Myths and misunderstandings of "Thought of the car dealer"

How did the auto business become so preoccupied with cost per sale that it lost all available profit?

There used to be some wisdom in the old axiom of measuring the cost of advertising per vehicle sold. However, do we maintain the same scorecard in our newspaper, print or electronic media (TV / Radio)? Today, with some of the tools that track phone numbers, it is possible to reduce some of this, but how often do you base your numbers on the seller’s report after asking the question; “How did you hear about us?”

Until recently, this would have accepted this as “normal practice”, however, after recent internal discussions and with some distributors, it has led to a paradigm adjustment.

Observation I: It is possible that putting all the advertising eggs available on the Internet is not the best measure. According to the Cobalt Study of Dealerships for 2007, while 83% of car buyers used the Internet to research vehicles and 79% used search engines to search for dealers, just over half (55%) of potential customers receives a dealership are converted into sales. The study went on to say that 90% of these customers made a deal at a different dealership than the one originally shipped to them, and 30% of potential customers received no response!

Action Step: Have you ever “Googled” your dealership? Does the dealer’s name appear on consumer websites like the Ripoff Report? If a dealership relies on the Internet to fill the showroom with customers who intend to purchase a vehicle from that dealership, this can lead to a false sense of reality.

Observation II: Is the information from the sales force accurate regarding the marketing questions they ask? For example, unless the only marketing done is the newspaper or the customer brings the paper to the door, is it possible to know if they came as a result of the newspaper? Salespeople are interested in selling cars and cashing checks, so maybe next month’s advertising budget shouldn’t be based on your answers.

Action Step: Review the dealership advertising and see how to add accountability to the marketing efforts being made through separate 800 #, the use of live operator call centers, etc. Get verifiable email addresses of potential buyers and customers and poll them periodically about dealer listings and offers. Consider using blind advertising as a method of increasing special financial efforts.

Observation III: The mathematics “Car Think” does not always produce the correct answer. Take a look at a dealership that used two types of lead sources with what appear to be highly variable results:

Type 1 cable Type 2 cable

Amount spent $ 3000 $ 17,000

# of units sold 7 12

Average Gross per sale $ 2700 $ 4700

Cost per vehicle $ 428 $ 1400

Gross profit $ 18,900 $ 56,400

Net profit after $ 15,900 $ 39,400

Lead cost

Traditional “Car Think” math would seem to indicate that $ 428 vs. The $ 1400 cost per vehicle is a no-brainer. However, if a source produces 58% more gross profit per unit, despite the higher initial cost, maybe the math is flawed. An additional net profit of $ 23,500 more would appear to be a more desirable result, especially if this result is consistent, month after month. The question that comes to mind is whether the goal here is to increase gross profit or to produce a perceived reduction in costs. Is this a quick fix or long term plans?

Is it the cost or price of a marketing effort that a distributor should be concerned about? The price is the fee per lead; Cost is something that takes into account time, effort, results, etc. So, to effectively measure the results of any marketing efforts a dealership makes, measure the total cost as well as the price of each vendor and vendor you deal with. If each month in the car business works on its own, then it makes sense to capitalize on the money spent in previous months. Have the results of any marketing effort carry over month to month, and the dealership can enjoy the sales generated by marketing dollars spent in previous months.

Successful and thriving dealerships in these turbulent times dig a little deeper to find all the information they need to make smart marketing decisions. At the end of the day, the auto sales business is much more complex than it appears to people outside of our business. Don’t get caught relying too quickly on facts and answers that are not complete or accurate.