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FOR THE CLIENTS AND FUTURE
CLIENTS OF INTERNET DEALERSHIP SYSTEMS INC. ON CURRENT AUTOMOBILE
DEALERSHIP MARKET CONDITIONS
CO-AUTHORED BY
DIANNE M. BEASLEY
CEO/PRESIDENT
ROBERT H. BEASLEY
PRESIDENT TRAINING PROGRAMS DEVELOPMENT
AND MARKETING PROGRAMS
JUNE 13, 2008
THE REAL STORY
As automobile sales hit the wall dealerships should be bracing
for a thirty six month down turn, in our option the worst since
the mid 1970’s.
BACKROUND
In 1973 new car sales were a super critical factor in the economic
mix and all retail sectors were in the doldrums as well. It was
the first time an incentive check was ever offered to purchase a
new American automobile. The amount of the incentive check was $500.00
and it was ordered by President Richard Nixon, the first rebate
ever that was offered to buy an American car.
At that time the housing sector was bad, energy cost (gasoline)
was at $1.45 per gallon, and the employment picture was not all
that great as the industrialized east was laying off high paid union
workers and jobs were being shifted to the southeast were the labor
force would do the same jobs for less per hour.
In a matter of weeks Grocery bills went from $25.00 to $50.00 per
week, the average workers weekly pay was around $130.00 before taxes,
a new car would cost you around $3300.00 dollars and with a thousand
dollars down your payments would be around $96.00 per month for
36 months, the average 2 worker household income was around $1300.00
per month, a house would cost you around $29,000 and your payments
would be around $275.00 per month.
In 2008 new car sales are still a super critical factor in the
economic mix and all retail sectors were in the doldrums as well.
Currently one out of 7 Americans jobs is connected to some facet
of the automobile industry. The average car payment is around $750.00
per month and cars have doubled in M.S.R.P price every 10 years
during the last four decades, The average M.S.R.P. of new car is
$19,600.00, light duty trucks $33,566.00, SUV’s M.S.R.P. are
a whopping $42,800.00. The average price for a gallon of 87 grade
unleaded gas is $4.37 per gallon, the average price of a new home
is $300,000.00 with the average payment of $3360.00 per month, today’s
value of that same home has fallen to around $150,000 in these foreclosed
home market. of that we have a family of four and my wife that spends
around $200.00 per week in this inflationary market, most of the
people we have seen trying to purchasing a car over the last 8 months
have 2 income net earning of around $ 3,900.00 per month, and most
all of them are admitting that they are living pay check to pay
check and trying to achieve a payment on a $28,000.00 car of $380.00
to $420.00 dollars per month with a $1000.00 cash investment payment.
Add to that purchase $2800.00 in tax & license fees plus interest
charges for the term of the contract. We are not selling a lot of
new cars to these customers.
NEW CAR SALES: (CURRENT CONDITIONS)
Over the last four months car sales at new car sales at west coast
dealerships have fallen off by 45 to 60 percent depending on which
regional area you are in. Why is this accurate percentage so important?
The west coast is responsible for one third of all the new cars
being sold in the United States. One auto mall in our local area
was selling over 4000 cars a month just 18 months ago and that represented
just 25 dealerships out of 90 in the geographic area. And this mall
currently off by 45 percent per month, according to our sources.
How bad is it for the other 65 dealerships in the market? Also there
has been a tremendous turn over in sales people ads for sales people
range from Hyundai to Jaguar and Mercedes-Benz not one salesperson
we have spoken with can consistently break out of a minimum wage
pay check. I worked at one dealership to get a feel for the market
and went three months of straight of minimum wage paychecks, due
to the lack of qualified buyers, while working over 200 hours a
month. I finally gave up and ended my case study. I would go an
average of three days before I would get my turn with a customer
amongst is 12 person sales staff, with the turnover at a rate of
three a week.
TRADE-IN VALUES HAVE CHANGED FOREVER
In today’s market 96 percent of all new or used sales involve
customers with trade-in’s , and because of what they will
owe in a net payoff, they will not be able to use the trade due
to there negative equity. The average trade will be three years
old and they will have a 72 to 84 month contract term to keep their
payments low. The other factor will be that the value of the trade
has crashed for the following reason:
If a customer is to trade or sell their three year old car they
will go on the internet and look up its current value on Kelly blue
book, Black Book, or the NADA auto guide which would have been accurate
2 years ago. However the dealerships are currently using the Manheim
Market Report (MMR), the industry’s only daily price guide
of its kind, and is the most accurate pricing system in the industry
for actual current trade-in values. The MMR prices are computed
from millions of actual sales at Manheim Auctions on a daily basis.
This easy-to-use, easy-to-read, and the pricing system contains
no editorial opinion, no guesswork! New prices for each car model
sold is published that day with the highest price, the lowest price,
and the average for the total number sold that day. The Kelly blue
book, Black Book, or the NADA auto guides are figured on a monthly
and two month value basis. With the new MMR System the published
guides can miss the trade values by thousands of dollars (To High)
this new electronic system of valuating a car has changed the dynamics
of the appraisal system and it is not available to the general public
yet, just dealerships. It can be found at www.Manheim.com on the
home page under the Manheim market Report section.
This service provided by Manheim is the greatest tool for a used
car manager to manage a dealerships cash used car inventory but
is the customer’s worst nightmare as it makes their trade-in
a average of minus $4500.00 less that they usually have figured
their trade is worth. A dealership using this system will never
miss a current value by more than $100.00. Most customers are buried
in their trade-ins and it is affecting 80 percent of all the deals
trying to be made in a negative conclusion due to the trade-in value.
Dealers also using the MMR system to purchase cars for the used
car lots will generally hold an average $2500.00 Front end gross
per car sold. This system makes the used car profit center very
profitable.
CURRENT NEW CAR REBATES
I was looking at a local news paper last Friday finding 23 half
and full page color ads. One Dodge dealership listed 87 various
Pick up Trucks advertised listing dealer discounts along with factory
rebates equaling $833,260.00 which averaged out to each truck getting
a $10,152.00 discount. I learned from a friend the next week the
dealership only sold 6 of the trucks over the weekend. Toyota dealers
in the same paper were offering $ 6,000.00 discounts on the new
2007 tundra Pick Up’s. Their ad was not very successful either;
in fact it is the same result is true for most of the dealerships
all over the west coast. The manufactures are fighting for their
life to avoid offering any rebates, while the customers are waiting
to purchase their next new car until they see the large rebates
come back. The customer holds out is a signal the all salespeople
in the industry that the selling value angle to a customer in an
attempt to hold gross profit on new cars they are trying to sell
is long over. All that customers are interested in is how good a
bottom line deal they can make for themselves. The customers are
more knowledgeable than the sales people about any given car that
they are buying. A good credit score and an ability to purchase
a car, the dealership will sell the car below invoice just to make
another number (sale). The majority of customers are looking for
$10,000.00 rebates plus dealership discounts.
Not only is the rebate and trade in value issues effecting the
new car sales customers are starting to connect the dots on figuring
out ways to live with their present cars. We also were perplexed
about the constant line of big SUV’s always lined up at a
local ARCO gas station down the street from our office. We took
a team of six people to the station to survey 200 people about 4
key questions to us: this is a very un-scientific survey and was
designed so we could get a feel about their spending habits along
with how the inflated gas prices were effecting there disposable
income. Here are the questions we presented to them at the pumps
while they were filling up and their responses. All surveyed people
were driving trucks or SUV’s, no car owners were surveyed.
1) How expensive would gas prices have to reach to change your
driving habits?
ANSWER:
$5.25 per gallon - 66
$4.75 per gallon - 88
$ Current Price - 26
No response - 20
2) Would you consider buying a new car at this time?
ANSWER:
No not at this time - 175
Yes looking now - 25
3) Have you considered changing your driving habits with the increase
in gasoline prices?
ANSWER:
No - 80
Yes - 120
4) Have current gasoline prices effected your general purchasing
Habits at retail stores
ANSWER:
YES - 185
NO - 15
93 percent surveyed mentioned that they would look at a Certified
Used car before they would look at a new car. They felt that a certified
Used Car with the standard warranty along with the perceived savings
value would make it a better deal.
CUSTOMER CREDIT SCORES
AND THERE EFFECT ON CURRENT SALES:
A growing concern at the dealership level is customer FICO scores.
Every six out of ten customers attempting to purchasing a car have
average scores of 450 to 575 range. We personally know of two that
have increased their special finance staff to 20 people as well
as increasing their sub prime bank sources to 100 to handle in increased
number of challenged buyers in this segment. There are at the time
of this report we have learned of 100 sub prime private investors
loaning money to used car operations at the buy-here segment to
fund deals. A source working in this market has informed us the
average interest rate being charged is 29.44 percent and the average
used car operation is selling around 30 cars a month. The average
car price is around $12,800.00, contract length 48 months, a loss
rate of 2%.
On the new car dealership side, these used car dealers are reaping
the benefits from the lost customer base that can not get financed
at the New car lots. If a new car dealer wants to get into the special
finance segment of the business, the dealership will at a minimum
have to invest $500,000 in that type of special inventory, have
a credit line of $300,000.00 to fund deals that the sub prime banks
will not accept, start a collection department, just to mention
a few things. But if a dealership runs the spi-fi operation right
at the end of the first year the cash flow can be between $250,000.00
to 350,000.00 a month. For a minimum of the next three years the
new car franchises will be providing thousands of customers per
year to the used car lots that can handle this segment at their
expense. They will be setting the customer to buy from the used
car spi-fi lots because the majority are not equipped to handle
this segment. With the number of pending home foreclosures, looming
future bankruptcies, and so on the sub prime car market is going
to become a billion dollar segment over the next several years,
and in will take up to 30 percent of the business from the new car
dealerships.
NEW CAR SALES VS. CERTIFIED
USED CAR SALES:
A consumer can purchase a 2006 certified used car for $5,000.00
to $7,000.00 less than a new same model with an equal warranty.
In fact a consumer can even find certified hybrids for an average
of $6000.00 less again with the same warranty benefits. We know
of salespeople that intentionally us the following sales approach
to sell a car and make a good commission. Please keep in mind what
we are going to disclose is one more example of how new cars sales
are effected dramatically. Most salespeople will show the potential
customer a couple of new cars, let them test drive them knowing
if they sell the new car it will lead to a minimum commission of
around $200.00. at the Last minute the salesperson will announce
“ I have a great idea that can save you a $3000.00 to $4000.00
dollars” lets just trade a few minutes so I can show you one
our Certified Used cars in this model. So off they go and get the
sales pitch on the certified used with the warranty. If the salesperson
can sell the certified used the commission will be around $1000.00
for the following reason. As you will remember earlier we shared
with you about the MMR value system, well it works the same way
in the favor of the dealer at the manufacture certified auction
sale. So the dealership can buy these cars with 4,000 to 15,000
miles for around $6000.00 Kelly Blue Book value so every time a
dealer sells one it is a home run in the profit category. But here
is the problem it pits the dealerships new car inventory against
his used car inventory, and that will cripple new car sales every
time. This again re-affirms that it is becoming about value pricing
and not about feature-benefit-value selling. It is all about the
bottom line to the customer’s pocket.
INTERNET DEPARTMENT
EFFECT ON THE SALES FLOOR:
With the housing refinance money dried up, foreclosures at a record
with no bottom in site, high gas prices playing a major factor with
keeping customers away from showrooms, and roughly 9 million cars
still out on the streets that were sold with either huge manufacture
rebates or long term zero percent contracts, many new customers
have turned to the internet to research and negotiate for their
next purchase. The internet has emerged with two key players for
customers to search for their next new or used car in first place
is autotrader.com second place goes to cars.com, and third place
goes to the manufactures sites. Why Autotrader.com is so popular
with consumers is a simple question to answer. It is the easiest
web site to maneuver and offers both detailed categories for new
and used car listings. In 2004 Autotrader.com expanded its new car
section to handle up to 20 plus photos of each car listed, and a
well thought out comments section to place all the proper equipment
on the car. They have also simplified the process as well in the
way the cars are posted. Autotrader.com has also thought out the
little details such as, links to the dealers manufacture web site,
a secured credit application process that links to the car desired,
linking to every major search engine, and you can search for an
exact car up to 3000 miles away from your location. Autotrader.com
has developed precision Bentley quality into their system. It is
the premier “destination Franchise” where customers
start their search for their next car. When we go into a franchised
dealer of any make Autotrader.com is the first site we build for
the dealership and then we tie all the other dealership web site
to match Autotrader.com’s information. The reason for this
is we have learned how to set Autotrader.com up on a national search
level and regional level at the same time. The manufacture web sites
are set up on a franchised to a regional zip code basis, making
it more difficult for consumers to locate their desired car.
We are always keeping in mind that internet shoppers are very competitive
in nature and more savvy buyers, than showroom traffic buyers. This
brings us to the issue of diminishing showroom traffic. With the
internet customers can shop from the comfort of their living room
or office with out spending a great deal of money on gas and save
valuable travel time getting to dealerships and they can research
information and pricing from as many as 60 dealerships at one sitting.
Once the customer finds say three cars, they can negotiate the price
on them again from the comfort of their living room. The convince
of using the internet has kept high volume foot traffic off showroom
floors. The internet is changing the way consumers purchase cars
because they can complete 95 percent of the process without ever
leaving their home, they do not have to deal with a pushy salesperson,
and they realize their ability to turn the tables on negotiating
a stronger deal in their favor. 80 percent of all walk-in showroom
traffic has shifted to the internet search process, leaving just
20 percent to enter the show room floor.
IN CONCLUSION
The automotive retail sector is in situation where supply and demand
have met. The present economic conditions, gasoline prices, and
so on have caused people to suspend their plans to invest in new
cars for at least the next 36 months. This is the worst reversal
we have seen since the early 1970s. the customers that are looking
for used cars, are looking at rate of 5 to 1 with average credit
scores of 575 which makes it hard to get them financed. Then there
is another group that owes far more one their trades than they are
worth. The automotive retail industry is in a mess, and the majority
of customers with good credit are using the Internet keeping them
off dealership showroom floors until the time of purchase.
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Robert H. (Rob) Beasley
COO Internet Dealership Systems, Inc.
Dianne and Robert H. Beasley have well rounded career’s in
the automotive industry Rob’s has spanned four decades, but
his approach to a psychological philosophy of selling became a reality
for him after being a 20 year veteran in the retail side and attending
Northwood University, in Midland Michigan. Dianne’s career
has spanned 2 decades in Sales, CSI, and Internet “Success”,
Beasley said, “comes when you enable yourself to change and
adapt in a business field that resist change, and adapts a selling
system that understands the buyer’s through a psychological
selling process”. “The Affordable deal J2” utilizes
good The Internet as a selling platform, great listening skills,
a well trained staff and a in-house call that works well in all
types of economic conditions.
This basic highly-effective blueprint for doing business took 10
years to develop earning the name of “The Affordable Deal
J2”. The Beasley’s recognized that we have been selling
automobiles to customers the same way for over 40 years while attending
Northwood University in the mid 80’s. Robert realized no matter
how many deals he personally closed ( somewhere around 10,000 plus)
throughout his career, that the way sales people and sales managers
are operating at dealership at the dealership level throughout the
United States was archaic. “Our outdated tactics have to change
or sales careers in the auto business will become extinct”
Beasley said. Now, “The Affordable Deal J2” has translated
both new technologies and 40 years of knowledge, effective interactive
sales techniques, encompassing old and new into highly effective,
motivational, success-oriented training program that take Internet
Dealership Systems, Inc. all over North America on a 40 city 2007
Tour.
Working as an in-house trainer, business consultant and speaker
by way of his wife’s corporation, “Internet Dealership
Systems, Inc”. Internet Dealership Systems, Inc. is sought-after
to bring the new technologies of "The Affordable Deal Sales
J2 System" and "The Affordable Deal Internet Sales System"
to dealers, through seminars around the country.
These Seminars are custom tailored to the needs of dealerships and
their salespeople and managers at every level. Internet Dealership
Systems, Inc. psychological Selling philosophy of selling lessons
of “The Affordable Deal J2” are simple yet designed
to teach, and sometimes re-teach what the company calls "The
Lost Art of selling and Closing Deals in modern times”.
"I learned While Attending Northwood University That most of
the great teachers where gone. There are very few seasoned and experienced
car Guy’s left passing the touch on to the new generation
of Automotive Retail Salespeople, incorporating a modern selling
technique’s. Beasley’s Internet Dealership Systems,
Inc. not only teaches the new processes, but then works side by
side with their students to show them how to implement the system
properly.
IDS, Inc’s "The Affordable Deal J2" seminars, combined
with the candid, true-to-life how-to book, Titled “Click and
Mortar, Sell your cars to a nation”, create a power-packed
process for success. The Staff of IDS Inc. is Dedicated to increasing
every dealerships salesperson's and manager's effectiveness along
with their net income potential both on the Internet and in the
showroom, the book cuts through a lot of the conventional wisdom
behind selling cars and offers dozens of updated techniques, insights,
and strategies that can turn any allusive sales contact into a sold
and satisfied customer.
A sampling:
The car buyer’s of today know how to shop for the best deals
plus rebates and price. They're family members and friends mentored
and educated them to beat the dealerships at their own game, and
why not we are still selling cars the same way we did in the 60’s.
Our future customers have invested time reading books ex-salespeople
wrote and have used the Internet for research on pricing, invoicing
policies and more tips on how to beat us at our profession. Our
next generation customers are more logical, calculated than less
emotional than us. Our next generation customers are carrying more
debt and Credit ability, and they know you know to use it their
advantage. More than ever before in history, woman have more influence
in there household to influence a purchase and in most cases “household
woman” have become the disguised main buyer of the next automobile.
If you can realize that fact and Accept it, you will become the
king of sales at your dealership.
100% of your customers are buyers form their very first contact,
Treat them as such.
IDS,INC. is Inspired by one particular quote that says "Amateurs
hope, professionals plan their work and work their plan.
Beasley’s track record as a speaker motivator, negotiator
and deal-closer is also catching the attention of some segments
of corporate America, where the knowledge of his approach to the
psychological and philosophy of selling techniques is proving equally
valuable information, in other marketplaces.
"It does not matter if you're selling cars or Real-estate ,"
says Beasley “because everybody is selling something to someone
every day” "The same knowledge, discipline and communications
techniques apply to making the sales, closing the deals -- and ultimately
being successful."
After more than 40 years in the car business, Beasley and IDS, Inc.
still practices what they preach. 40 weeks a year. Both as a salesman
and a businessman.
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