I would agree with the dealer who described current conditions in the new vehicle market as madness.
In today’s market, you pay good money to acquire a new vehicle from the factory, only to end up retailing it for little or no margin. In fact, your new vehicle department often effectively serves as a loss-leader, wherein the F&I office becomes the primary money-making beneficiary of each retail sale. What’s worse, you can’t really count on customers coming back to service their vehicles or purchase another car, even if your initial sale seeds the trust necessary to earn repeat business from them.
Dealers are quick to point fingers at the culprits behind this challenging retail scenario. There’s the Internet, giving rise to more new vehicle pricing transparency and smarter, more priceaware buyers. You’ve got volume-focused dealers, who give away vehicles and earn their keep through factory stair-step incentives and below-the-line monies. And then there are the factories themselves, training customers to view the manufacturer’s suggested retail price (MSRP) as just that — a mere suggestion.
The biggest problem, in my view, is that the new vehicle madness has largely benefited new vehicle buyers at the expense of dealers. Buyers know more about purchasing a new car and getting a good deal than ever before.
This knowledge creates downward pressure on retail prices, and far less disparity between what Uncle Bob or Aunt Mary might pay for the same new car at different dealerships. As this traditional disparity diminishes, dealer profit margins go south — arguably the most painful symptom of a highly efficient, technologytransformed retail market. (Just ask former Borders Books executives.)
In early 2013, while working to tame the madness in new vehicles, we quickly found three critical insights:
- Dealers could at least minimize the madness if they had better knowledge of new vehicle competition and pricing in their local markets, and were able to offer a greater degree of pricing clarity to consumers. After applying our Live Market View® technology to the new car market, we saw a big disparity: Most dealers priced their new vehicles at MSRP, with only a few offering more market-competitive pricing. In most markets, we found pricing imbalances — lots of new vehicles at the top of the spectrum advertised at MSRP, a few vehicles were priced near the bottom of the spectrum, and very little, if any, of the pricing “clustered” near the middle — a stark difference from the used vehicle market. In other words, we identified a market inefficiency related to pricing, and an opportunity to help dealers become more competitive and precise in their new vehicle pricing.
Dealers would need a better, more efficient way to account for factory incentives in their new vehicle pricing and promotion. The prevalence of MSRPonly pricing for new vehicles is in part due to dealers’ inability to accurately and easily account for complex, ever-changing incentives and rebates in their pricing strategies. In short, these factory programs are both a blessing (they help sell cars) and a curse (they’re difficult to manage) for dealers.
The end result is that most dealers don’t tie incentives and rebates to their retail asking prices, creating a scenario where consumers can’t really find the “best price” online directly from dealers. Instead, dealers default to determining the right mix (or “stack”) of incentives at the sales desk, and mistakes can (and do) happen, costing customers and dealers money.
This insight led us to acquire AIS Rebates, a Detroit-based company with cutting-edge technology that collects and combines incentive and rebate data for dealers from manufacturers. We saw an opportunity to link this information to new vehicle pricing strategies, effectively helping dealers put a “first pencil” price online for every car.
Some dealers would likely resist a cure for the new car madness, even if it hurt them to do so. We knew that some dealers, despite consumer desires for greater pricing clarity and transparency, would prefer to maintain a level of mystery in their new vehicle pricing. This preference owes to the traditional way many dealers retail new vehicles. Most buyers get their “number” only after they arrive at the showroom and negotiate for it.
From a product development perspective, this retailing reality posed a significant risk: Would enough dealers embrace a solution that would require them to change the way they do business and stop making the madness worse?
In the end, we decided the risk was worth the potential reward — there would be less madness in the new car market, and greater gains for dealers who choose to embrace a different way of managing, pricing and retailing their new vehicle inventories.
From these insights, we developed a new car inventory management and pricing system called Conquest. Earlier this year, this system debuted at the National Automobile Dealers Association (NADA) Convention in New Orleans. Since then, it is proving to give dealers what we call “a new way to win in new cars.”
The power of Conquest and its promise for dealers
This new system is built on a simple premise and promise: Dealers who properly price and promote their new vehicles will be rewarded by customers who seek a higher level of pricing transparency as they shop for and purchase a new car. Over time, they will sell more new vehicles in less time, and achieve better profit margins. To help dealers reap the rewards, Conquest offers dealers:
Unprecedented competitive new vehicle insights
Conquest gives dealers the ability to see the vehicles “on the ground” in their markets, showing their brands in comparison with competing makes and models. The system distinguishes colors, trim packages and other attributes to ensure dealers see relevant car-tocar pricing and supply / demand comparisons.
A Northeast Volkswagen dealer said this new way of dealing with new car pricing helped him spot opportunities to raise his new vehicle prices and improve his front-end margin by nearly $500 per unit.
“We were using our gut and horror stories we heard from customers to determine how we’d position our prices as a ‘good deal’ online,” the dealer said. “We found we were giving away a ton of unnecessary gross profit. Now, we’re able to position ourselves aggressively in the market and significantly increase our gross profit.”
Dealers can also use the system to validate their new vehicle prices with customers, showing them how and why a vehicle’s asking price stands tall against the competition.
Flexible, intuitive pricing rules
With this system dealers can create rules to price vehicles based on MSRP or invoice, as well as the age of a vehicle in a dealer’s inventory. With competitive market data now in hand, dealers can set prices for individual vehicles, or multiple vehicles grouped by model, trim level and other criteria. Dealers can also set minimum prices to help desk managers instantly know the lowest dealer-approved retail price to close deals with customers. Conquest’s pricing features bring a higher level of efficiency and precision to the way many dealers currently price their new vehicles.
“It was cumbersome for me to price the cars,” a Pennsylvania Toyota dealer said. “It would take me an entire day to apply our homemade formula. My prices were half-decent for what I came up with, but they weren’t anywhere near as dialed in as they are today using the system.”
Incentive / rebate stacking and management
Using this technology, dealers can include all relevant incentives and rebates in their new vehicle pricing strategies. Through the integration with AIS Rebates, Conquest helps dealers configure and automatically “stack” incentives and rebates to effectively “show the math” behind a new vehicle’s online asking price. In addition, this integration helps dealers maintain consistent pricing rules and strategies, even as incentives and rebates change from month to month.
Custom new vehicle descriptions
Conquest incorporates vAuto’s AutoWriter technology to help dealers craft descriptions that highlight each new vehicle’s most compelling equipment and features, as well as required disclosure information for incentives and rebates. Currently, many dealers do not create custom descriptions for new vehicles, a merchandising gap this new system helps fill. One-touch syndication. This new technology provides a single system to set new vehicle prices and syndicate listings to dealership and third-party Websites, eliminating redundant data entry for dealers who currently use multiple systems to set and update their new vehicle prices.
This new technology provides a single system to set new vehicle prices and syndicate listings to dealership and third-party Websites, eliminating redundant data entry for dealers who currently use multiple systems to set and update their new vehicle prices.
The Pennsylvania Toyota dealer said Conquest is living up to its promise — his more transparent new vehicle pricing and promotion makes customers happy and benefits his bottom line.
“We spend our time talking about our pricing philosophy with customers in the showroom, as opposed to price,” he said. “Customers buy in and love it. If we have to discount, our discount is now in the $150 to $200 range.”
From madness to method in new cars
I am both gratified and humbled by the positive early responses this new system has received from dealers. The system is living up to its potential and promise, and dealers are enjoying the rewards they expected when they signed up.
It’s also striking how much Conquest’s rollout is similar to what vAuto encountered when we brought the Velocity Method of Management™ and the Provision used vehicle inventory management system to dealers.
With Provision, dealers who embrace new market data and methodical, metrics-based management have transformed sleepy used vehicle operations into powerhouses. These dealers were, in effect, taking control of their destiny in a used vehicle market where traditional markups and gut instincts simply weren’t working anymore.
With Conquest, dealers face a similar dilemma. The madness in new cars is real, and it requires a new, more market-methodical way of doing business for dealers who want to thrive for years to come.
I’m encouraged that dealers who have embraced this system find the system helps them ease, if not erase, some of the pressure on their front-end margins for new vehicles, and turn their inventories more quickly. In effect, it is helping dealers embrace a higher level of market transparency, and take back some of the retail control the Internet has eroded away.
As the Northeast VW dealer said, “The day will come when Conquest is vital for every dealer. I don’t know if that day will be two, three, four or five years from now. I’m not waiting. I’m all in now.”