Episode TEN: Operational Efficiency Imperative For Dealers
We've covered the major inefficiencies in the automotive industry, but for review, let's look at the highlights that NEED to be addressed.
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In this chapter, Dale addresses the increasing activity in dealership acquisitions and how it translates to an operational efficiency imperative. Over the last several years, acquisitions have occurred at a record pace and experts aren't predicting a slowdown any time soon. By 2025, it isn't unreasonable to think the top 100 automotive retailers could control as much as 25% of the market.
Dale says this outlook clearly suggests that just about every dealer in every market will be competing against someone bigger; an organization whose size would certainly be deployed as a significant operational and financial advantage. These larger, more efficient dealers would have the ability to consistently stock better inventories and sell and service vehicles at lower prices with better margins. They would surely leverage their large-scale purchasing power to gain every advantage possible.
This is why Dale presents this efficiency imperative. At its core, it is commitment and conviction to aggressively eliminate or significantly reduce many of the industry's longstanding and wasteful behaviors. This chapter is sort of a summary of the book as Dale categorically address six primary inefficiencies needing immediate attention.
First, inventory inefficiency. Disciplined and market-focused stocking, pricing, and trade decisions will help dealers have the inventory the market wants, when they want it.
Second, customer inefficiency. If dealers unapologetically pursue offering customers a high level of price transparency and less friction in the purchase process, the closing ratio and the margins will follow.
Third, marketing inefficiency. While many dealers still spend 75% of their marketing budget on traditional means and only 25% on digital, those who flipped the two numbers show significant savings. For some dealers that have gone all digital, they've reduced the average marketing spend per vehicle from $600 down to $200 and they believe $100 is actually achievable as they continue to refine their focus.
Fourth, technology inefficiency. Dale says if dealers would only train their people to make full use of their current technology systems, efficiency would increase. This goes for every department in the dealership.
Fifth, human capital inefficiency. Dale's addressed this more than once. In short, dealers need to stop the turnstile like state of hiring and retention to move forward. He says that this opportunity is even more pronounced for smaller dealerships.
Finally, change inefficiency. Dale says embracing and executing to change is the cost of entry for future success.
He cites the biblical story of David and Goliath point out that Goliath should have never lost, but David adapted better and faster. Dale says smaller dealers have a distinct opportunity here given their shorter adjustment cycle. The real question is, whether or not they'll choose to do so.
Dale concludes that with all these inefficiencies, any dealer who wants to be part of this industry evolution will have to address them fast and ideally, first.
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