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What tactics is your dealership using to balance the need to use competitive, market-driven pricing to generate traffic with the desire to hold gross?

When you price high you get no traffic but when you price competitively (or even aggressively) you have little or no room to negotiate.

How is your dealership currently handling this dilemma?


Ed Brooks - Sales Director
vAuto
402.427.0157 Phone s
- Add me on LinkedIn
- Follow me on Twitter
- vAuto, the 10th Fastest Growing Software Co. - Inc.500

Tags: RealDeal, documentation, negotiation, vauto

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I have trained my managers and salespeople with the old adage "what you know in advance, you do and have prepared in advance" We know that customers want to see a vehicle history report, so we have it ready for them. We know that customers want to know as much history about the car as possible so we have it ready for them. This includes any in-house repair orders or reconditioning invoices that we have. Todays customers want to feel that they are getting a good deal on the car, so before they ask for it we share the bookout sheets and market pricing report with them. The "bookout sheet" as we call them are just not for the lender anymore. All of this information is ready and in a folder to be shared with the customer before the pricing discussion begins. Does it work all the time and build value with the customer? It sure doesnt hurt.
Bill - I agree: Having the right documentation - in advance - is a huge help!
Have well trained salespeople to hold the line on the price that you have advertised. Hold back on trades and make money in F&!....Takes constant work....
I'm with Jason Walter on this one. Out of all the posts I have ever read about vAuto, I never have EVER heard them promote quality (or condition of front line vehicles) or training (of associates). It's always about price and selection. That's a consumer perspective...to the elementary degree. Locally, car customers are looking for the best quality for their price and the best trained sales associate to help them fill their needs. That has never changed...internet or pre-internet. I make gross the old fashioned way. I land them on a high quality vehicle that meets their needs and then I talk about their life. Their hobbies, family or career. I bump customers $2500 over their "internet quoted price" this way. Easily. I am well trained and train my sales associates the same way. I've never heard anyone but Joe Verde hold the line. That's how you hold the gross...even today. Anyone else is just out to make a dealer unstable. Not here.
Jason,

The quality of the vehicles are critical. I’ve written 2 books, Velocity: From the Front Line to the Bottom Line, and Velocity 2.0: Paint, Pixels and Profitability, both of which speak to the importance of vehicle quality. If you haven’t seen these books, let me know and I’d be happy to send copies. Moreover, I speak around the country every single day and specifically talk about pricing vehicles one at a time based on their physical merchandising quality and market day’s supply. With all due respect, it’s really important for credibility purposes to write with factual integrity. Opinions are OK, but effort should be made to carefully represent facts.

Regarding your approach of “making gross profit the old fashion way,” you must remember that you have to have a warm body to talk to. Unfortunately I think that most internet shoppers assume that the quality of the vehicle is high and therefore, make their short list with a high emphasis on price competitiveness. Even if you have a quality vehicle, I don’t think that you can expect to be visited by a customer today if your price is too high.

Also, I find your comments interesting about the approach you take to inquire about the shoppers “life, hobbies, family or career.” I had interesting experiences this past year when shopping for cars with my 21 and 19 year old sons. First, as I would have expected, they developed their short list of vehicles from their research on the internet. They resisted going to the showroom at all. Rather, they wanted to take the next step to learn more about the vehicle over the phone and internet. Visiting the dealerships, just to learn more was something that they didn’t want to take the time or effort to do. It was me that encouraged them to visit the dealerships. I have to admit, it took the better part of 2 days and it was shockingly unpleasant.

On one side of the unpleasant equation, sales people were often rude and overly anxious to determine whether we were going to buy a car that day. On the other side, we encountered several salesmen that took your approach of slowing us down and wanting to learn about our life, hobbies, career, etc. From the perspective of my sons, this was extremely annoying and a turn-off. After the better part of 2 days of these experiences, I reluctantly agreed that there was probably a better way to do it.

Jason, I’m not happy to report these experiences, but they are real. I’m afraid that today’s buyer is extremely conscience of their time and friction involved in buying a car. Specifically, they immediately excluded cars from consideration that were priced too high in spite of their apparent quality, and dismissed sellers that wanted to learn about their lives before they would talk about their car. As much as I hate to say it, I’m afraid that the old-fashioned days of relationship selling are mostly behind us. I would never say that relationships don’t matter, in fact I would say that life is a relationship business. I just don’t believe that the effort of building relationships as a pre-cursor to selling cars is an effective technique for building gross profit.

Rather, I think being quick to the point in terms of answering questions and providing information is what busy shoppers want to have, even if it’s over the phone or internet. Giving people what they want in a fast, professional, courteous manner is the best way to build a relationship when selling a car. Documentation about the vehicle’s price/value and history is another useful and credible technique for building trust.

I’d be interested in your thoughts. Again, I think it’s very important that all of us on either the vendor/partner or dealer side of the equation communicate constructively and responsibly. We’re all heavily vested in this business, and working together is the best thing that we can do to ensure our mutual success.

Thanks,

Dale
I apologize is advance for what is sure to be a lengthy response. I plan to:
1. Make an outrageous (but true) statement
2. Tell a story about golf
3. Somehow pull it all together as it relates to pricing cars and holding gross

First, the outrageous statement; Odds are, your dealership is no better prepared, no better set up, to sell preowned cars on the internet than it was 15 years ago!

Now the story about golf; A few years ago a buddy and I set out to get a couple of rounds in on a beautiful spring day. We started on a cheap New England track. It looked like it was a reclaimed hay field with rolling hills, few trees and even less water. We had a great time, swinging hard, knowing it was almost impossible to get into trouble. At one point teeing off of 13, my buddy hit a huge drive pulling it left. His shot ended up in the middle of the 14th fairway with a perfect lie and less than 75 yards to the pin on 13. The two fairways were only separated by a couple of trees and some light rough. I asked if he did it on purpose. “Hell no, but it’s gonna work to my advantage.” And of course it did.

After lunch we drove to the next course. A gorgeous, expensive course that looked like it was carved out of a primordial forest. Lots of water, lots of sand and enough trees to rebuild Chicago after the great fire. As we started unloading our stuff, I looked over and he was swapping half of his clubs out for ones in his trunk. I asked him what he was doing and he looked at me like I was an idiot, which, well, I was. He explained that he was swapping out equipment that he used for distance for equipment he used for control. He was even going to use different balls. He explained that this course was absolutely unforgiving of mistakes. This course put a premium on precision, not brute strength. This course required a completely different game than the course we played in the morning. And, he said, most importantly it required a different mindset. We’ll get back to that mindset thing, I promise.

So, it’s probably time I started to pull this all together, if I can. The internet has brought dramatic changes to car shopping and car selling. I think one of the biggest, high-level changes has been to the balance of power. Fifteen years ago all dealers had about the same knowledge. We all had the same auction data and had the same wholesale guides in our back pockets. We all had consumers beat in the “knowledge is power” game. Now that’s changed. Consumers walk into our dealerships armed with as much or more information, as much or more knowledge, as most of our salespeople.

We have a great new opportunity though. The same information our customers use to empower themselves – full knowledge of the retail market, who’s selling what and for how much – can be used against our competition. Dealers that harness this data have a huge advantage over their competition. We’ve traded an advantage over the consumer for an advantage over our competitors.

Now back to my outrageous statement: Odds are, your dealership is no better prepared, no better set up, to sell preowned cars on the internet than it was 15 years ago! Think about how we priced cars fifteen years ago and why we did it. We put a big mark-up on every car. We advertised heavy in print and consumers (unarmed with any real information) came in. We had professional negotiators work them in an adversarial system and go figure, we won a lot more negotiations than we lost.

If we had a store on the highway, with a big gorilla and lots of balloons we were on the coveted route of the Up Bus. Our customers would put maybe a half dozen stores on their list of dealerships to visit and would shop till they ran out of steam or bumped into a great salesman.

The Up Bus has stopped running. Customers now build a short list on the Internet. And that list is really, really short! The average customer only stops at one or maybe two stores. And this happens only after they find the car they want at the price they want online.

Unfortunately, while many dealers have stopped the old style print ads and embraced the Internet, they’re still pricing the old way. Price high first and plan on negotiating down. They’re playing the game the way they did 15 years ago.

So what’s the problem? Fewer and fewer customers are coming in on cars with big markups. They simply have too much data to be interested in cars that are overpriced compared to the market. So the ups we get are ups on the 30 or 60 day plus cars – the ones that have been marked down. Unfortunately our staffs are all set to negotiate; they are, after all, trained negotiators. But now they aren’t going up against unarmed consumers. They’re going up against consumers armed with full market data. We win a lot less these days.

Our stores, our people, our systems and our processes are all set up to play the brute force game on the wide-open, forgiving golf course. Unfortunately the Internet ensures that we’re playing on the narrow unforgiving course with lots of hazards. The course that rewards precision and accuracy. But we still play it like it was wide-open and forgiving. We’re playing it with the wrong equipment and the wrong mindset.

Let’s look at what happens when we throw out all the old habits and tactics and build from the ground up. We know pricing high and negotiating down doesn’t work well. Pricing high is a formula for turning off the Up spigot. So we price to market and turn the Up spigot back on. Now we have to change the negotiation mindset.

These Internet-era dealerships don’t have the negotiation mindset – they have the documentation mindset. They’ll use the easily obtained selling prices of their “price-high & negotiate-down” competition to prove that they have a great price before a negotiation ever occurs, justifying - and holding - their asking price. They replace negotiation with documentation, increasing their Ups with competitive pricing (starting on day one) and decreasing the discounts with data pulled from the transparent Internet marketplace.

This best part is this process isn’t adversarial with the customer. It’s amazing what happens when the competition is your enemy – not your customer. It’s you and the customer against those other, nasty, game-playing dealers out there. These Internet-era dealers have systems and processes built for the reality of today’s marketplace. They are turning inventory faster than ever and holding gross because they’ve eliminated the large scale negotiations and discounting of the past.

The new mindset extends to the metrics these dealers monitor. Instead of per-vehicle-gross these dealers track discounts from advertised price. Some even incentivize based on these metrics.

Now take this mindset and put it to work on every aspect of your used car operation. How do you decide what to stock? How do you decide what to pay for each car in inventory? Are these decisions made based on the new transparent marketplace or based on “the way we’ve always done it”. Examine your mindset and each process and I think you’ll discover your store isn’t nearly as prepared for the Internet as you thought. Certainly there are exceptions. These are the guys turning their inventory 12 to 18 times a year and smiling all the way to the bank!

vAuto’s Founder, Dale Pollak held a webinar titled “Documentation Replaces Negotiation: 4 Easy and Effective Strategies to Improving Gross Profit” last Friday. Attendance was huge and Dale followed it up with a good 30 minutes of questions and answers. The response was so good Dale will be repeating the webinar in a few weeks. We’ll announce it here or you can watch for information or subscribe to Dale’s blog at DalePollak.com

Ed Brooks - Sales Director
vAuto
402.427.0157 Phone
- Add me on LinkedIn
- Follow me on Twitter
- vAuto, the 10th Fastest Growing Software Co. - Inc.500
Great story with great comparisons Ed. Thanks for sharing.
I think I could put together a response as long as your post (and may have when I’m done), but will try to save some of it for a post I'm considering writing on pricing and data tools in general and dealers' ingrained tendency to play only offense and not defense when it comes to their investment in used cars.

In posing the initial question of "what tactics is your dealership using . . .”, I think you have phrased it perfectly. Gross today is driven by different “tactics” than those used in the past. In fact, several tactics have to be meticulously planned, executed and coordinated, if a seller has any hopes of maximizing their overall gross, starting with the acquisition and initial pricing of the inventory.

On that front you have to:

• Make a commitment to methodically stock the right inventory based on market data.
• Acquire each piece of inventory, whether a purchase or trade, with a strategy in place ; i.e. a purchase price driven by a known reconditioning and retail margin amount.
• Use market data to establish performance benchmarks for your investments
• Make regular price adjustments based on how the market moves vs. the probability of realizing your expected return.
• Utilize ongoing analysis to determine the ideal stocking level, turn, average investment amount and other key metrics.

Now that you’ve invested in this great inventory, you have to merchandise it --- with speed – by:

• Making sure you have the best online classified package(s) you can . . . and then making sure you get the most out of them by knowing how to use them to show your inventory in the best light.
• Having an effective, optimized website.
• Doing all that it takes to make sure your web presence is as pristine as your physical lot.
• Closely monitor the activity that your vehicles receive online.

Doing these things will generate leads --- and now you have to do a few things in the showroom:

• Mesh the prospect’s showroom experience with what they have already been exposed to online
• Institute (and pay staff) on a limited negotiation sales process that focuses on the data you have at hand and have already presented online: the selective nature of your inventory; the thorough reconditioning you’ve done; and the information you used to aggressively price your vehicle in the first place. In other words, an absolute transparency in all that has gone into bringing you together with the prospect who now sits in front of you.

“Controlling gross” then becomes more of a factor of implementing these types of modern tactics and less of the type of “control”, leverage or “brute force” dealers have used in the past.
Another way to advertise a competitive price is to leverage the Manufacturer Rebates and Incentives on the New vehicle inventory list page. There are many dealers that are doing this. For examples: http://www.garberchevrolet.com/new-inventory/index.htm?reset=Invent...
AND
http://www.classicchevytexas.com/inventory/newsearch/New/Make/Chevr...

both of these sites use AIS Rebates for real-time updates. www.aisrebates.com
Dale,

Thank you for sharing your family's buying experience. I understand how your sons may have come across a few sales associates who couldn't close the deal and how they may have even walked away with a negative experience. However, I believe the goal of the sales associate is to create a relationship that will transcend the sale and also become a service customer. There lies the need to talk hobbies, families and careers. Not everyone will let you in, but we try. If we don't, someone else will.

No matter where your family purchases their next car (internet price or not), they will probably need to have it serviced and maintained to get top value when they trade it in. They will probably look for a franchise service center with a great reputation or a family mechanic they trust. The trust will still have to be developed. We have a higher form of trust in people we can relate to. That is why we talk hobbies, families and careers. It enriches rapport, common ground, friendliness and care. We strive to gain a customer for Life.

While some shoppers will only shop by analysis of online data and ignore the human side, they may also lose in a Service Center that cares less about their current costly repair. We partner with our customers to ensure they are treated fair by Service as well (Often, I find myself helping JPL Rocket Scientists understand their vehicles or repairs.). We're still in the people business. I believe most companies are. I believe you and I talk hobbies, families and careers with our loved-ones day in and day out. In the same manner, we want to convey a family atmosphere at our dealer. I understand it may not work for everyone, but most customers eat it up (...even after their lengthy research and preparation, online.). That's why we use it. Most buyers still want an emotional connection. They come to the dealer with it written all over their face. What is a sales associate to do, but make the connection with courtesy and care. The Art of The Sale is still alive today. It's up to the dealer staff to execute it properly. It's not a perfect world, and humans are still looking for a trustworthy business connection. We offer that.
Fear and Trust - Two huge issues we face on a daily basis in any dealership. Customers walk into our dealerships fearful: Fearful of buying a lemon, fearful of getting a bad deal. It's our job to build trust and eliminate that fear.

As Jason discussed above, one time-tested sales basic is to build rapport, to establish a relationship with your customer. It's as true today as it ever was. It's a challenge because of the fears a customer brings with them into the showroom, but a talented, well-trained salesman can get the job done.

The salesman's job can be made much easier by using documentation to address the two main fears: Buying a bad car and getting screwed on the deal. As Bill Simmons discussed, using having a vehicle history report, a service history and a reconditioning report with service orders can really help break down the "Am I buying a bad car?" fear.

What Dale Pollak has been speaking to dealers about for a number of months is the "Am I getting a good deal?" fear. Using the transparent nature of the internet, it's easy to compile documentation on pricing in the market. We've been trained for years to keep customers in the dark, but when you have a competitive price it's the last thing you want to do. Use the transparent internet to prove your pricing is good and eliminate the buyer's fears.

When these two fears are eliminated establishing a productive relationship, completing your sale, and holding your gross are all much easier.

Dale will be repeating his no-charge online webinar, Documentation Replaces Negotiation: 4 Easy and Effective Strategies to Improving Gross Profit on Friday the 19th at noon eastern. Here's a description of what will be covered: The reality of today’s market is that vehicles need to be priced right in order to drive traffic. This means that you can not negotiate as much, or in some cases, at all. Dale Pollak, a leading used car expert and best selling author, will present 4 practical strategies that will enable documentation to replace negotiation. Using these easy techniques, dealerships can expect their profits to rise without sacrificing volume.
You can reserve your seat by clicking HERE

On a side note, it was mentioned above that some weren't familiar with Dale Pollak's and vAuto's ongoing efforts in training and dealer education. Dale has been at the forefront of identifying the changes and the challenges the internet has introduced to the car business. He's also been a leader in identifying the new opportunities the internet has presented. He's constantly traveling the country, speaking with dealers, dealer groups and at industry events, conventions and conferences. As with the webinar on the 19th, when he speaks, he's not selling our software. Indeed the strategies Dale will be discussing can be implemented without spending a dime. I hope you'll all attend!
• Be prepared when the customer gets to the showroom
• Price competitively using condition, mileage, demand and convenience
• Leverage sales payplans
• Work the entire deal price, trade, accessories & F&I
• Understand that there are going to be different kinds of buyers but that all buyers want the same thing they just want it in different ways
• “Your enemy is not the customer, it’s the competition” I love this quote from Ed
• Leverage all bullets to get on the customers short list
• Understand its not just about the sale there is a ongoing service relationship here that has more profit potential than the sale
• Fear & Trust – all customer have fears, transparency breaks down fears and builds trust. This comes through sales training and good supporting documentation.

I’m pretty sure I just summed up the comments to this discussion in 9 bullet points. What does all this mean? Well if you ask me it means that you can’t just be good at one thing you're gonna have to be good at all of it.

In the past I knew dealerships that specialized in special finance, some that specialized in price negotiation some that specialized in the dreaded 4 square, some that had great advertising, some that were just willing to outspend everyone else in the market. The point I am trying to make is that these dealerships found one thing and drove it home and it worked. It worked because the customers shopping experience was extremely limited. In a recent tweet I saw a stat from AutoTrader I agree with the number of dealerships visited has dropped from 3.6 in 2006 to 1.8 in 2010. I have no doubt that is a true stat, but if you take into account the number of website visits as a dealership visit then I believe that stat is off by multiples.

Those who follow me here have heard this 1000 times and I apologize for being redundant but I think we need to drive this in our heads.

We will have to give the customer “what they want, when they want it, the way they want it” and to make gross doing that you will need to bring you “A” game, all 9 bullet point above and always be testing new ideas to get more.

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