Automotive News World Congress



Finbarr J. O’Neill

President and Chief Executive Officer

The Reynolds and Reynolds Company

“The Age of Dealer Internet Empowerment”

Automotive News World Congress

January 17, 2006

From a process of trial and error, our industry has moved to a more mature view of how to leverage the advantages of the internet. Remember when the internet was going to drive dealers out of business. And Covisint was going to create a virtual market for suppliers, eliminate all of the inefficiencies in the market and drive down costs for OEMs. I drank the Kool-Aid too. When I was at Hyundai, we built a system so that consumers, jobbers, repair shops and others could buy parts over the internet, delivered through dealers. We got some good press. It was not successful.

The starry eyed naiveté is gone. The internet is a tool and now we are learning to use it.

Let me start with cost reduction. It may not be as glamorous as marketing and sales but with decreasing dealer margins, it is critical.

Take IT costs, for example. IT costs have become a significant issue for dealers. The traditional model has been for the dealer to maintain the servers at the dealership. Dealers find themselves with lots of hardware, and the IT overhead that goes along with it. What’s more, IT is not a core competency for dealers.

Well, the internet provides a solution. Our industry now offers dealers remote systems hosting, where the provider hosts the server at a secure, remote location and all the dealer’s transactions are processed over the internet. This allows the dealer to eliminate a lot of the hardware on the premises and the overhead that goes with it.

The agreement that we just signed with GM to be the exclusive supplier of Dealer Management Systems to Saturn dealers is a good example of this trend. The DMS will be delivered to Saturn through a hosted model. The dealers will not need to maintain servers for mission-critical data on their premises. We will handle maintenance, updating, backup etc at our hosting facility. The dealer can concentrate on the car business. Longer term, we will see more and more dealers move to this model.

How about training? Training is expensive. Dealers don’t want their employees out of the dealership. The internet can be used to deliver training to dealership personnel on-demand. We have over 800 discrete and free training modules, most available in digestible five minute bites, and all accessible over the internet. The dealership employee calls up the topic on which they need help and away they go. It saves us. It saves the dealer.

Another great way to save cost is in purchasing. Dealers spend a lot on supplies, everything from business forms, to copy paper to toner. Large dealer groups have already moved to centralized purchasing to leverage scale, and drive down the cost of these commodities. Small dealers can do the same thing. We, and others, can buy common supplies is huge volume, and the dealers can leverage those economies, buying though our website.

The hotter topic is how the industry uses the internet for customer relationship management. CRM means a lot of things to a lot of people. I define it broadly to cover the continuum from marketing to prospects to communication with existing customers.

Customer relationships start with marketing.

It is critical for OEMs that they, and their dealers, present the brand to consumers clearly and consistently. We worked with several OEMs to develop brand compliant dealer websites. 

What do we mean by brand compliant? Nissan, for example, doesn’t allow its dealers to display or refer to other brands on a Nissan brand compliant site. If you sell Nissans and want a link from the dealer locator at , your site has to be brand compliant. Brand compliance is achieved through standardization, e.g., using OEM graphics on the dealer site home page and interior pages, using the OEM inventory search engine, and including only approved products and terminology.

In this way the OEM can assure brand continuity between the OEM and dealer sites. Examples of OEM/dealer brand continuity include:

• MINI USA: ;

• Nissan: ;



 

OEMs can also require dealer sites to feature links to various pages of the OEM site so that consumers can easily navigate to the OEM for additional information. 

Compare for example:

•

•

Dealers, of course, are equally capable of promoting their own brand identities. Troy Aikman himself warmly greets visitors to and invites visitors “to check out the Internet specials and make a service appointment from the comfort of your own home.” With the availability of new, more powerful search engine technologies, dealer sites can come to the top of the search list, contesting the OEM site. We’ve come a long way.

Certainly dealers increasingly see the web as a marketing tool. NADA says that in 2004 the typical dealership spent 6.7% of its advertising dollars on Web advertising. Dealers are spending at almost twice the industry average of 3.4% for Web advertising reported by Advertising Age. Meanwhile, dealers’ advertising allocation for newspapers dropped 14% in 2004. We appear to be making progress.

However, we keep score by sales.

A recent NADA study reported that 94% of all dealers have web sites and 64% of dealers have completed a sale on the Internet, which suggests a certain comfort level. Ward’s 2005 eDealer 100 list included 144,000 vehicle deliveries originating from initial Internet customer contacts—an average of 1,440 per dealership. The total was more than double the original Ward’s eDealer 100 list, which was published in 2001.

The savviest dealers have wholly embraced the Internet. They no longer feel threatened by it. They know that the moment of truth still occurs at the dealership.

In our experience, there are a number of ways to approach internet sales and succeed. But, all successful internet sales programs require three things:

• A repeatable process

• “Easy to use” software to support the process

• Management commitment to enforce adherence to the process

Technology is only as good as process. Process is only effective when it is consistent. A dealer group that excels at both is the United AutoGroup, which has adopted a consistent, centralized process for the deployment of its company Web sites.

UAG has incorporated its own best practices across its sites. They emphasize three key principles:

1. Uniformity of data. This is important when you are managing information on make, model, options and colors for 20,000-plus vehicles across 166 sites.

2. Training. The UAG employees who manage the dealer sites are highly skilled in Web techniques and processes.

3. Adherence to Process: UAG reviews quarterly lead traffic reports for each dealership and conducts semi-annual reviews. They also have a mystery shopping program that promotes and rewards high quality responses to leads.

Southeast Toyota is another leader that has embraced a consistent Web process to drive competitive advantage. SET, which has 167 dealerships, also uses mystery shoppers to test dealer processes. On average, two mystery shoppers contact each dealer every month.

73% of all SET leads receive a response in one hour or less.

SET’s experience is that closing ratios and profits for Internet-generated sales are comparable to conventional sales.

OEMs and dealers both use the Web to build their brands and move vehicles in different but complementary ways.

My remarks have been focused on the use of the Web in the sales and marketing areas. However, Fixed Operations contribute nearly as much gross profit to a dealership as the other areas of the dealership combined. Consequently, dealers who aren’t applying the Web in the service area are leaving money on the table.

The dealers can use the web to help manage consumer preferences (best time of day to drop off and pick up vehicle, rental car preferences, e-mail alerts once car is ready and reminders regarding scheduled maintenance).

The web can be integrated into the service write-up process to drive more dollars per repair order. Service Advisors can access the web for:

• OEM records

• Campaigns

• Recalls

• Previous service history

Technicians can access the web for:

• Technical bulletins

• OEM databases that provide insights into the most probable cause of the problem

• Likely fixes, prioritized in ranked order.

In essence, the internet can be leveraged to help the technician fix it right the first time. And the data shows that customers whose vehicles are fixed right the first time are more loyal.

Parts and accessories also offer great potential to grow sales by implementing full e-commerce storefronts.

In sum, we are seeing a more practical approach to the web. It offers an additional tool for successful marketing, a new stream of ups, opportunities to maintain and enhance the relationship and drive more service and parts revenue. And it offers enables solutions which drive costs out of the business.

But, let’s remember, it is a tool. It is ineffective unless it facilitated by easy to use software and supported by dedicated dealer management, repeatable process, and disciplined adherence to those processes.

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