DealerExec Magazine | Q2 2016

DealerExec A DrivingSales Publication • 2nd Quarter, 2016

A DrivingSales Quarterly Covering Dealership Brand, Capital and People.

Build

Resiliency Into Your Business Will your dealership prosper or fail when the music stops?

BY JOY HANNEMANN

Visit DrivingSales.com to view more than 29,000 verified dealer ratings of over 800 vendors in 22 categories.

F O U N D E R ’ S

L E T T E R

Dealership Executives,

A

t DrivingSales, we seek to drive innovation and excellence in the auto industry by optimizing a dealership’s greatest asset, their people. It’s what drives us everyday!

This edition of the magazine provides you insights to both play offense, with insight into some of the most compelling innovations in the industry, as well as defense by sharing strategies that will help you prosper when others struggle in the next downturn, a topic that was covered in Miami at our Presidents Club event in March.

We took a new approach to the event this year, organizing it as a “super 20-group” with in-depth interactive workshops on topics of interest to dealership management. The rich interaction between dealers and industry experts resulted in some great insights and recommendations we are sharing in this issue.

I’m excited to share with you some of the keynoters we have secured for this fall’s DrivingSales Executive Summit in Las Vegas, Oct. 23-25. Our keynoter line-up will include the former CEO of Southwest Airlines on achieving a single-minded focus on operational excellence, a casino marketing executive sharing how to use data to drive customer experience and increased customer spend, a world renowned expert on organizational development sharing strategies on increasing the productivity and loyalty of your team. More keynoters will be announced soon.

You will also hear from over 35 leading industry experts on cutting-edge practice in sales process, marketing, fixed ops, F&I, and more.

Finally, AutoVentures is returning for its second year. The automotive industry’s only entrepreneurship event will showcase 20 young companies proposing to either enhance or disrupt automotive retail. Dealers can join this event immediately after the close DSES and get a ringside seat on the future.

We at DrivingSales remain committed to be your partner in your personal and business success. Join us in Las Vegas to take the next step in this journey together.

DealerExec The Team Jared Hamilton FOUNDER

@jaredhamiltonDS

Chris Reed PRESIDENT

chris.reed@drivingsales.com

Mike Jeffs EDITOR

mike.jeffs@drivingsales.com @mikejeffs3

Steve McFarland DIRECTOR, MEDIA SALES

steve.mcfarland@drivingsales.com

Stephanie Sillanpa MEDIA SALES EXECUTIVE

stephanie.sillanpa@drivingsales.com

Justin Rhoane MEDIA SALES EXECUTIVE

justin.rhoane@drivingsales.com @JRhoane

Sincerely,

Jared Hamilton Founder, DrivingSales, LLC

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Thanks to our Sponsors!

DealerExec ABOUT THIS PUBLICATION DealerExec is published quarterly

by DrivingSales, LLC featuring executive resources for automotive retail leaders covering dealership Brands, Capital and People, and a quarterly ranking of dealership vendors as rated by dealers themselves. Within the first issue of each year, DealerExec announces the annual winners of the the Dealer Satisfaction Awards from several Vendor Rating category.

SUBSCRIPTIONS To subscribe, visit DealerExecMagazine.com. Printed in the United States of America.

Copyright Š DrivingSales, LLC 2016. All rights reserved. No part of this publication may be reprinted or otherwise reproduced without publisher’s written permission. DealerExec and DrivingSales, LLC assume no responsibility for unsolicited manuscripts or photographs.

LETTERS TO THE EDITOR DealerExec and DrivingSales, LLC welcome letters to the editor.

If you have questions about the publication, or would like to make a comment, or voice an opinion about the magazine, DrivingSales, LLC, or the industry in general, please feel free to write us.

Please send letters to mike. jeffs@drivingsales.com. Include a phone number and email address.

Letters may be edited for clarity or space. Because of the high volume of mail we receive, we cannot respond to all letters.

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C O N T E N T S

30 18

12

Features 12 Build Resiliency Into Your Business

Will your dealership prosper or fail when the music stops?

BY JOY HANNEMANN

18 Strong Buy/Sell Market Continues Through 2016 What are the five distinct trends shaping the buy/sell market?

BY RYAN KERRIGAN

22 Which Comes First, Your Brand or Your Culture?

Culture determines what your authentic brand actually becomes

BY ERIC SAVAGE

26 Why Every General Manager Should Be Using Social and Video Advertising to Reach Millennial Buyers

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Create more touch points with buyers through digital marketing

BY GARY GALLOWAY

30 The Art of Retention and Recruiting When sales stagnate, don’t just survive: Thrive

BY MIKE ESPOSITO

36 Set Your Dealership Brand Apart From the Competition A practical and effective branding exercise

BY DOUG MCIVER

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40 DrivingSales Executive Summit 2015 • Best Idea Winner Josh Pogue, Digital Marketing Manager Weins Canada Inc.

44 DrivingSales Executive Summit 2015 • Innovation Cup Winner Virtual Deal from DealerSuccess

48 How to Live When It’s Dead Easy to Die Be the hero of your life from this day forward

BY DAN WALDSCHMIDT

52 Dealership Buy-Sell Peak May Be Over What can we expect to see in the near future?

BY CLIFF BANKS

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On DrivingSales.com, dealers can rate their vendors. All reviews are verified to be legitimate and posted for you to learn who the best vendors are – directly from your peers.

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Over 28,000 unbiased vendor ratings submitted by verified dealers.

CATEGORIES 5 Chat CRM/Sales Department Dealership Management Systems (DMS) Internet Lead Management (ILM)

6 Inventory Pricing New Car Leads Owner Marketing Reputation Management

8 SEM - PPC Search Engine Optimization (SEO) Used Car Advertising Websites

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Chat Products

These solutions allow you to meet, greet and converse with customers who visit your website, as well as set appointments, generate leads and provide better customer service.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

Contact At Once!

Chat + Text Digital Connections Platform

1

100%

Gubagoo

24/7 Behavioral Live Chat + Mobile and SMS text to Chat

2

100%

CarNow

Visual Sales Manager

3

CRM-Sales Department These are Customer Relationship Management (CRM) systems that track all your walk-in, phone and Internet customers through the complete sales funnel and owner life-cycle. They allow for advanced customer segmentation and marketing and track your sales activities by employee to make your team more effective at attracting customers and managing relationships.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE

ELEAD1ONE CRM

1

99%

VinSolutions

Connect CRM

2

100%

DealerSocket

DealerSocket CRM

3

100%

Dealership Management Systems (DMS)

Dealership Management Systems connect all your dealership departments with accounting and maintain your dealership data in one central place. These ratings are for the DMS systems themselves, NOT the solutions that plug into the DMS systems such as a Desking or CRM solution.

COMPANY

PRODUCT

Autosoft

FLEX DMS

OVERALL RANKING

RATING

REC.

1

100%

Auto/Mate AMPS

1

100%

Reynolds & Reynolds

1

100%

ERA DMS

Internet Lead Management (ILM)

These Internet Lead Management solutions are built exclusively to handle incoming Internet leads and manage your Internet sales process. Many full-service CRM systems include Internet Lead Management features, but the ILM systems listed below are stand alone utilities built exclusively for managing Internet Leads.

COMPANY

PRODUCT

ELEAD1ONE

ELEAD1ONE ILM

OVERALL RANKING

RATING

REC.

1

100%

CallSource DealSaver

2

83%

VinSolutions

3

100%

MotoSnap ILM

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Inventory Pricing

With market volatility and transparency increasing online, knowing how to price your inventory is a science critical to increasing your store’s profitability. These Inventory Pricing tools collect various forms of market data to help define the optimum pricing for your inventory to maximize both Gross and Turn.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

vAuto

vAuto Pricing & Merchandising

1

100%

VinSolutions

MotoSnap Market Pricing Analysis

2

100%

New Car Leads

These providers collect and aggregate leads from their web properties and from partner sites, then distribute these hot leads to dealers.

Currently this category is for both finance and vehicle leads.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

OnlineBKmanager.com

Bankruptcy Lists

1

92%

Autobytel

New Car Leads

2

91%

Edmunds

Edmunds New Car Leads

3

100%

Owner Marketing These targeted solutions help you mine and segment your customer database, and then market to them successfully. These solutions can market to your customers through email/direct mail/phone and other means.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

ELEAD1ONE GoldDigger

1 100%

AutoAlert

2

AutoAlert Data Mining Software

100%

Reputation Management

These products and services help a dealership manage its reputation. They may assist with review collection, monitoring, resolution, and promotion of online reviews.

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COMPANY

PRODUCT

Slipstream Auto

Reputation Management

1

100%

Dealer Rater

Certified Dealer Program

2

75%

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OVERALL RANKING

RATING

REC.

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Optimize Your Sales Funnel WIT H D R I V I N GS ALES U N I VERS I T Y

Advanced Marketing

Management Effectiveness

Process Optimization

Sales Readiness

Car Sales Your funnel of car buyers is the lifeblood of your dealership. DrivingSales University helps your team develop the skills to increase appointment shows, improve sales effectiveness and increase close ratios.

Get a Free Funnel Flow Evaluation at

DrivingSalesUniversity.com/Funnel DrivingSales University Fuelling Excellence

SEM - PPC Search Engine Marketing (SEM) and Pay-Per-Click (PPC) solutions help you determine how to invest in and execute a display or paid ad campaign on the major search engines for greatest ROI. COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

DEP

Digital AMMP

1

100%

Z Mot

Targeted Marketing

2

100%

Used Car Advertising These consumer-facing websites allow you to display your inventory to in-market consumers. They make huge media buys to attract customers to your inventory, and to increase your walk-in, phone and web leads.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

Car Gurus

Listing Packages (Used Car Leads)

1

100%

Cars.com

Online Advertising

2

100%

Websites

Website solution providers create full-service websites built to be the main hub of your dealership’s online presence. These sites are central to your dealership’s marketing, branding and customer service. Micro Sites and Mobile Sites are rated in their own categories.

COMPANY

PRODUCT

OVERALL RANKING

RATING

REC.

DEP

Responsive Websites

1

100%

Dealer Car Search

Responsive Websites

2

95%

Slipstream Auto

Slipstream Websites

3

100%

*Category scores are computed per category and are not comparable across the board.

For questions about Vendor Ratings, please email to bart.wilson@drivingsales.com

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How Do Vendor Ratings Work?

The DrivingSales Vendor Ratings site is the first formal mechanism for dealers to rate and review their vendors in a comprehensive, real-time vendor directory. It empowers dealers by allowing them to learn about all the solutions available and to view actual customer feedback, both good and bad, about how each solution actually performs.

Rules •

Only dealership employees can post ratings and reviews. Reviewers are verified to ensure they are valid and eligible to leave reviews.

•

Dealership employees can only rate and review the products they have experience using. The ratings are a chance to hear from actual customers with live experience using the solutions in their stores.

•

Each reviewer must answer three questions to complete their rating: 1. How many stars does the solution deserve?

2. Would you recommend the solution to a friend?

3. Why would or wouldn’t you recommend the solution?

•

All three components of the review, along with the job title of the reviewer, are posted live to DrivingSales.com for all to reference when selecting new vendors.

Safeguards •

DrivingSales.com protects the anonymity of each dealer employee who leaves a rating and review.

However, DrivingSales requires valid name and contact information for each reviewer so that each reviewer can be validated.

•

Each review is passed through a variety of technological checkpoints to ensure vendors are not gaming the system. Furthermore, DrivingSales staff calls to verify a large percentage of the reviews.

Vendor Ranking In each product category the vendor solutions are ranked in real-time as each new dealer rating is submitted. The vendor products are ranked based on a weighted Bayesian Algorithm. This is a standard mathematical calculation that looks at the number of stars the reviewer gave as well as the statistically valid sample size needed, relative to the competitive set, to create a ranking based on the statistical accuracy of the results. Sometimes a company with 3 stars will rate above a company with 4 stars if mathematically the first company has a higher probability of success based on the submitted reviews.

We encourage all dealers to rate and review their vendors by visiting DrivingSales.com/Ratings

Dealer Satisfaction Awards The DrivingSales Dealer Satisfaction Awards recognize those solutions with the highest vendor ratings. For each category within the vendor ratings there are three award winners, the “Highest Rated” vendor and two “Top Rated” vendors. These awards reflect products and providers with a proven record of success and excellence in serving their dealer clients. The Dealer Satisfaction Award trophies are presented annually.

Learn more at DealerSatisfactionAwards.com

Rankings Only dealership employees are allowed to rate their vendors on DrivingSales.com and all submitted ratings are verified. Final rankings are mathematically calculated on both the average user star rating as well as the intensity of dealer support for the vendor (number of reviews). Sometimes that will result in a vendor with a lower average star rating but a high volume of reviews being ranked higher than a vendor with more stars but fewer reviews.

The Vendor Ratings in this issue are based on the aggregate of all dealer ratings submitted from January 1 to December 31, 2015. *CATEGORY SCORES ARE COMPUTED PER CATEGORY AND ARE NOT COMPARABLE ACROSS THE BOARD. FOR QUESTIONS ABOUT VENDOR RATINGS, PLEASE CONTACT BEN.LANCASTER@DRIVINGSALES.COM

View detailed vendor reviews written by verified dealers at DrivingSales.com/Ratings

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DrivingSales News features exclusive reporting on dealership tech trends and innovations in automotive retailing directly from the DrivingSales editorial team.

Here is a recap of the top stories from 2016 Q1 impacting your dealership. You can find all these stories and more on DrivingSalesNews.com

Family Suing Honda, Honda Dealership Following Takata Airbag Accident

Report: Cadillac Dealerships Will Use Virtual Reality Showroom Technology

The Takata airbag recall has impacted dealerships in the service drive with long wait times for available parts. However, a recent lawsuit following a car accident could have a potentially large impact on a Honda store. The family of a woman injured in the car accident is suing both Honda and the Texas Honda store where the vehicle was purchased.

The Honda vehicle the woman was driving was reportedly equipped with a faulty Takata airbag unit. The lawsuit places blame on the dealer for not doing more to help prevent the driver from driving a potentially dangerous vehicle.

General Motors is planning to convert its Cadillac dealers into virtual reality-based showrooms.

This undertaking called, “project pinnacle,” means car shoppers will come into the showroom and instead of touching a vehicle on display, they will put on a virtual reality headset and view a simulated Cadillac experience.

No Cadillac stores will have any vehicles in their inventory once the virtual reality is in place. Consumers who purchase a new Cadillac will have to wait for the dealer to deliver the vehicle following the transaction. The goal of this decision is due in part to sales lagging behind luxury competitors such as Lexus.

SCOTUS Declines To Rule On Dealership Service Advisor Case The U.S. Supreme Court decided not to offer an outright ruling on the question of service advisor overtime.

The question raised was whether

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or not service advisors should be exempt from overtime similar to dealership salespeople. The SCOTUS ruled the lower court, in this case, the California 9th District Court, needed to re-examine the issue deeper than simply pointing to a Department of Labor ruling on this issue.

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Dealership Manager Steals Parts, Sells Them On eBay, Making $78,000 A former parts manager at a Volkswagen store in Arizona was

recently charged with theft. The man illegally sold parts from his place of employment, Larry H. Miller Volkswagen Avondale. The theft was reportedly discovered when other dealership staff, “found cost adjustments in the price of parts that were equaling the amount of canceled part orders.” The former parts manager sold parts on eBay and filled the orders from his store while replacing the parts from the corporate warehouse. In total, the former parts manager made about $78,000 selling dealership parts online.

AutoNation Is Using TrueCar As Third-Party Lead Provider Again In Test At 55 Dealerships AutoNation pulled out of its business relationship with TrueCar in 2015, however, the two companies began working together again this past spring. This past April, AutoNation ran a “test” of their reformed partnership with TrueCar at 55 dealer-

ships. The concern, which led to the original dispute, was TrueCar reportedly wanting transactional data AutoNation did not want to allow the third-party lead provider to possess. The hire of industry insider Chip Perry is credited as one reason TrueCar and AutoNation are work-

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ing together again. At the end of the second quarter, AutoNation will decide whether or not to continue and expand its business relationship with TrueCar.

Dealership Wins Suit Against General Motors On May 3, Beck Chevrolet of Albany, New York sued General Motors over their retail sales standards. The dealership won the suit in appeals court 5-1, with the majority decision finding that the sales requirements set up by the automaker were in violation of the Franchised Motor Vehicle Dealer Act, a New York statute created to regulate the dealer-automaker relationship. Beck Chevrolet has been a Chevy dealer since the 1930s. The dealership ran into disaccord with the automaker involving GM-mandated RSI (retail sales index) benchmarks in the Beck Chevrolet area of geographic sales and service advantage (AGSSA).

Dealership Legal Expert, Jeff Roberts, Reviews Impact of CFPB on Retail Automotive Jeff Roberts, Partner at Underwood & Roberts, spoke to DrivingSales News during DrivingSales Presidents Club 2016. Roberts focused his thoughts on the Consumer Financial Protection Bureau. Roberts raised the question, “Who watches the watcher?” Roberts was referring to the CFPB having “no congressional oversight,” and largely operating without outside regulation. Roberts called the CFPB a “potentially outof-control behemoth.” Roberts then explained the impact the CFPB could have for dealers and auto

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lending moving forward, such as the CFPB’s proposed rule prohibiting mandatory arbitration agreements between consumers and banks.

Dealership Human Capital Insight From NADA 2016 During the NADA 2016 Conference and Expo, DrivingSales News sat down with vendors and industry thought leaders to discuss a wide variety of topics currently impacting automotive retail including human capital – specifically how dealers can successfully recruit and retain excellent long-term employees. We asked vendors to share information relevant to dealers and dealership professionals. Topics covered included the critical importance of having engaged employees and managing employee workloads, preventing talent loss due to a lack of training and the need to outline the potential career path in retail automotive.

Lindsay Honda VP: Turning a Mall Into a 6,500 Unit per Year Dealership Steve Lindsay, vice president of Lindsay Honda and Acura, spoke to DrivingSales News about a recent upgrade in which his dealership purchased and renovated an entire mall. Among the topics covered in the interview was Lindsay’s decision to push forward with a $10 million renovation. During a time when some (such as AutoNation CEO Mike Jackson) say an auto sales plateau is coming that could slow down a surging industry, Lindsay is building for the future. Lindsay said the decision on whether or not to invest in a major real estate

upgrade is, “A mindset. It’s a belief system. It’s controlling your controllables. The individual dealer has so much control over so much more than what large corporations or other retailers have because most of them (dealerships) are independently operated.”

Dealer Pays Off Woman’s Auto Loan Following Accident After an accident totaled her vehicle and her insurance didn’t completely cover her loss, a local dealership stepped in to help. Amanda May of the Dallas, Texas area totaled her vehicle in an accident, however, her insurance payout left her $2,700 short of what she owed on her auto loan. The staff at Sam Pack’s Five Star Chevrolet out Carrollton, Texas saw a news report about the woman’s plight and offered a solution. The Chevy dealership paid off the $2,700 she owed and gave her a $4,595 discount on a vehicle purchase. This woman was both able to erase a debt and get a deal on a 2016 Chevy Malibu all thanks to the good people at Sam Pack’s Five Star Chevrolet.

Ford Dealer Hosts Event To Benefit Special Olympics Simmons Ford of Vicksburg, Michigan, recently worked with the blue oval automaker to raise money for the Special Olympics. On June 18, Simmons Ford from Vicksburg, Michigan hosted an event to benefit the Special Olympics Michigan chapter. The money was raised as Ford Motor Co. donated $20 for each test drive to the Special Olympics Michigan Chapter.

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C A P I T A L

Build Resiliency Into Your Business Will your dealership prosper or fail when the music stops?

BY JOY HANNEMANN

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I

t took less than 10 years, but dealers and OEMs have pulled every lever possible to achieve back-to-back years of record SAAR. The government has propped up the nation with prolonged stimulus and loose monetary policy, impairing sustainable growth. There are no tools left in the toolbox.

The era will forever be remembered for its recovery, but there is reason to believe contraction is near. On March 9 of this year, the bull market celebrated its seventh birthday. In other words, the Dow Jones industrial average has been on the upswing with no 20 percent dips (the historic indication of entrance to bear-territory) since March 2009.

It is the third longest bull-run in history.

Some argue we have achieved a “new normal,” characterized by steady but minimal growth. But, recent stutters in the

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pace of hiring and trepidation from the Federal Reserve around raising rates are signaling higher risk for downturn. New factors, like the gig economy and record student debt are also challenging assumptions on what a “normal” retail sales environment will be in the future.

The dealers that build resiliency into their businesses will be positioned to successfully weather the ups and downs without risk of business failure or distressed valuation.

Many dealers have basked in the glory of record volume, unaware of a systematic erosion of the pillars of long-term financial health.

Evolution of mobility, recurrent negligence from manufacturers, and the present state of consumer finance are external

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threats to dealer sustainability. Poor reputation for customer experience, labor inefficiencies, and stagnant business models can unnecessarily put dealers’ net worth and legacy at risk.

According to a 2015 Customer Experience Research report by DrivingSales, only 26 out of 4,000 consumers prefer the current car buying process. Apple, Amazon, and others have trained modern shoppers to seek a different buying experience than dealers offer today. Dealers’ long-term opportunity is limited when disruptive technologies, like ridesharing services, capitalize on these windows of opportunity.

Consumer pocketbooks are showing signs of being maxed out. Experian

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reports auto loans reached an all-time high in Q1 2016. The debt totaled over $1 trillion, up 10 percent from Q1 2015. Experian’s senior director of automotive finance recently told CNBC that they are watching delinquencies closely. The retail financing market is extending loans. According to Federal Reserve Bank Data interpreted by IHS (see chart) the U.S. average new car loan length from a finance company was 64.6 months.

On an operational level, the industry’s labor cost is its single largest expense and efficient labor utilization by dealers is poor, and getting worse.

Steve Szakaly, NADA chief conomist, recently reported that dealers are paying over 15 percent more than

U.S. averages for labor and have been increasing wages at twice the rate of comparable sectors – all while experiencing turnover rates up to 3 times U.S. averages.

“Many dealers fail to quantify their true expenses when manufacturers redistribute margin on their financial statements,” David Spisak, president of ReverseRisk said. He spoke at DrivingSales Presidents Club in May and brought data to display the yearover-year decrease in profitability across many major brands. Dealers who have become increasingly reliant on volatile OEM programs may be in for a shock, should their OEMs come under financial pressure themselves.

The Kerrigan Auto Retail Index is a monthly index encompassing the seven publicly traded auto retail companies with operations focused in the U.S. Kerrigan Advisors announced May 18, 2016, that The KAR Index™ dropped 9 percent from 496.82 to 452.49 in just two weeks. Kerrigan Advisors attributed the sharp drop to higher inventory levels, gross margin compression in new vehicle sales, and weakening retailer sales forecasts.

Remember 2009?

Job loss and the spike in oil prices exacerbated poor consumer sentiment and consumers scaled back spending. Retailers, especially in automotive, experienced a substantial reduction in unit sales and net profit. Dealers of all brands felt the squeeze. Decades of questionable business practices exposed OEM negligence, resulting in the bankruptcy of Chrysler and General Motors.

Thousands of dealerships didn’t survive and the ones that did had to make radical moves. “We postponed facility

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projects and modernized our operations with the most relevant technologies,” Jon Lancaster, a dealer for 42 years, recalled.

“We got serious about the used car business and critically evaluated our customer retention strategies.”

The dealers that were prepared, and financially nimble, lived to benefit from the past seven years of prosperity.

How resilient is your dealership?

The definition of resilience is the ability to become strong, healthy, or successful again after something bad happens. How would your store weather a 20 percent drop in volume, a 50 or 100 basis point raise in interest rates, or a labor shortage?

In December of last year, the Federal Reserve raised rates by 25 basis points. It was the first increase since 2006. The stock market retaliated quickly, largely signaling borrower weakness and the forthcoming (albeit gradual) strain on business in the form of higher debt expense and/or less revenue from consumers.

Resilient dealers will armor their balance sheet; and interest expense is low-hanging fruit. Typically, dealers have a blend of variable and fixed-rate debt. Floor plan is tra-

Consider this: what are the results if the cap rate increases by 1.5 percent, or 150 basis points? In this instance, we’ll assume an annual triple net rent of $600,000 and apply the cap rate to determine building value.

7.5 Cap Rate 600,000 ÷ 0.075 = $8,000,000

9.0 Cap Rate 600,000 ÷ 0.09 = $6,666,666

As you can see, the 150-basis-point move from 7.5 percent to 9 percent affects loan-to-value substantially when value is reduced by $1,333,333.

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ditionally variable. Three or five-year terms have become more and more common for real estate interest locks and these terms are very uncertain in the current environment. The most recent reports from the Fed anticipate two more increases by year-end.

Vigilant operators will lock in long-term fixed rates wherever possible.

The impending environment will also force dealers to make critical adjustments to down payments (affecting operating capital) and prioritize paying down debt.

(See example below left).

Resilient dealers will maximize the “people piece.”

Dealers who have become increasingly reliant on volatile OEM programs may be in for a shock, should their OEMs come

Despite the abundance of disruptors capitalizing on online or direct to consumer transactions, the 2015 Cox Future of Car Buying Survey uncovered that 81 percent still prefer to buy in person over online.

So while consumers unabashedly do not like the process, they also overwhelmingly state the reassurance that comes with face-to-face interaction, product information and test drives, and exploration of financing needs are value-adds of the dealership experience.

The factors that consumers value in the dealership experience are mostly reliant on the human part of the transaction, not facility or over-the-top technology. Yet, the industry as a whole poorly leverages these assets, evidenced by abysmal turnover rates and general confusion about hiring and retaining young people, women, and staff whose collective diversity is representative of the dealership’s market.

According to the 2015 NADA Workforce Study, dealerships turned over 71 percent of all salespeople and a staggering 90 percent of female sales staff. Industry commentary around retaining and hiring millennial talent likens 20-somethings to another species, despite the age group surpassing every other generation in portion

under financial pressure themselves.

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of the U.S. labor force in 2015.

Resilient dealers will critically evaluate what they give employees (far beyond volume incentives). Work/life balance, base pay, team environment and mentorship, growth opportunities, professional development, and community involvement will need to be thoughtfully considered as part of the dealership’s brand. Dealerships that execute the communicated employment brand with consistency will win long-term.

Volume drop is inevitable and even more complex to prepare for. Start with a realistic market-based forecast for new cars. Build the bottom line by strengthening individual departments across the dealership, specifically used cars and fixed operations. Holistic departmental strength should be centered on a defined business model, driven by a value proposition, and incorporate retention strategy.

Transformational organizational change is an opportunity to clean up labor inefficiencies and attract young talent.

Beyond the next “normal” cycle, how do dealers position themselves for structural changes in the market?

Consumers are rethinking personal vehicle ownership. Urbanization and technology-driven alternatives are largely responsible for the commoditization of transportation. Instead of an adulthood “must-have,” vehicle ownership is a deeper consideration of both

affordability and lifestyle.

In the 2014 Global Automotive Consumer Study, while 64 percent of millennials said they “love their cars,” they were also three times more likely to abandon their vehicles if costs increased. According to the Federal Highway Administration, people age 85 and up represent the fastest-growing group of licensed drivers while trends for younger drivers (below age 60) are on the decline.

Some manufacturers are spearheading efforts to remain relevant through structural change. Toyota Motor Corp. recently announced a partnership with Uber to allow drivers to make payments to make lease agreements direct from earnings. Toyota Motor North America also recently announced a partnership with DEKA Research and Development to help launch a motorized wheelchair with balancing technologies to scale stairs and lift the user. Dean Kamen, the inventor of the Segway, founded DEKA Research and Development.

Charlie Vogelheim, reporter and longtime auto industry insider, has spent his recent years studying the blurred line between auto and tech.

“In the Silicon Valley, there is a curious and remarkable and obvious sense of both collaboration and secrecy,” Vogelheim told DrivingSales News.

“I find it incredibly refreshing and exciting that I get the opportunity every 10 years to look at something new and different that’s really going to shake things up,” Vogelheim said. The Internet

of Things is the fourth transformative tech he’s explored in the course of his career (PC, Internet, social media).

“Anybody that is in business needs to understand it; it doesn’t mean you need to change everything for it,” he said. ”Your customer base and even your employees are involved in it, and to that extent their interaction with you is going to have a basis in the new world they’re living in and the technology that they’ve become accustomed to.”

Resilience will also build enterprise value in event of sale.

Thorough scrutiny and critical operational adjustments will not only benefit dealers’ current P&Ls, but the strategies and tactics tied to creating a resilient business are consistent with creating enterprise value (or “blue sky”) for dealerships.

In 2015, unprecedented activity in the purchase and sale of dealerships indicated investors’ positive outlook.

The allure of the industry was further proliferated when new entrants, including private equity and Warren Buffet, made major group acquisitions.

“Times are awfully good. Maybe, too good,” Ryan Kerrigan, from Kerrigan Advisors, said. “It is a particularly good time for dealers to evaluate the potentially unsustainable components of their current profit model, (e.g., marking up finance), and a great time to double down on the sustainable parts of our model such as fixed operations.”

Build the bottom line by strengthening individual departments across the dealership, specifically used cars and fixed operations.

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In her role at Lancaster Investments, Joy Hannemann supports Jon Lancaster’s start-up investments, real estate development, and worldwide speaking engagements. Joy writes for DrivingSales Vendor Ratings and is also a regular contributor to DrivingSales News on the topics of dealership best practices, employee development & engagement, leadership & culture, branding & social amplification, and customer experience.

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Technology and globalization have tightened cycles, requiring businesses to be more nimble.

The legacy of automotive is its greatest hindrance in this respect. Long-term industry sustainability will require manufacturers to learn new, sustainable behaviors to protect both their own and dealer’s roles in distribution. In the near term, dealers should center their attention on creating modern places of business for both shoppers and employees.

Will another downturn snap the century-old

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how

industry into reality?

At the 2016 DrivingSales Presidents Club, veteran dealers and industry visionaries gathered to discuss and identify indicators of the looming cyclical peak in auto retail.

Tony Albertson (NCM Associates), Tom Gage (Cox Automotive), Jon Lancaster, David Spisak, and Ryan Kerrigan organized a session titled “Creating a Resilient Business.”

The team offered the dealer principal and general manager attendees their guidance to mitigate risk and course-correct their dealership’s operations. Their insights inspired this article.

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Strong Buy/Sell Market Continues Through 2016 What are the five distinct trends shaping the buy/ sell market?

BY RYAN KERRIGAN

T

he record-setting buy/sell market of 2015 has continued into 2016. Despite the clear signs of slowing industry growth, the buy/ sell window remains open, though private buyers now have an edge over the publics.

In the first quarter of 2016, the auto dealership buy/sell market continued at peak activity levels with the number of completed transactions at 56 (as compared to 55 in Q1 2015). In this article, we will analyze the most interesting trends impacting the current buy/sell market.

Key Trends

Kerrigan Advisors notes five distinct trends shaping the buy/sell market in 2016: 1. Private buyers and new entrants dominate 2016’s buy/sell market 2. Platform transactions getting larger 3. Luxury and domestic franchises receiving the most interest

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4. Acquisition financing terms drive purchase price 5. Blue sky values increasingly based on multi-year average earnings

Public Valuations Down, Creating Unique Opening for Private Buyers

The first quarter was marked by a significant decline in market valuations of the publicly traded auto retail stocks. The KAR Index (The Kerrigan Auto Retail Index), which tracks the seven public auto retailers (AutoNation, Penske, Lithia, Asbury, Group 1, Sonic and CarMax), has declined by 20.2 percent year-to-date, and is down 37 percent from its recent peak in June 2015. The decline in The KAR Index has largely halted the publics’ acquisition plans.

At current levels, the publics’ average blue sky multiple is an estimated 6.1X, which is at parity or below market-clearing prices for many acquisition opportunities. In light of these declines, the publics have shifted course, and repurchased over $800 million of their own stock in Q1.

Given the decline in the publics’ valuations, private buyers and new entrants have increasing access to deal flow. In Q1 of 2016, 86 percent of acquisitions were made by private buyers and new entrants, with only 14 percent acquired by the publics.

New entrants include groups backed by private equity and family offices. These private buyers and new entrants are still actively seeking acquisitions, while the publics see better returns in buying their own shares.

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Public Auto Dealership Group Capital Expenditure in Millions Q1 2015 vs Q1 2016 SOURCE: SEC FILINGS FOR AUTONATION, PENSKE, LITHIA, ASBURY, GROUP 1 AND SONIC AND KERRIGAN ADVISORS ANALYSIS

Roger Penske echoed this sentiment on his company’s 1st quarter earnings call saying, “Unless they are strategic and would be contiguous to where we are, we would probably have our pencils down at the moment.”

Platform Transactions Getting Larger

Interestingly, even with the publics virtually exiting the buy/sell market in 2016, the number of multi-dealership transactions increased by 20 percent in the first quarter of 2016 versus 2015. These dealership group sellers are seeking to capitalize on their ability to sell large groups to a single buyer in a platform transaction before the financial markets make it more difficult. Increasingly, well-funded private buyers and new entrants are the acquirers of these large platforms. Another interesting note is that the size of multi-dealership groups coming to market is increasing. The average number of franchises sold in a group in Q1 2016 increased by 75 percent versus Q1 2015 to 4.9 franchises per transaction.

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Luxury Franchises Still in Demand, Increasing Focus on Domestics

Among the franchises being acquired in the first quarter of 2016, luxury import franchises represented 31 percent of transactions, triple their 10 percent market share. These luxury sellers capitalized on the high blue sky values still being paid for certain brands.

Domestics saw their share of the buy/sell market increase from 35 percent in 2015 to 45 percent in Q1 2016, with non-luxury import buy/sell market share declining from 43 percent in 2015 to 24 percent in Q1 2016. Non-luxury import franchises have seen the sharpest decline in new vehicle gross profit margins, which may be a contributing factor to the decrease in their buy/sell market share. Domestic franchises are experiencing increasing buyer demand, as these franchises trade at a significant discount to import franchises, providing an attractive ROI for more financially-minded buyers.

Increased Importance of Leverage

The current buy-sell market has become very sensitive to the capital markets, and possibly addicted to the low cost of debt that is the norm.

Debt has become an increasingly large part of deal structure. Today, sellers’ pricing expectations remain high with buyers responding to these expectations by deploying increasing amounts of leverage. The higher the acquisition financing, the more buyers are able

Average Number of Franchises Represented in Each Multi-Dealership Transaction Q1 2015 vs Q1 2016 Note: Excludes the Berkshire Hathaway acquisition of Van Tuyl SOURCE: THE BANKS REPORT AND KERRIGAN ADVISORS ANALYSIS

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Buy/Sell Market Share Q1 2016 SOURCE: THE BANKS REPORT AND KERRIGAN ADVISORS ANALYSIS

and willing to pay in today’s low-interest rate environment. In our transaction work, Kerrigan Advisors reports 50 percent financing on blue sky and nearly 100 percent financing on the real estate as the “new normal.” In prior years, we believe the buy/sell market was much less sensitive to interest rate fluctuations because significantly less debt was deployed. It will be interesting to see how well this debt is serviced when capital markets tighten and interest rates rise (though many have anticipated that for many years and we still have not seen rising interest rates).

Concerns About Peak Earnings

Average dealership earnings have been

on the rise since the severe downturn in 2008, when average dealership earnings were just $279,685. For the past two years, average dealership earnings have consistently floated above $1M, with 2016 LTM at $1,167,545. Buyers are taking note of this peak, and are becoming increasingly concerned about pricing off of peak earnings. Some buyers are now basing their valuations off the average of a dealership’s last three years of earnings, rather than the most recent performance.

There is growing skepticism amongst the buyer community about their ability to maintain – and grow – current earnings levels. These buyers point to slowing SAAR growth, rising inventories and lower new vehicle gross margins as signs that the industry is peaking.

Kerrigan Advisors’ Blue Sky Multiples were most recently published in The Blue Sky Report released June 7, 2016. Non-luxury multiples remained unchanged and luxury multiples marginally decreased for the top brands (Mercedes, BMW, and Lexus reduced from a BSM high of 9.0 to 8.75). This decline is a reflection of a widening gap between sellers’ and buyers’ pricing expectations for these top luxury franchises. Kerrigan Advisors continues to believe that blue sky multiples as a whole are at peak levels and are unlikely to see upward revisions for the remainder of 2016.

RYAN KERRIGAN Ryan Kerrigan is Managing Director of Kerrigan Advisors, where he oversees international transactions and private equity/family office outreach in addition to US auto retail buy-sell transaction work. His business experience includes transaction work, executive leadership, private equity investing and management consulting. Ryan has an MBA from Stanford University’s Graduate School of Business, an MSFS degree from Georgetown University’s School of Foreign Service and BBA in Finance from the University of Notre Dame.

Average Dealership Earnings SOURCE: NADA

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CUDLTUR E N A R B Which Comes First,

Your Brand or Your Culture?

Culture determines what your authentic brand actually becomes

BY ERIC SAVAGE

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veryone knows the old question: which came first, the chicken or the egg?

There are plenty of examples of how this question relates to our industry, but the one on my mind is this: Which comes first, your brand or your culture?

When I say “brand,” I’m not talking about the brand of vehicles you sell. I’m talking about your brand – the meaning, value and perception of your dealership (or yourself, if we’re thinking about personal brand) in the marketplace.

“Culture” is what happens inside your

store. It’s your operational code … the sometimes unspoken rules of “how and why you do things” in your store.

At Freedom Auto Group, we challenged ourselves to understand which of these two comes first. Why? Because numerous studies have revealed that for the majority of consumers, primary purchase consideration is driven by a “brand first” mentality.

So, in fact, brand is pretty important. But in what order do these things occur? Does a culture develop around a brand, or does a brand demonstrate the culture? And regardless of the answer, what do we do with that information? How can it be lev-

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We needed to move away from our hopes and assumptions of what our culture was and see our culture and our brand as they really were. We needed to have an intentional culture.

eraged to make a business better?

To begin, we needed better definitions of the terms. We realized that when we’re talking about either brand or culture, we need to be certain we are talking about authenticity. We decided to work toward a clean definition of “brand” and “culture” in the context of authenticity. Freedom Auto Group’s definition of an Authentic Brand is…

“The outward communication of the culture of a company or organization (and how that culture can create a benefit for someone.)”

So yes, we figured out the question of chicken or egg – the culture comes first.

In order to create a powerful, authentic, well-defined brand, we must first create a powerful, authentic, well-defined culture!

Think of it this way: Somewhere close to where you live, there’s a big power plant.

Inside that power plant, something is created every hour of every day. If you’re thinking “power” or “energy,” you’re right!

Then that power or energy is converted into a specific form – it’s converted into electricity. The electricity is then transmitted outside the power plant and into homes, business, etc. But electricity isn’t what defines the power. It’s the other way around – the electricity is the result of the power. The electricity is the outward expression of the power that’s created inside the power plant.

In a similar way, this is how brands are created. The culture of a company, whether well-defined or poorly defined, determines what your authentic brand actually becomes.

This means an authentic brand is not just a catchy slogan. When an advertising agency shows up at our door with a new tagline, a new logo design, or a new concept, the question we need to ask ourselves is “does this (tagline, logo, concept) represent our culture?”

With this discovery, the hard work began for us at Freedom Auto Group. We

realized we needed to have some very honest examinations of our culture if we were to have a meaningful and memorable brand. We needed to move away from our hopes and assumptions of what our culture was and see our culture and our brand as they really were. We needed to have an intentional culture. This was both an uncomfortable and difficult task. Let me rephrase that: Getting this honest with ourselves wasn’t fun and it wasn’t easy!

One way to see a culture as it really exists is to imagine this scenario: If you installed cameras and microphones in every corner of your dealership and you could see and hear every word, every action, and even every thought of all employees, what would you actually see and hear? Think about this for a minute.

Do a “gut check.” If seeing and hearing everything that happens in your business makes you a little uncomfortable, then the people in your organization may not be living the culture you’re hoping for.

The biggest question on culture is whether or not your culture is defined and intentional. Do people know it? Can they articulate the values of your company?

Is there a mission that’s understood by everyone, including customers? If not, it doesn’t mean there isn’t any culture, it just means the culture isn’t intentional.

Most significantly, a murky culture really means the people in an organization don’t have agreement on why the business exists in the first place.

In his breakthrough book, “Start with Why,” as well as his famous TED Talk, Simon Sinek brought the question of “why” to the forefront for any business that dared to listen or read his words.

“Why does your business exist? What is the purpose of your business?” Simple questions? Perhaps. But they’re not so simple to answer.

On an anecdotal level, when I’m consulting with various businesses around the

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subject of why their business exists, or what the purpose of their business is, they almost always answer with one of these: • To make money • To be successful • To be influential/powerful • To be important/famous There’s nothing wrong with wanting any of these outcomes. Making money, being successful, having influence or fame… these are all wonderful outcomes. But that’s all they are: outcomes. An outcome and a purpose are very different things. An outcome is simply a consequence of an action or inaction. It can be good or not-so-good. A purpose, on the other hand, is the reason for an action. Making money, then, is just an outcome from an action. It could be a purpose, but it’s a pretty thin reason for doing something. I believe our real motivations in life are much bigger than money.

At Freedom Auto Group, we went through a series of exercises to genuinely understand our “why.” One of the best was to ask ourselves a somewhat dark question: “If our business went bankrupt tomorrow, what would the world miss most?”

When asked that question, we can’t answer “the world would miss how much money we made,” or “the world would miss how famous we were,” or “our huge grosses,” or “our inventory turns.” Few, if any, would miss these things if we disappeared. That’s because those outcomes don’t represent our purpose.

(By the way, the same can be said for our personal lives – if you died tomorrow, what would people miss most about you?

I guarantee it’s not the money you made or your success in business. It’s most likely about how you made a meaningful difference in someone’s life by showing how you care for them.)

What would the world miss most if your business disappeared tomorrow? If you’re struggling for answers, it’s OK … every business has been in this exact spot at one

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time or another.

About seven years ago, this is where we were at Freedom Auto Group. We were struggling to figure out what our contribution to the world was going to be. But today, it’s completely different. Today, all 250 Freedom employees would answer the “why” questions with these words: “We exist to Improve Lives.” At Freedom Auto Group, we understood that what we could do best is make people’s lives better. We looked at why customers come to us, and it’s only for one reason – to have a better life.

Why does the mom of four get her vehicle serviced? Only to make sure it remains reliable because if she doesn’t service it and it breaks down, she would be risking the safety and happiness of her kids. Why does the recently retired man purchase a new or newer vehicle? Because he genuinely feels the new vehicle will make his life better. Maybe his current car is very old, or maybe the idea of driving something new is a special reward for the retirement milestone.

Whatever the reasons, people don’t come to see us because they want to reduce the quality of their lives – they come to us because they want to improve their lives. It’s our job to help them complete that mission, and we needed dedicated focus and energy to make it happen.

We needed a culture that supports the mission of improving people’s lives.

Like most businesses, we used to see ourselves as “getters.” You know, go “get” the deal. Go “get” that customer. “Get” more gross. We used to see ourselves as people who did things to other people. We sold cars to people. We sold service to people.

But in order to see ourselves as a business focused on improving someone’s life, we had to change those words. We had to go from “getters” to “givers.” And that means we had to go from to to for.

Instead of saying “I Continued on page 29

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People don’t come to see us because they want to reduce the quality of their lives – they come to us because they want to improve their lives.

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Why Every General Manager Should Be Using Social and Video Advertising to Reach Millennial Buyers Create more touch points with buyers through digital marketing

BY GARY GALLOWAY

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n today’s competitive auto sales environment, it’s important for marketers to take advantage of digital strategies to attract an emerging, lucrative buyer: the millennial. This generation, born between 1982 and the early 2000s, currently spends $600 billion annually, and it’s expected that they will spend $138 billion of that annual spend specifically on cars and light trucks just this year.

Although this generation is a prime target for auto dealers, they are also a bit of an enigma. Compared to previous generations, this group is much harder to reach and persuade. In order to capitalize on this generation’s spending power, dealers need to understand their buying habits and how to appeal to them through various channels and digital marketing strategies, such as digital video and social media advertising.

to a 2015 PEW Research Center study, 86 percent of adults aged 18-29 own a smart phone with internet access– this is more than any other demographic.

With information constantly available, it’s no surprise that this generation is notorious for heavily researching cars online before making a purchase at a local dealership. As such, dealers need to have a strong online presence to ensure they are catching these younger buyers along their path to purchase, which often includes a multitude of digital touch points. With several interactions, brands are able to not only catch, but retain a prospective buyer’s attention.

Providing consistent, engaging and informative content that meets the needs of this information-hungry population will ensure that a dealership remains top-of-mind.

Personifying the Millennial Buyer

Video marketing is rapidly becoming one of the most effective ways to promote a product or service to this younger buyer.

This generation wants to see real people using products online to get a sense of their value, durability and ease of use. Millennials use online video more than any other demographic (comScore, 2014), demonstrating it’s crucial for marketers to organically integrate

Before a dealer can capture this buying group, they need to understand how they consume information and make purchase decisions. Millennials are technology dependent: They grew up using technology and, as such, having readily accessible information at their fingertips is expected. According

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Why Dealers Need to Push “Play” on Digital Video

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GARY GALLOWAY Gary Galloway is the Automotive Digital Marketing Evangelist at Netsertive, where he serves as an adviser to top automotive brand executives and their local partners. In this role, he provides key insights on digital trends and strategy for automotive marketers.

He’s also an adjunct professor at the University of North Carolina at Chapel Hill, where he teaches a course on digital marketing and communications.

Gary has over 18 years of experience guiding marketers in an ever-evolving technological landscape.

He has also served as the Managing Partner for the Tweak Marketing Group and Director of Marketing and Digital Media at Crossroads Auto Group Inc. Gary received his Masters in Management at the University of Southern Florida.

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video prominently into campaigns and landing pages.

According to new findings from Animoto, 45 percent of millennials prefer to watch video on their mobile device rather than on a laptop or desktop. This clear preference for mobile video viewing is helping drive the rapid adoption of video advertising. In fact, mobile video advertising spend is growing faster than any other digital advertising strategy, according to eMarketer. Many ad agencies now recommend that brands shift 10 to 25 percent of their TV budget to online video, as it gives marketers the ability to target more specific audiences and obtain a clearer ROI. Although video advertising can be an extremely effective marketing tactic, it does come with some challenges. First of all, it can be difficult to understand what an effective video looks like and how it’s different from a TV spot. TV audiences are captive, while a YouTube viewer can usually skip an ad after 5 seconds, so online videos must be captivating in order to keep a viewer for more than just a few seconds.

Further, in order for big brands to implement video advertising to attract local buyers, they need to work with their brand partners to ensure content is compliant and up-todate with current products and promotions.

This is essential if General Managers want to leverage campaign analytics to determine what tactics were successful and what didn’t work. Some general managers are skeptical of using digital marketing, like video, so being able to demonstrate ROI is key to expanding digital programs in the future and to get more co-op support from a brand partner.

It’s Time to Like Social Media Advertising

According to a comScore report, millennials in the U.S. spend approximately 30 hours a month on social apps, and 26 of those hours are spent on Facebook alone. Yet, less than 10 percent of auto marketers are leveraging

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social advertising tools, like Facebook, effectively. This is a massive opportunity that general managers can no longer afford to ignore.

While many use it personally, social media for business is a completely different ball game. There’s also a distinct difference between social media management and social media advertising for businesses that are leveraging multiple channels. While the management of social media involves posting and engaging with the brand’s community of followers, social media advertising requires brands to deliver compelling, personalized and brand compliant ads to their target buyer, which goes well beyond those that just “like” their page. With over 10,000 targeting options, Facebook campaigns are just one example of how complex social advertising can be. There’s a high level of sophistication needed to make a social advertising campaign successful, and General Managers should lean on an expert to help them navigate.

Millennials are vastly different from the Baby Boomer generation. They don’t want to engage in a long negotiation process on price and options when purchasing a car. Rather, they come into the dealership already having done extensive research on the vehicle they are looking to buy (price, brand/model comparisons). As such, marketers need to significantly increase their digital marketing strategies, leveraging video and social advertising, to create several touch points with buyers, so they see advertisements across a range of platforms, ultimately allowing them to tap into the massive spending power of this generation.

SOURCES 1. www.pewinternet.org/2015/10/29/technology-deviceownership-2015/ 2. www.adweek.com/socialtimes/millennials-love-videos on-mobile-social-channels-infographic/622313 3. www.emarketer.com/Article.aspx?R=1012563&ecid= MX1086 4. www.comscore.com/Insights/Presentations-andWhitepapers/2015/The-2015-US-Mobile-App-Report?

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At Freedom Auto Group, every employee, regardless of department and skillset, is a “Life Improvement Specialist.” sell cars to people,” our staff now says “I make car buying fun and easy for people.”

This simple change in our language helped us make our culture real, livable and measurable. This is how we reinvented our business. We were no longer interested in being a “car business.” We were now a “Life Improvement Business.” (Yes, I’ve already had it trademarked, so don’t try to use it!)

While there are many other components to the “Life Improvement Business,” the most important part to understand is when our employees realized the purpose of our business was to serve, help, and even love people, our culture became authentic. And once it became authentic with our people, they started talking about it. Imagine the change in pride when an employee no longer sees themselves as just a car salesperson, just a technician, or just a receptionist.

At Freedom Auto Group, every employee, regardless of department and skillset, is a “Life Improvement Specialist.” Everyone contributes to the mission.

As our people continued to talk about our culture, the most amazing thing happened – our brand started to develop as something real, something tangible and most importantly, something unique and different. Branding elements started to appear because employees felt they were necessary. We have signage all over our dealerships for everyone to see (customer, employee, vendor, etc.) which expresses our mission, demonstrates our values and celebrates our culture.

While our advertising has certainly changed, it wasn’t because of some new

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“branding campaign” by an ad agency. Our advertising changed because we realized the advertising we had been using wasn’t representative of our culture. It was a mismatch to who we had become. Today’s advertising for Freedom Auto Group is largely based on branding us as a “Life Improvement Business.”

Now, I know what you’re thinking. You want to know if it worked, right?

It sure did. But not because it’s an advertising “scheme” or “promotion.” It works because it’s authentic. It works because the idea is interesting and, most importantly, it’s demonstrated as true when a customer gets to the dealership and the culture and experience lives up to the brand promise.

Sales volumes are up, fixed operations gross profit is setting records, and our morale is through the roof.

Lastly, and perhaps most significantly, our brand awareness and identity in the community is skyrocketing. Our authentic brand has attracted great interest from local news agencies with nearly 20 stories covered by local newspapers, radio, TV and even a cover story on a local magazine. People who I’ve never met come up to me and say “your dealership improved my life,” while others I know merely as acquaintances introduce me to their friends as the “Life Improvement guy.”

It’s amazing what happens when work is done to create an authentic, welldefined culture. It’s even more amazing when we take that awesome, distinct culture and broadcast it to the world as our authentic brand.

ERIC SAVAGE As the President and CEO of the Freedom Auto Group, one might think all Eric Savage has on his mind is selling cars, but that is not at all the case.

More than any other purpose, Freedom Auto Group was built to embrace the “Life Improvement Business.”

Certainly that is expressed in the way Eric’s company helps people purchase, maintain and service their cars. Of even greater importance to him is to provide an environment at Freedom where every team member’s life is improved by occupying a job that focuses on improving the lives of others. But most significantly, Eric and the Freedom Team work to create Life Improvement in their Community. By reinvesting Freedom Auto Group’s success into charities and community projects, he is able to help those most in need.

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The Art of Retention and Recruiting When sales stagnate, don’t just survive: Thrive

BY MIKE ESPOSITO

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or many dealerships, profit margins on new vehicle sales have been shrinking for well over a year now.

And for many dealerships, that’s been OK because increased sales volume and strong back-end earnings have more than made up for shrinking margins.

However, we all know the good times don’t last forever. If your sales volume were to stagnate or take a turn for the worse, what’s your game plan? Sure you may survive, but the real question is can you thrive?

Cost-cutting is no fun. Profitability is better achieved through organizational efficiencies, increasing customer loyalty and reducing costs associated with employee turnover. It’s no coincidence that 40 percent of the companies in Fortune magazine’s “America’s Best Places to Work” list also appear on the Fortune 500 list. These companies’ average employee and customer churn rates are less than 5 percent and as a result, their profitability is two to 10 times higher than average companies.

See the connection? Happy Employees = Loyal Customers = Higher Profitability When discussing retention and recruiting, you may be tempted to focus on the recruiting part first. How do you find good employees? But that’s putting the cart before the horse. First, you need to focus on retention. The correct question to ask

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is, “How do I create an awesome workplace that will enable me to keep my current employees happy and allow me to attract the best of the best in the future?” Before I answer that question, let’s review why this is an important issue to tackle.

The Cost of High Turnover

Costs associated with a bad hire are truly substantial. In addition to wages paid, hard costs include unemployment insurance and COBRA. Then there is the time spent interviewing the new hire, training them, managing them more than necessary, and repeating the process unnecessarily a few months later.

How much are we talking in terms of hard dollars? The U.S. Department of Labor estimates that the average cost of turnover is 30 percent of an individual’s annual earnings. Say you hired five sales consultants last year. The national average compensation for a sales consultant is roughly $64,000. The 2015 NADA Workforce Study revealed that the average turnover rate for car salespeople is 72 percent. Statistically in one year you will lose three of your five salespeople. That adds up to $57,600!

Define Your Vision, Culture and Values

The first step in creating a great workplace that will retain employees is to ask yourself this question: Why are you in business? Whenever I ask dealers this question, one of the most common responses is “to

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“It’s not hard to make decisions when you know what your values are.”

– Roy Disney

make money.” But that’s not the answer.

Making money is the result of your “why.”

One way to define your “why” is to define your mission statement, company vision and core values. These are critically important. Without a vision, how do you know where your company is going?

Without values, on what basis do you make your decisions?

Your vision is simply answering the question, “Where do you want to be in five years? Ten years?” What do you want your dealership’s legacy to be?

Here are a few tips for creating a mission statement that defines why you are in business: • Inspire. The statement should inspire you, your employees and your customers.

• Provide purpose. Mission statements guide and help unify organizations.

• Keep it brief. There’s nothing more uninspiring than a long-winded paragraph about what the company does. Keep your mission statement to one sentence. Focus on the “why,” not the “what” or the “how.”

• Think big. Don’t be afraid to stretch the limits of what you believe your company and its employees can achieve.

• Keep it simple. The hugely successful shoe company Zappos’ mission statement is simply “To provide the best customer service possible.” Sometimes, simpler is better.

Once you have defined your vision and mission statement, define your core values as a company. Don’t be tempted to pluck values out of thin air that you think sound good. This has to be real. When it comes to values, you have to walk the talk or your customers will see right through it.

The best way to define your values is to ask your current employees. Send a list of core values to your employees

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and ask them to choose the top three that they believe define the values of your dealership. Get together with managers from each department and find a consensus. Make these your core values and communicate them everywhere to everyone.

What Are Your Core Values?

Choose three to five core values that define your dealership: ❍ Accountability ❍ Compassion ❍ Competence ❍ Commitment ❍ Community ❍ Customers First ❍ Diligence ❍ Diversity ❍ Efficiency ❍ Empowerment ❍ Family ❍ Happiness ❍ Hard Work ❍ Harmony ❍ Helpfulness ❍ Heart ❍ Humility ❍ Innovation ❍ Integrity ❍ Knowledge ❍ Loyalty ❍ Ownership ❍ Preparedness ❍ Persistence ❍ Reliability ❍ Resourcefulness ❍ Safety ❍ Teamwork ❍ Trustworthy ❍ Transparency

Manage From the Bottom Up

Do your managers believe that the employees beneath them in the structural hierarchy are there to help them achieve organizational goals? Or, is it the other way around? As a dealership general manager and principal, your top priority every day should be to help your employees do their job better.

The other aspect to managing from the bottom up is communication. If you don’t tell your employees what’s going on with your dealership, they’ll start making stuff up.

Communicate everything. Remember, your employees are at the top of the organization hierarchy. They deserve to know.

Create a Top Workplace

What makes a great place to work: free

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How the Typical Dealership is Run

How You NEED to Run Your Dealership

lattes for the employees and a putting green out back? Those things aren’t bad, but that’s not what motivates your employees to come to work and do a great job every day.

Workplace Dynamics is an organization that partners with leading publishers across the U.S. to produce regional “Top Workplaces” lists. According to the millions

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of employee surveys they have conducted, these 10 factors drive the highest level of employee happiness: 1. Leaders of the organization care about their employees’ well-being.

2. Being able to trust what the organization says.

3. Having confidence in the leadership of the organization.

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Avoid the 4 Biggest Hiring Mistakes

1 2 3 4

Hiring too quickly Hiring candidates who are not a good culture fit

Overselling opportunities Not properly vetting all candidates

4. Being paid fairly for the work performed.

5. Feeling valued in the organization.

6. Understanding the long-term strategy of the organization.

7. Being treated like a person, not a number.

8. Having adequate staffing levels to provide quality products/services.

9. Employees liking the type of work they do.

10. Retirement plan benefits.

In addition to the Workplace Dynamics “Top Workplace” rankings, nearly every city or state has a business journal. Many of these journals run an annual “Best Places to Work” contest ranking local companies.

Automotive News also ranks the “Best Dealerships to Work For” on an annual basis. Set a goal to get your dealership on one or more of these lists. Being ranked as a top workplace has many benefits. You will attract better job candidates and it will

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make your customers perceive you as more trustworthy. Additionally, your current employees will be happier and therefore, so will your customers. This can’t be faked!

To get started, have an employee nominate your dealership for one or all of these programs. You may not win the first or second year, but the feedback you get from the anonymous employee surveys is invaluable. The surveys provide actionable data from which you can make decisions for your company going forward. Becoming a great place to work is not easy, but it’s a worthwhile goal that will make your dealership more profitable in the long run.

Attract and Recruit Quality Employees

When your dealership is perceived as a great place to work, it’s much easier to attract and recruit quality employees.

The first step in recruiting a candidate who will do their job well is to know what

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is required to do the job well. Create a job analysis for every position in the dealership. A job analysis is more detailed than a job description. For every open position, answer the following: • What are the KPIs that will measure whether a person is successful in this position?

• What are the personality traits of people who have performed well in this position?

• What are the personality traits of people who have not performed well in this position?

• Write down all the responsibilities for the open position. Then write down the corresponding knowledge, skills, abilities and experience needed for each of the responsibilities.

Next, define the qualities in employees that are necessary for a culture fit. If your dealership sells luxury brands and focuses on customer experience, the type of salesperson you want will be quite different from a dealership that brands itself as the low-price leader and focuses on volume.

Once you have a job analysis and the ideal candidate profile for the job and your dealership culture, you can begin interviews. It’s important not to rush this process. Dealers too often associate an empty seat with lost revenue; but it’s important to remember the high costs associated with high turnover. No matter how urgent the need, it’s important to be patient and fully assess each candidate before making a hiring decision.

Creating and sticking to a hiring process is the only way to ensure that you won’t make a hiring decision that you’ll regret.

Recommendations include: Form a hiring committee. Select two to five people whose judgment you trust.

Come to a consensus on the type of person you’re looking for. If one person is looking for leadership skills while another

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doesn’t think leadership skills are necessary, they won’t be evaluating candidates in the same way.

Don’t rush. A successful process typically includes an initial phone screening with many candidates, followed by in-person interviews with your top five or six candidates. You may want to narrow that pool down to your top two or three and bring them back for second in-person interviews with everyone on the hiring committee.

Conduct pre-employment tests. Require your top two or three candidates to take an achiever assessment or other personality assessment. It’s not difficult to “fake” your way through an interview, but it is difficult to outsmart a test that has been carefully designed by Ph.Ds in Psychology.

Such assessments are considered to be very accurate and are commonly used by large corporations, but there are affordable options for small businesses, too.

Make a Unanimous Decision. In order to hire anyone, committee consensus is required. If the team doesn’t give a collective “yes” then the answer is “no.”

Vet Top Candidates. It’s common for people to lie and fake their way through interviews. Before you make an offer, take the time to vet the candidate. Don’t believe that what is written on a person’s resume, or what they say during an interview, is an accurate assessment of that person’s abilities, experience or achievements. Check references, verify facts listed on the resume and do a background check.

Focusing on retention and recruiting – in that order – will raise levels of employee satisfaction, customer loyalty and profits.

Although the concept is simple, it does take commitment, effort and time. But the good news is that taking these steps will enable your dealership to not just survive during the next sales downturn, but to thrive.

MIKE ESPOSITO Mike Esposito is President and CEO of Auto/Mate Dealership Systems, a leading dealership management system (DMS) provider.

Mike is passionate about leadership principles and during his tenure has grown Auto/Mate’s dealership client base to more than 1,100 rooftops. Mike is an in-demand presenter on the speaker circuit and well received due to his engaging sessions and sense of humor.

His mission is to help other leaders increase success by focusing on the creation of an awesome workplace environment. Mike speaks from experience as he was formerly a general manager for a large dealership. He believes in giving back and spearheads Auto/Mate’s involvement in local events and charities. In his spare time he enjoys golf and building fine furniture.

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B R A N D I N G

Set Your Dealership Brand Apart From the Competition A practical and effective branding exercise

BY DOUG MACIVER

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here has never been a more important time than now to brand your business. I don’t mean just creating a new logo and/or color scheme, however, that is an important part of the process. Consumers have an endless supply of distractions and its only getting worse day by day. You must find a way to differentiate yourself from all competitors. The reason I say “all competitors” rather than “other dealerships” is you are now competing with businesses across all verticals.

Branding is a daily exercise that never ends. When a consumer in or out of your market is ready to buy a vehicle, they should think of you and your store. My brother and I run an independent dealership in Winnipeg, MB. We do come from a franchise background as my father was one of the largest Chrysler dealers in Canada and also had a VW dealership. We argue that we are in one of the most competitive car markets in North America as a majority of the franchise stores in our market are owned by large national groups. This branding listed below has allowed us to grow year over year in an extremely strong “new car” cycle.

Who Are You?

The first step to properly branding yourself and your store is to figure out who you are. If you haven’t read “Start With Why”

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by Simon Sinek, I strongly recommend you do. Starting with “why” is the best place to start. Why did you start your business?

What do you stand for? What do you want to be known for? Once you are able to answer these simple questions, you will have the framework for everything you will do going forward. After this exercise, you may find you have multiple reasons of why you started your business or what you stand for. It’s critical to narrow down this list to one or maybe two things (at the most).

As I mentioned early, consumers are bombarded with branding messages every day.

Pumping out multiple identities into your marketplace only dilutes who you are. Everyone has heard “you can’t be everything to everyone” and this statement really holds true when it comes to branding. You can’t be the lowest price store and offer the best customer experience. It’s best to focus on one and give it your full attention. This will give consumers something they can really sink their teeth into.

We went through these re-branding exercises in 2012 and had a tough time with it.

We originally started with a subprime focus, but grew to specializing in custom lifted trucks and Jeeps. We needed a tag line that represented what we were all about. We went back to the beginning and started with “why.” My father started our business in 2007, along with my brother, to give everyone the exact same experience regardless of

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their unique credit history. If we were known as “the home of the guaranteed approval,” it wouldn’t speak to our customers who buy $90,000 custom trucks. We ultimately landed on “Your ticket to Ride!” because we have the “ticket” to get you into a vehicle weather you want the coolest lifted Jeep ever built or you have the worst credit in the world, but need something reliable to get you to work.

Keep it consistent…

DOUG MACIVER, JR. Doug MacIver, Jr. is a former professional hockey, who over his nine year career played for teams across North America, and Europe.

With his hockey career behind him, he turned his enforcer like focus to the family business. Doug has helped turn Ride Time into one of the best branding stories in the Canadian automotive industry.

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I briefly touched on a logo and color scheme along with a tag line. These all tie in nicely with who you are and why you do what you do. You now need to make sure that these are carried across everything that you do. You need to keep your presentation and message constant across any signage including vehicle decals and/or plate brackets, digital marketing, traditional marketing, website and even your business cards. The key to this is making sure it’s in everything you do.

Just the thought of the Nike swoosh instantly makes you think a million athletic thoughts, or the sight of a soda bottle with red labeling instantly connects you to the thought of an icy cold Coke on a hot summer day. These are examples of brands that consistently and constantly push their brand. It would be amazing if any of us could garner a fraction of that kind of brand recognition.

The truly great companies take this one step further and reinforce their brand with their employees. You can’t be the store with the best customer service and have a grumpy receptionist. You can’t market yourself as the warm, family-owned business and then treat customers like a number when they are in your store. These in-store gaffs will kill your marketing efforts.

I once heard a speaker talk about traveling through the U.S. on a long road trip. It was 4 a.m. and he was exhausted. He needed to pull over for the night when he passed a Motel 6. The sign of the motel instantly triggered tag line from all the fantastic ads he had seen over the years, “We’ll leave the

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light on for you.” In fact, this campaign from Motel 6 is one of the longest running advertising campaigns in history. The speaker went on to explain the image of someone leaving the light on for him in a room was inviting and because he had never stayed at one, he figured it was time to give them a shot. He pulled into the front of the motel and went inside to find the women working the night shift sleeping behind the counter.

This wasn’t the comforting welcome he was expecting. To make things worse, when he turned the key to open his door all the lights were off in his room and actually caused him to stub his toe searching for the light.

Motel 6 has spent millions of dollars blasting this marking campaign and after years finally converted. There was a huge disconnect between the brand that had been and what took place once he was onsite. The speaker explained the room was adequate and had nothing else negative to say about his experience with Motel 6, but because the experience didn’t match the branding message, he would never stay in a Motel 6 again.

Don’t give up…

The last piece to the puzzle is not giving up. You have now figured out who you are, what you stand for, your brand colors and imagery. You must not divert from this and stay with it for the long haul. The car business is all about month end and “what have you done for me today.” One of the biggest decisions we made back in 2012 was to put my brother and I in our TV and Internet ads.

In the early days, it would have been easy to give up on our ads as they didn’t result in early direct sales. As car dealers, we have a bad habit of grabbing at the new “shiny object” or continually searching for the quick fix solution. By consistently marketing our brand for several years now, we have created a loyal following of customers and continue to receive the elusive first choice advantage over our competitors.

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INTRODUCING

NADA Academy Plus LEADERSHIP FOR YOUR ENTIRE DEALERSHIP

AN ALL-NEW PROGRAM To maximize performance and accelerate results, the emerging dealership leader—plus up to five department managers from a single dealership—can attend individual class weeks covering financial management, parts, service, pre-owned vehicles, new vehicles and business leadership.

NADA 20 GROUP FINANCIAL COMPOSITE

NADA 20 GROUP IN-DEALERSHIP CONSULTING

NADA UNIVERSITY ONLINE PREMIUM SUBSCRIPTION

To make real-time strategy adjustments, students receive access to NADA 20 Group’s financial composite with enhanced internet metrics. Plus, a NADA 20 Group consultant will review the dealership’s composite between class weeks.

After completing the program, a NADA 20 Group consultant will visit the dealership to ensure its goals and objectives are being met.

Participating dealership locations will receive 24/7 access for all employees to hundreds of online courses, workshops and webinars for the duration of the program.

Class begins in October. Enroll now at nada.org/academyplus.

NADA ACADEMY nada.org/academy | 800.557.6232

DrivingSales Annual

BEST IDEA CONTEST

DrivingSales Executive Summit 2015 Best Idea Winner:

Josh Poque

What is the DSES Best Idea Contest?

The DrivingSales Best Idea Contest is designed to uncover The Most Innovative Dealership Strategy of the Year. The session is structured similarly to a high-powered 20 Group idea session, with dealership executives presenting an innovative best practice/strategy that is delivering significant results for their store at DSES. Automotive dealers are invited onstage to present their idea and compete headto-head with other dealers. A panel of dealer judges reviews each strategy with each competitor, then determines a winner. Cash and prizes totaling over $10,000 are awarded to the finalists and winners of this event, which was sponsored by CDK Global!

Easy! Increase your SPR-VDP with one easy trick!

JOSH POQUE, Digital Marketing Manager, Weins Canada Inc. Here’s a summary of his idea…

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hange your first picture to an image of the steering wheel on third party inventory site like autoTrader.ca (or Autotrader) and increase your SRP (Search Results Page) to VDP (Vehicle Details Page) percentage by 90 percent.

The concept is pretty simple – do something different and stand out. Outside of

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the auto industry, there are a lot of similar platforms that have their own versions of an SRP and VDP such as dating sites and real estate sites. Even back in the Myspace days, millions of teens and young adults poured hours and hours into their pages in an attempt to stand out against all that Internet noise. On all those platforms, users are confined in terms of how they can present themselves with the tools given, but that doesn’t stop creativity. Take a quick second to Google “how to stand out on Tinder” and see there are lot of ingenious practices

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From left to right: Jared Hamilton – Founder & CEO of DrivingSales, Josh Pogue – Digital Marketing Manager at Weins Canada, John Lilly – VP, Product, Data Strategy/ Data Science at CDK Global

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being used within a system that doesn’t give the user much control. So, why as dealers, have we all subscribed to collectively using the exact same process when we post our inventory online?

Let’s go back in time a bit to 2013 when “Harlem Shake” videos took over YouTube, the word “selfie” was added to the dictionary and one of our dealerships was sitting with a pretty low SRP-VDP conversion rate of 2.77 percent. SRP-VDP is a pretty high level KPI but when you’re trying to generate more leads, you need to open up those bottlenecks wherever they may occur.

Scrolling through endless amount of listings on the autoTrader.ca search results

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page, we wondered what we could change to increase clicks organically. Around this time, I was also looking to buy a condo in downtown Toronto. Scrolling through the listing pages of something like MLS, I noticed that realtors were not very consistent about how they presented their listings. Sometimes it was the façade of the building that displayed in the SRP, sometimes the kitchen, the living room or even a bathroom as the first image. As a user and buyer, one of the things that was very important to me was hardwood floors.

Any listing that met my criteria that didn’t disclose that info from the SRP got a click from me. Well, I was on the “VDP,” some

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We didn’t expect it, but we also saw our VDP to Contact percentage increase from 0.9 percent in 2012 to 1.2 percent in 2013. time with all the merchandising and staging the Realtor had put into this unit, a unit that I might otherwise have skipped.

We all know color is a sticking point for many customers, which let me to ask, “Can we treat color the same way I treated hardwood floors in my condo search?” If we add an interior image of the car as the first image, will this incentivize customers to click through to our VDPs? It certainly worked when I was looking at condos, even if that was not the realtor’s intention. At the dealership, we were taking good photos, had competitive prices and were spending lots of time on descriptions. We just needed a way to stand out on those endless scrolling SRPs. We tested the idea for six months from March through August 2013 and posted the steering wheel image as the first image for all of our cars. During those six months, in a year over year comparison, our SRP to VDP increased from 2.77 percent in 2012, to 5.33 percent in 2013.

We didn’t expect it, but we also saw our VDP to Contact percentage increase from 0.9 percent in 2012 to 1.2 percent in 2013.

Some have made the argument that using the steering wheel might frustrate customers. If our contact percentage had dropped I would say the data would support that theory, but since it’s increased I don’t think it’s an issue.

We did a fairly extensive test, with 100 percent of our used inventory displaying a steering wheel, but we still wanted to know was a fluke. To make sure, we went back to the 3/4 shot of our vehicles from September 2013 to January 2014. This is the only time I can say I was happy to see our SRP to VDP conversation rate drop 22 percent from the previous steering wheel test.

This simple change had a dramatic

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impact on the leads that our VDPs received.

From March 2013 to September 2013, we received 90 percent more leads then we did during the same period last year.

Since 2013, we have continued to implement this practice. If you visit the site for Lexus of Richmond Hill today, you will see that we don’t do this for every vehicle, but still a good number of them. Some of our other dealerships have picked up the practice as well – experimenting here and there. But overall for Lexus of Richmond Hill, we have maintained an SRP-VDP conversion rate of 5.5 percent the last three years.

By swapping the steering wheel we were testing two theories: 1. By doing something different on the SRP, we hoped our listings would stick out and 2. Customers would click to see exterior images of the car.

Both of these test exposed more customers to our VDP where we felt like we were already doing a good job. In our test, we certainly proved the theory seeing our SRPVDP rise 80 percent and our lead to contact rise 33 percent.

Since DSES 2015, I’ve had a few dealers tell me they have tried it for themselves, but haven’t noticed any increase. When we are playing with numbers like 1,115,533 SRP impressions and 57,953 detailed ad views for a single month, testing this out on a car or two isn’t going to be enough to make a significant impact on that kind of volume. It was only when we exclusively posted the steering wheel, for all inventory, for an extended period that we were able to chart the increase year over year.

For anyone out there that is curious, run our test, I’d be very interested to hear how the numbers roll out in different markets!

JOSH POGUE Josh Pogue is the Digital Marketing Manager for Weins Canada. Which means if it’s on the computer Josh gets it done. Working for nine dealerships, Josh administers, updates and maintains all divisional websites, conceives develops and implements any social, banner or email marketing campaigns.

Handles digital advertising, from billboards to retargeting campaigns and looks at graphs and spreadsheets that tell him people didn’t like the red button as much as the blue button.

Josh strives to find outlets and opportunities for the dealerships he is responsible for in the digital world.

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DRIVINGSALES EXECUTIVE SUMMIT 2015 • INNOVATION CUP WINNER

Virtual Deal from DealerSuccess

What is the DSES Innovation Cup? A panel of top dealer executives select five finalists from online applicants from vendors who submit an innovative solution. Those five finalists then have the opportunity to participate at DSES. Each finalist has just five minutes to “sell” his/ her product on stage to our dealer judges. The judges in turn will have 4 minutes of Q&A with the presenter and then they anonymously score each product on a standardized judging scale. After all innovations are demoed, the scores are tallied and a winner is announced during an award ceremony at the conference uncovering the Most Innovative Solution of the Year.

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hen I began using what I now call Automotive Online Retailing, or “ARO” tools back in 2006, I was general manager of Dick Hannah Honda in the Pacific Northwest. I had already been a GM for many years and in the business for 35 years. Being one who obsessively follows trends and watches for important shifts in the marketplace, I was already aware of and observing what I considered to be very important and meaningful changes in the automotive industry – a stronger move towards complete ecommerce solutions for dealers.

It was already clear to everyone that both the consumer, as well as businesses in other verticals, were more and more at ease with finalizing the complete business transaction online. Amazon and many other online retailers were good examples of this phenomenon. And I knew

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someday soon the automotive industry, and dealerships in particular, would need to adopt to this business model as well in order to continue prospering.

That was when I decided I needed to both inform and arm my dealer group with new knowledge and tools – online retailing tools. This was needed in order to adopt and adapt as painlessly as possible to that coming change that no one would be able to sidestep. Like it or not, it was going to affect us all.

I discovered that while most of the automotive world was still caught up in the same day-to-day way of conducting business that we dealers have known for decades, there were a few early online solutions being created by software developers explicitly for dealerships. These solutions promised a true ecommerce experience for the consumer. In researching the software for myself, I soon realized I needed to get my digital team involved with a

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Joe Orr (left) President/CEO, DealerSuccess and Jared Hamilton (right) Founder & CEO, DrivingSales.

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Dealerships have a head start in every community across the nation in fulfilling the needs of those 79 percent who are not shopping based on price, but rather are just seeking fairness, value and quality. year long re-skinning of the technology and then convince my owner and the dealership team that we should start deploying it on our own web site.

After some initial setup issues and troubleshooting, the move to integrate the solution into our business began to prove itself in spades. We were all hooked by the results. We began to see higher conversions from visitors that would normally have blown us off as they moved on to competitor sites in search of that perfect deal or lower price.

Through trial and error, we discovered website visitors were converting better due to the transparency and almost instantaneous engagement with the dealership via the online communications that left them feeling at ease and non-threatened by the process of buying a car online.

We all know the numbers in recent surveys that say up to 75 percent of drivers would like to take the entire car-buying process online – if they were only offered the chance! We also know from those same credible surveys that price really is not the issue with most consumers. In fact, 79 percent or more are seeking “value” and “quality” at a fair price, while the rest, only 21 percent or lower, ever consider buying a car based on price alone.

And those numbers were reflected in what we were seeing using the online ecommerce solution. Over time, we watched customer after customer embrace the ease of use and transparency that true Automotive Online Retailing, or ARO, offered them.

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It was during this trial and error time as a GM using the tool that I began to gain a larger vision and see the real need amongst dealers for a true integrated perfect payment ecommerce platform. Eventually I found myself wanting to share the insight I had gained with every dealer, to let them know that they could, in most cases, see similar results. So, I decided to quit my dream job as GM in June of 2015 in order to create a company that was dedicated to representing an ecommerce solution and a geo fencing technology that I personally had used with great success.

DealerSuccess was subsequently founded, and in 2015 the solution, Virtual Deal, was selected as a Finalist, along with four other innovative vendor solutions, by the DrivingSales Executive Summit dealer panel for the Innovation Cup to compete on the main stage. Each Finalist had nine minutes to present their innovative solution followed by 4 minutes of Q&A from 3 dealer executives onstage.

After an elite panel of top dealer executive attendees voted anonymously on the presentations, Virtual Deal was chosen as the winner of the 2015 DSES Innovation Cup in a tough field of competitors.

While I and the team at DealerSuccess are extremely thankful that Virtual Deal was the winner, I believe a solid ecommerce tool for dealership sites is only part of the answer to the storm clouds and tempest I see gathering on the horizon.

Here’s why…

Weathering The Storm Successfully

In my recent talks with dealership groups across the U.S., from Florida to Hawaii, I continue to talk about and stress the importance of a solid, transparent and easy-to-use ecommerce solution, which offers what I call the consumer “Easy Button.”

However, I am also asking dealers to begin looking at more than just that.

I am asking them to consider the full picture of what Automotive Online Retailing needs to entail in order to be successful.

The purchase and deployment of an ecommerce tool in itself is a great step in allowing a dealership to “catch up” with the rest of the business world, which has already moved into online retailing. However, we at DealerSuccess are also finding the culture of a dealership will play a large role in determining the success – or failure – of that deployment.

A change in attitude and understanding by dealers and their teams about the coming paradigm shift in the automotive world is absolutely imperative if a healthy trajectory of profit is to be realized or maintained.

Currently we are all doing fairly well.

But, I ask you to consider the following scenario in order to better grasp the message I now feel compelled, more than ever, to share with my dealership-friends...

What would you do, if AmazonAUTO opened up a dealership just down the street from yours?

What could you do? What options

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would be left open for you to try and outspend their local marketing budget, outreach them in regions or markets outside of your DMA? How would you compete with their level of consumer confidence?

Usually, when I ask this question there are gasps of dismay throughout the room while the dealers mentally struggle to comprehend all the implications this sort of event would have on their dealership and business.

Today, it is a lot easier for dealers, if they read any business news, to know/believe that such phenomenal and life altering changes are just around the corner.

I am hoping we can now see just how important this message is and why change needs to be considered now, not later. It also underlines what I said earlier about an ecommerce platform not being the only tool we as modern, online dealers need in our tool belt in order to compete.

Marketing our dealership brand and inventory also play an important role in supporting the full ecommerce experience for consumers.

New geo-fencing capabilities, for example, are now possible, allowing a dealer to market to people who are shopping your site while standing in your competitor’s showroom. In fact, mobile-showrooming is now a new and meaningful term that was created recently to reflect the tendency of shoppers to place even more importance on the digital impression your website leaves them with.

Today Google, Amazon, Apple, Zappos, Netflix, and many more, are constantly reinventing themselves, their method of interacting with their online customers, in order to provide the best online retailing experience possible. In their world it is all about the customer. And they have proven time and again that this kind of attitude pays off big time with higher earnings. Customers reward them for it.

I believe that dealerships can, if they

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choose to, compete quite well online.

After all, most dealerships have been pillars in their local community for years – decades. Meaningful relationships have been built between communities and local dealerships.

It is very important to remember that dealerships have a head start in every community across the nation in fulfilling the needs of those 79 percent who are not shopping based on price, but rather are just seeking fairness, value and quality. That is still a considerable hurdle giant online retailers will have to overcome in order to steal market share.

As another word of encouragement, many dealers have won awards over the years with extremely good CSI numbers, sales and customer accolades, and testimonials. These important business elements prove that it can be done – dealers can continue to win and hold the heart of their local communities. Unless they ignore the need to adopt and adapt.

In closing, and turning my thoughts back to my experience with the DrivingSales Executive Summit and the DSES Innovation Cup event, I wish to express my deepest thanks for myself and my team at DealerSuccess for the opportunity to be a part of that exemplary and outstanding forum.

The fashion in which Jared Hamilton and the DrivingSales team have created this forum for driving the automotive industry forward is an absolute necessity. Their thought-leadership, care and support for dealers nationwide, as well as creating a platform for vendors like ourselves to better serve dealers, is an unbelievable gift. Our thanks and solid support are a given. We feel all vendor awards should be voted by dealer panels only. Thank you DrivingSales for your level of integrity. As a GM, I was at your first DrivingSales event and have never missed a single event since then.

JOE ORR Winning the 2015 Innovation Cup for best Dealership Solution with VirtualDeal at DrivingSales validated Joe’s decision to resign from a 35 year career in the automotive industry, with 25 years as a GM at one of the greatest dealer groups in this nation, in order to represent/assist dealers across the country with their automotive online deal creation efforts.

Joe decided to leave the world of automotive retail in order to follow his passion working full-time as CEO of our automotive research/marketing/training company – DealerSuccess.

Joe now leads his specialized team which has made DealerSuccess a unique training and technology heavyweight, focusing on offering dealers insight into the best tools available for increased conversions and efficiency leading to more cars sold.

DRIVINGSALES, LLC | 2ND QUARTER - 2016

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How to Live

When It’s Dead Easy to Die Be the hero of your life from this day forward

BY DAN WALDSCHMIDT

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I

t was January in 1913 in a remote section of Antarctica. Douglas Mawson was 14 feet away from the top of the crevice – hanging by a rope attached to his waist.

The sledge wedged into the snow above him was the only thing keeping him alive.

Mawson was the leader of the Australasian Antarctic Expedition, a team of 31 scientists and adventurers pursuing the most ambitious exploration yet of the southern continent and was determined to return with the most scientific analysis of the area, including geographic analysis, meteorology, magnetic measurements, local biology, atmospheric science, and movements of the glaciers. But it wouldn’t be easy.

Every part of their journey would be a struggle of magnificent proportion. Their base camp at Commonwealth Bay was built on an ice shelf that proved to be mostly unlivable. The average constant wind speed that year was 50 mph – with Douglas regularly recording nearly 200 mph. With blizzard conditions daily, this was quite literally the windiest place on the planet. In those harsh conditions it took the team 10 months to build their camp and put together plans to continue onward. The airplane they had brought with them, damaged on the journey, was converted into a tractor on sleighs. But the engine wasn’t build for such cold conditions and only worked for a few minutes at a time.

By December 14, 1912, despite the

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impossible odds against them, Douglas Mawson and his two-man team with several dozen dogs were 35 days and almost 300 miles into their exploration. He had assigned himself the hardest of the eight different paths that fanned out from their windy base. They had already crossed two glaciers and hundreds of deadly crevices – deep holes in the ice hidden by a powdering of snow. That fateful Saturday morning was no different. Xavier Mertz, guiding a dog sled ahead of Mawson, raised his pole signalling a dangerous crevice ahead.

He carefully navigated his way diagonally across the thin ice instead of head-on.

Mawson did the same. Continuing on, Douglas heard the faint whimper of a dog behind him.

Ahead of him, Mertz turned around, hearing the same sound himself. It was the look on his face that shook Douglas to his core. A gaping hole in the snowbridge showed a 150 foot crevice where a husky lay whimpering with a broken back. There was no other sign of their companion, Lieutenant Belgrave Ninnis, or the sledge.

He was gone – along with their best dogs, their tent, and nearly their entire food supply. They improvised a tent out of extra sledge runners and a tent cover. It was just enough for room for the both of them. The next morning, they begin their race home. And for the first few days they made excellent time. But it wasn’t long until their dogs gave out.

When the huskies could no longer pull,

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DAN WALDSCHMIDT Dan Waldschmidt is a consultant to billion-dollar companies around the world, an international best-selling author, and a champion ultrarunner. If you want to catch up with Dan, you’ll probably need to lace up some running shoes and hit the road. He’s the crazy dude running against traffic.

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Mertz and Mawson carried them to their makeshift camp for the day and shot them, eating as much of the meat as they could stomach and throwing the scraps to the rest of the dogs. It wasn’t long before only a single dog, Ginger, was able to pull the sledge. So the two men hitched themselves to the harness alongside her. They could only make it a few miles at a time before they collapsed, exhausted by the snow drifts that were four feet tall in places. It wasn’t just the dogs that were dying. Mertz was sick, losing weight rapidly. His fingers were horrifically frostbitten and he was too weak to move. He couldn’t go on.

Determined not to let his friend die, Mawson convinced him to ride in the sledge while he pulled it a few miles each day. Day after day, Mawson pulled as Mertz steadily deteriorated into a slow and painful death. After burying his friend, Mawson was determined to make it back to base. Most of his food was gone and his body was in horrible condition. He had open sores on his lips, nose, and scrotum.

Hair was falling out of his head in large clumps and the skin on his legs was peeling off in large strips. The soles of his feet had detached completely from the skin and sinew holding together the rest of his foot.

Using tape from his pack he desperately reattached his dead soles and put on 6 pairs of wool socks. With every step, blood and pus oozed from the bottom of his frozen feet. He was still 80 miles from camp and growing desperately weaker by the day.

But step by step he made his way home.

And then he stepped through an ice bridge and found himself hanging by a rope in a deep crevice. Weakened by hypothermia and near starvation, he hung 14 feet below his sledge that was straddling both edges of the crevice. He reached for the first knot in the rope and desperately pulled himself up. And the next. Inch by inch he pulled himself up the rope, praying that the ice would hold. He finally rolled his body

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onto the snow covered lip. But his weight caused the overhang to break off – plunging him back into the icy crevice.

His raw hands were slippery with blood.

His fingers, frozen and numb. Utter despair overwhelmed him. He wanted to die. As he hung in the tangles of the harness rope, a verse from his favorite poet, Robert Service, flashed through his mind: “Just have one more try – it’s dead easy to die.

It’s the keeping-on-living that’s hard.”

Inch by inch. Minute by minute. Knot by knot.

Mawson made his way back up the rope.

When he reached the top of the crevice he pushed his feet out first and then pulled his weakened frame free of the edge, rolled over and, passed out. A few hours later he woke up covered in snow. And kept walking. Days later he would find a chest of supplies left by a rescue party out looking for him – food, supplies, and a map showing him the final 28 miles back to base. It would take him the next 10 days to make it. When he arrived, the Aurora, a rescue ship sent to rescue them was on the horizon – having left just 5 hours earlier.

It would be 10 months before that same ship would come back for Mawson and the 6 men who stayed behind to find him. He had survived against all odds.

When Mawson finally reached Australia a year after starting the expedition, he was welcomed as a national hero and knighted

by King George V. It‘s Douglas Mawson’s face you see on the Australian one hundred dollar banknote. His life was an improbable story of courage and triumph made possible by simply trying. When you find yourself hanging by a thread, with hands raw and bloody from past tries, think of Mawson.

You might have lost skin off your fingers and might find yourself taping your feet back together. Friends might die. And ideas fail. You can give up and die. Or your can try. And live. And be the hero of your life

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C A P I T A L

Dealership

Buy-Sell Peak

May Be Over

W

ith only 97 transactions through June 2016, the dealership buy-sell market appears to be slowing down from the record-setting pace in 2015 in which The Banks Report recorded 120 transactions over the same period.

The number of rooftops changing owners is also down significantly with 162 this year compared with 241 in 2015, based on initial data from The Banks Report. (Its mid-year report on dealership buy-sell activity will be published in the first week of July).

(However, strip out Warren Buffett’s acquisition of the 81-store Van Tuyl group last year, the number of dealerships changing hands is up slightly in 2016.)

But the number definitely is trending downward. April and May of this year brought only 32 rooftops with new owners (May was especially bad with only 13 — the lowest monthly total since 2013). Meanwhile, March was a monster month with 55 buy-sells.

Whether April and May’s declining numbers represent a trend or prove to be an anomaly remains to be seen. The low numbers may be due to March’s big total and coincidental timing as numerous deals closed or were signed that month.

But June also looks like it will have a slow finish with only 13 dealerships being sold through the first three weeks of the month.

It’s likely activity will pick back up toward late summer and into the fall months — just based on what we’re hearing in the market. We know of three deals involving multiple stores that have yet to be announced — one involves several luxury brands in one of the Plains states. Another is a fairly sizable deal in one of the mid-Atlantic states.

It’s also probable that we may see another couple of deals similar in size – or larger – to Holman’s acquisition of the Kuni

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What can we expect to see in the near future?

BY CLIFF BANKS

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Through the first quarter, public groups had spent approximately $660 million more than the same period last year on stock buybacks. Expect that trend to continue as share prices continue to be volatile.

CLIFF BANKS Cliff Banks is an industry veteran of 24 years. A long time editor and analyst, he is the founder and president of The Banks Report, an online service that analyzes news and trends in the automotive retail sector. He is a regular contributor to the DealerExec.

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Automotive Group before the end of the year. Meanwhile, there are several intriguing groups that could pull a mega large deal partnering with a financial partner. On the other hand, several of these groups could be sellers. In fact, we know of situations where discussions of both buying and selling were going on simultaneously.

Groups that we’re watching closely include the Hendrick Automotive Group, which appears to be making moves to better position itself for a sale (our speculation); the Larry Miller Automotive Group, which is giving every indication of being a significant buyer – it just acquired three stores from Doug Moreland this month; the Ken Garff group whose investment partner Leucadia National informed investors earlier this year it is taking a cautious approach to acquisitions; and Sonic Automotive – who we believe could be a seller within the next year. If their stock price drops much lower (trading just above $16 now), expect a deal to be done fairly quickly.

Perhaps the question we are asked most has to do with Berkshire Hathaway Automotive. The group quietly has added six dealerships since its purchase of Van Tuyl in March 2015.

The most recent acquisition was North Park Toyota in San Antonio from the Kahlig Auto Group in April. At some point, Berkshire will pull off the longawaited big deal – probably as prices start to come down, which could happen later this summer.

2ND QUARTER - 2016 | DRIVINGSALES, LLC

Public Group Activity

Meanwhile, public group activity has slowed with no deals in April or May. Essentially, the 26 dealerships acquired by the public groups in the first quarter were deals whose discussions began in 2015, before their stock prices began cratering in January. Since that period, there has been no activity from the public group side – except for one Chrysler Jeep store AutoNation purchased earlier this month in Colorado.

Lower stock prices is an opportunity for the public groups to focus on buying back their stocks instead of other stores.

Through the first quarter, public groups had spent approximately $660 million more than the same period last year on stock buybacks. Expect that trend to continue as share prices continue to be volatile.

Brand Activity

In some media reports, there has been speculation that the luster has come off the luxury brands as they continue to deal with excess inventory and declining profit margins. We’re not privy to the financials of most deals, but from a pure numbers perspective, there were 25 buy-sells involving luxury brands from January through June in 2015 and 31 buy-sells this year through the same period. Our take away from that is that buyers are still interested.

So far this year, Chrysler-branded stores lead with 27 acquisitions. Chevrolet is second with 19 and Ford is third with 18. The order follows the pattern of the previous three years.

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