; it’s an audio story.”

The strategy has worked, although Walser admits that the dealership group plans to step up its advertising in the coming months. “We did a survey several months ago and we were disappointed with what consumers knew about our way of doing business,” Walser says. “We plan to get back into a more aggressive posture.”

Getting through to consumers is harder than ever. The dealerships attracting the most business today understand this
new paradigm and are constantly seeking to move beyond the traditional radio and TV advertisements. Being more aggressive, regardless of the marketing method, is most important.

While people may have listened in the old days when E.F.

Hutton spoke, in today’s marketing environment, customers

are more likely to take their advice from friends and neighbors

instead of strangers.

The proliferation of information and marketing mediums

has made the old standby advertising of radio spots and the

occasional television commercial as likely to attract customers

as going doorto-door. Dealers and marketing experts agree:

to be noticed in a crowded market, the same old marketing

tactics just won’t do.

Know your customers

Getting people in the door is clearly an important component

of the marketing challenge. Dealers then must find out who’s

coming in the door and why.

While most dealers ask the customer detailed questions

about car-buying history, they rarely ask how many other

drivers are in the household and what those people are driving,

says Scott Toland, president and an instructor at The Marketing

Academy, a company that has been working with auto

dealerships on marketing strategies since 1983. Toland cites

the 80/20 rule, noting that 80% of a dealership’s business will

come from referrals and repeat clients; only 20% of potential

customers are responding to advertisements. Therefore, a

dealership’s customers are important spokespeople.