CARY, N.C. -

Digital retailing may give dealers an avenue for more efficient operations and profitability — particuarly when it comes to F&I, often a question mark in discussions around online car sales.

That’s according to a dealer impact study conducted by Roadster in partnership with the National Automobile Dealers Association that surveyed 236 dealers from May 6-8 in hopes of answering these questions:

  • “Are digital retailing deals profitable?
  • “Are dealerships more efficient with digital retailing in place?”

In short, yes and yes.

Michele Denogean, chief marketing officer at Roadster, spoke to Auto Remarketing about the study earlier this month.

She said that, “digital retailing deals can be profitable. In some cases, it can be more profitable. (In terms of) the questions about profitability, it's really what you do with it.

“But there is this huge opportunity from an efficiency standpoint for dealers to get their sales team to be a lot more productive and sell more cars,” Denogean said.

Front-end gross profits

One of the items that the Roadster + NADA Dealer Impact Survey examined was the percent of dealers whose front-end gross profits moved positively or negatively in April versus pre-COVID-19 level.

On the new-car side, among dealers who were digital retail-enabled, about half saw a positive impact and close to 40% saw a negative impact.

Among those with no digital retail, under 30% had a positive impact and under 20% had a negative impact. In total, just under half had a positive impact and 20% had a negative impact.

“When it came to front-end gross, there are two things that I would call out. One is that the slice of people that don't have digital retailing didn't see as substantial growth as those that had it. When you look at this, obviously in the middle of these two is people who said it didn't change. This group had the most that really didn't a major impact,” Denogean said. “But what that means is that is a world where there was an opportunity to have positive growth, they weren't really seeing that at the same take rate, especially new-car front-end gross.

“But the other takeaway here is that (for) dealers with digital retailing, it's a bit polarizing. This is a 20% technology, 80% process situation, where it's really what you do with it. So, those that have implemented it and really taken it into their process, over 50% of dealers on the new-car front-end gross side said I'm seeing positive growth in my front-end gross profit. 

“But on the flipside, we have 30-something percent say that they saw a negative impact. So, we didn't get a lot of qualitative on that, but I think really what we're seeing is how they are adopting it and the process that they're using,” she said

In used cars, among those with digital retail, about 40% saw a positive impact on front-end gross profits. Close to 60% saw a negative impact. For those without digital retail, under 40% saw positive and just over 20% saw a negative impact.

In total, 40% saw a positive impact and less than 40% saw a negative impact.

“On the used-car side, what we did hear a lot in some of the survey data and also when we're talking to some of our dealers is … used-car front-end gross profit is being impacted by the market, so many, many dealers that we've talked to, especially on the used side, have had to drastically lower their prices. And that of course affects their front-end gross,” Denogean said.

Back-end gross profits

The back-end gross profits may actually be where there is greater potential. Which is somewhat ironic, given that this tends to be where digital retailing gets a lot of pushback, in terms of dealers’ questions whether consumers will buy service and protection plans online, Denogean said.

The reason may have to do there being greater opportunity for more efficient and effective education on F&I benefits.

The study examined the percent of dealers who had positive versus negative movement in back-end gross profits in April compared to pre-COVID-19 levels.

On the new-car side, in total, just under half had positive movement. Less than 20% were in the negative.

For those with digital retailing, close to 60% were in the positive. Just over 20% were in the negative. For those without digital retail, just over 30% were in the positive, and just under 30% were in the negative.

For used cars, in total, about 45% were in the positive. Just over 10% were in the negative. For those with digital retail, close to 60% saw growth in back-end used-car gross profits. About 15% were negative.

Among those without digital retail, about 35% were positive and 20% were at a negative.

“What I found most interesting is the growth both in new-car and used-car back-end gross when it relates to this digital retailing-enabled group,” Denogean said.

“Really, I believe that that has a lot to do with the fact that they're educating the customer upfront,” she said. “The customer is able to self-discover and educate themselves, first and foremost. 

“And we know from that Cox Automotive study a while ago that awareness is the first thing that drives the likelihood to buy a lot of these service and protection plans. And then, because what we're really finding, especially right now, is that just because you have digital retailing does not mean you set and forget it. 

“So, the sales process that these dealerships have taken on is that they actually walk the customer through, whether it's in a phone conversation or a Zoom call,” Denogean said. “They're walking them through the products, again, as they're having the conversations to finalize the deal” and that carries over into F&I

And consumers being ale to evaluate F&I plans on their own time, “is a really big driver in adoption,” she said.

People have more time to consider F&I product, when they’re not sitting in back of F&I office, and maybe they’re more willing to adopt those plans.

Anecdotally, Denogean said that given the current environment, there is a greater openness to service plans and warranties. That aligns with a desire for peace-of-mind in challenging times and avoiding complications when it comes to vehicles, she said.

“Even though we're not driving, there's a strong appreciation for our vehicle and a desire to protect it so that if I do need to go somewhere in an emergency or (another situation), that it works well,” she said. “And so, I think as people are buying cars, there's just kind of a conservative nature that's happening right now about protecting our life.

“If you're in the market to buy a car, I think you're just more open,” she said, based on what she's hearing from dealers.

Greater productivity

Dealers have been forced to go with smaller teams, but now they're seeing more sales per person and having fewer expenses, Denogean said.

In the study’s slide deck, Roadster shared these points of employee productivity survey feedback:

  • “This allowed us to keep top producers only, ensure they are more productive, and achieve greater sales with less people and less expenses. Sales associates will be handling deals from start to finish”
  • “We initiated speeding up sales in November with process and with digital retailing we can do that post Covid-19 at an even quicker pace.”
  • “More staffing focus on BDC as a direct result of lessons learned from shopping by appointment only mandate and the comfort/convenience/acceptance of consumers of shopping & transacting online with delivery & paperwork done door to door”

In data attributed the Roadster/NADA study and the Dealership of Tomorrow Study from NADA and Mercer, the slide deck indicates the NADA Guide amount for units sold per salesperson per month is 13.

(That takes sales managers out of the equation; with sales managers, the NADA Average is nine).

For the surveyed dealers, the average units sold per month before COVID-19 was 13. In April, it was 18.

“So, overall, that’s five additional sales per salesperson that they were able to get out of being more productive with digital tools during this time period,” Denogean said.

Another data point in the presentation shows that leaner teams had higher cars sold per person, “which seems obvious if you really think about it,” based on supply/demand, she said.

Here’s how the data shakes out.

For dealerships with 75% or more of their staff working, cars sold per person was down by two units.

For dealerships with 50% to 75% of their staffs, the number was unchanged.

"Which I think makes a lot of sense, because if you look at where people are down from a sales perspective, they're typically down anywhere between 25-50%, depending on the market,” she said.

For dealers with 25-50% of their staff, sales per person was up six units; for dealers with 0-25% of their staff, sales per person was up 20+ units.

Denogean makes it very clear that Roadster is not advocating not bringing back salespeople and that the company is sensitive to such situations.

She said that while, “we're not trying to tell people not to bring back their employees, I think right now, from a business perspective, we have to think about what we need to survive and what's possible. 

Denogean said that, “in a world, where we return to the great numbers that we had back in February, from a sales perspective, and even growing further — maybe SAAR gets to even higher numbers than they are right now — you can imagine keeping the team that you have and not needing to hire anybody else if you can actually have them be more productive.”

Of course, when the market opens back up further and consumers utilize in-person routes to car-buying route, are those same sales per person number sustainable? Denogean believes so, given two benefits that come from digital retailing technology.

"One is that they can, pretty much, what I like to say, put the customer to work — which is not how we think about it normally, right? We want to empower the customer. The customer can do what they want on their time,” Denogean said.

However, dealers are finding that instead of “immediately saying, ‘come in for the appointment’” to the customer, they are able to walk the customer through some of the car-buying steps digitally and allow them to do some of the process on their own.

“So, now what's happening is, if they can walk the customer through those steps and the customer did some on their own, they can work multiple deals at the same time,” she said.  “So that's one aspect and I think that they'll carry a lot of that learning forward, which is, let's get the customer to do more, before they come in.”

The other aspect is that the technology allows the salesperson to take care of tasks like penciling, desking deals, etc. In other words, a lot of what they'd have to go to desk for, they can now do themselves.

"It's not to say that the sales manager isn't important. It just means that it's a different role for them,” Denogean said. “It's to coach and guide their team versus just sitting at the desk, potentially."

She later added: "Even when people are able to come back in, you're still going to have a situation where using the technology, whether it's in-store or while the customer's at home, the customer can drive. They can do a lot more of it with the salesperson. So, they don't have to leave the customer's side. The technology helps guide them. It just makes for a more efficient process.”

Other digital retail benefits

In its presentation, Roadster carved out its own sample set of users from the overall study.

Here’s how those dealers responded to various benefits of digital retailing during COVID-19:

  • My customers were able to do more of the buying process online: 88%
  • It enabled me to engage more with my online customers: 76%
  • Customers could build their own dealers after hours: 61%
  • It made my sales process more efficient (saved time): 61%
  • It allowed my team to sell more cars per person: 24%

Citing its Roadster Net Promoter Score Survey Data comparing April to February, the company found that the average time to purchase in February was 2.31 hours. In April, it was 1.71 hours.

In April, 33% of consumers completed the purchase in less than an hour, compared to just 9% who did so in February.

Denogean points out that in the current environment, “If I have to come into the dealership, I really don’t want to be standing there very long,” which has pushed consumers to do more online before arrival at the dealership.

Here’s how the numbers shook out:

February:
9% spent less than an hour at dealership
34% spent 1-2 hours
30% spent 2-3 hours
17% spent 3-4 hours
10% spent 4 or more hours
 

April:
33% spent less than an hour
35% spent 1-2 hours
15% spent 2-3 hours
7% spent 3-4 hours
10% spent 4 or more hours

This kind of efficiency is "putting a spotlight on why we feel so strongly that we'll carry this trend forward of more productivity per salesperson. Because when you can take less time, you can handle more customers."