TORONTO -

Though closing rates are improving by brand across the industry, J.D. Power and Associates said this trend may be directly linked to a decrease in customer satisfaction with the final delivery of their vehicle.

In this month’s Analyst Note, the company suggested that focusing solely on “closing rates may blur the bigger picture for many dealers and manufacturers.”

“By measuring the number of same-brand and off-brand dealerships visited by new-vehicle purchasers in the most recent Consumer Retail Experience Study, the closing rate for dealers in Canada can be pegged at 32 percent, with individual brands ranging from a low of 20 percent, to a high of 42 percent,” J.D. Power’s J.D. Ney said.

Though these rates are rising, and closing sales is a crucial element to dealership success, Ney cautions that “rushing” a new-vehicle delivery may hinder buyer loyalty and satisfaction.

“Rushing a new-vehicle delivery in order to return to the sales floor is shortsighted, particularly from a holistic, long-term view of the overall customer dealership experience,” Ney said.

“Notably, the most recent study shows that 58 percent of customers who say their dealership staff spent the right amount of time on the new-vehicle delivery also say they ‘definitely will’ return to that dealership for service work that they would pay for. However, when that experience is rushed, only 25 percent say they ‘definitely will’ return.”

Furthermore, among those who rated their delivery experience as a 10 out of 10, 74 percent say they “definitely will” return for service. On the other hand, when the rating slips to an 8, only 41 percent of customers say they “definitely will” return to the dealership.

But, Ney asks, “What is a loyal new-vehicle owner worth to a dealership overall, and why should the measurement of sales-success be linked with service loyalty and advocacy metrics instead of just closing rates?”

The answer: trade-ins and the customer contact these vehicles bring a dealership — which be particularly important for dealers trying to ramp up their used department, as well.

Experts predict that used supply will bottom out in 2013, which will potentially cause dealers to have to search for new sourcing methods.

ALG attributes the predicted low used supply to a “sharp reduction in lease and fleet volumes four years prior.”

“The number of vehicles coming off-lease will drop to less than 400,000 units in 2013 — the lowest level in more than a decade,” ALG officials cautioned dealers.

Rene Abdalah, vice president of RVI Group, expressed similar sentiments, noting, “We expect used inventory to remain low in Canada for 2013, similar to what we’ve seen in 2012. According to the RVI Used Vehicle Stock Index, we expect a bottoming out at the end of this year before beginning to increase. On an annual average, though, 2013 will be lower than 2012.”

If these predictions ring true, dealers may have to rely more heavily on trade-ins to fulfill their used inventory needs.

And according to J.D. Power’s Power Information Network, in 2012 the average age of a trade-in was 6.3 years.

“If a dealer were to retain all of the original owner’s service occasions, the service department would interact with that customer an average of 14.6 times, with revenues totaling an average of $2,016, thereby significantly increasing the value of that vehicle to the business as a whole,” Ney said, stressing that dealers can help increase buyer loyalty and retain more profit on sales if they ramp up their service departments.

In conclusion, Ney stressed that dealers need to focus more on retaining customers and increasing buyer loyalty than simply getting a vehicle off the lot.

“By the time the vehicle delivery occurs, the sale has been closed, which makes it tempting to rush the process in favor of new business,” Ney said.

“However, with new-vehicle front-end gross margins currently hovering in the $1,100 range, a dogged pursuit of increased closing rates may sacrifice years of continued revenues and profitability, not to mention the lost opportunity to generate advocacy and brand loyalty In the longer-term.”

Sarah Rubenoff can be reached at srubenoff@autoremarketing.com. Continue the conversation with Auto Remarketing Canada on LinkedIn and Twitter.