Home » What Does It Take for Dealerships to Thrive in Today’s Economy?

What Does It Take for Dealerships to Thrive in Today’s Economy?

Posted by Robert Poe on Apr 3, 2023

You can study all the data about the economy and the automotive industry, but none can predict with 100% certainty what the outcome will be. Just look to weather forecasting. They have been completely wrong or off by a bit.

Nonetheless, the fact of the matter is automotive dealerships face more uncertainties than certainties. They are under a lot of stress and pressure from the manufacturers to modernize their dealerships in preparation for the onslaught of electric vehicles. Some may be thinking about merging with or acquiring another dealership, or maybe even selling their dealership.

The KPMG 23rd Annual Global Automotive Executive Survey has found automotive executives are more optimistic about long-term growth and confident they’ll see higher profits in the next few years. However, they’re cautious about short-term results.

What can the automotive dealership industry do to prevent their businesses from becoming obsolete? Before discussing ways to future-proof the business, it’s important to understand the challenges affecting dealerships.

What Are the Biggest Dealership Challenges?

Here are the biggest factors that affect automotive dealerships and their businesses.

More customers shop online for vehicles

The first thing to understand is that vehicles are a commodity. It’s more so than ever before. In the past, shoppers would go to a couple of local dealerships and compare vehicles and offers. They may have had no plans to buy a vehicle until they drove past a dealership and saw their next vehicle calling their name.

Then, of course, came the internet. It made it easier for people to compare vehicles, features, prices, and more. This has been happening for a long time. However, the pandemic changed the game. One such change is the shortage of vehicle inventories thanks to the vulnerable supply chains. Customers started looking for their next vehicle beyond their local dealerships. Some travel to other states to pick up the vehicle they desire.

The pandemic also had customers doing all their shopping online until they were ready to test drive or buy. In some cases, they may have never set foot in a dealership. They do all their financing online. They may work with a dealership that brings the vehicle to their home.

Studies show that customers tend to find the online shopping experience more satisfying than going in person. A Progressive Insurance study confirms this as it turns out people who shop for their vehicle online are 20% more likely to feel highly satisfied with their experience than those who go in person. The two biggest reasons for preferring online shopping are saving time and costs.

Furthermore, KPMG’s survey says 78% of those responding believe most new vehicle sales will occur online. Based on all of these factors, how can a dealership stand out from the others? That’s the rub.

The customer experience and ratings will matter more

So, how can a dealership stand out? One way is to request reviews from customers. Shoppers will look at the dealership ratings before they consider buying from them. It doesn’t matter if they have the perfect car on their lot. One customer searching for a car noticed a dealership had very poor ratings and the reviews explained why. That took the dealership out of the running.

What affects ratings? Customer experiences can affect the dealership’s ratings and reviews. The customer experience is what keeps them coming back. If the customer has never bought from a dealership, then they will likely check the ratings. Once the ratings get them to the lot, then it’s up to the dealership to surprise and delight them.

Don’t forget about the time between buying vehicles. Customers still need their vehicles serviced whether it’s for maintenance or repair. Fixed operations and the service department are where the money is.

Far more people visit a dealership for repair and maintenance than they do to buy a vehicle. Customers will bring in their cars at least once a year for maintenance. But they may only buy a vehicle every five years. It’s these encounters that can lead to brand loyalty and repeat business.

Policies from the manufacturer

There’s a lot of pressure on dealerships from OEMs to prepare for the surge in electric vehicles. This comes with a high cost that can upend a smaller dealership. The cost varies based on the manufacturer.

How does this work? Ford Motor, for example, has requested its 3,000 dealerships to upgrade their business to support selling EVs according to CNBC. This investment comes with a $1 million price tag. Additionally, the OEM offers two options to help dealerships become “EV-certified.” One option costs $500,000 and the other is $1.2 million. Both of these may be impossible for small dealerships.

4 Ways to Future-Proof Your Dealership

Again, the question remains how can a dealership differentiate itself from the competition? What can automotive dealerships do to future-proof their business and meet these challenges head-on? Here are four ways to stay relevant and keep customers coming back.

1. Focus on fixed ops

Car salespeople have been the subject of many jokes. Customers may work hard to avoid having a salesperson approach them. There’s a reason the industry has been dealing with this stereotype for years. Winning over customers and building brand loyalty requires a culture shift to a service-based business that aims to deliver a positive experience for everyone. That’s what will get you high ratings and glowing reviews.

Changing the culture may require an investment. You may need to provide staff training, pay employees what they’re worth, or hire more staff. The results of this will take a few years to notice. Yes, that’s slow but it will pay off in the long run.

You may need to invest in expanding your service department. This is the moneymaker. Customers want to be able to bring in and pick up their vehicles in a timely manner. They want speed and accuracy. And all of these activities need to happen with a high level of service. This means the entire service department must be customer-focused, helpful, and proactive in their communications.

Another way to stand out from the competition is to use OEM parts. When you use original equipment, it speaks volumes about your quality. While generic parts may be cheaper, they leave a lesser impression than genuine parts. If your technicians have been trained by the manufacturer, then this needs to be highlighted along with your use of OEM parts.

You can boost customer service and brand loyalty by implementing dealership technology solutions. This automation helps the service department operate efficiently while ensuring customers have the best experiences. The technology makes it easy for technicians to update the customer’s information and add notes about servicing their vehicle.

It can even automatically send regular updates to the customer to let them know the status of their vehicle. These updates can be sent using the customer’s preferred communication method.

2. Increase dealership service lanes

As mentioned before, you have a greater chance of seeing customers more often if they come to your dealership for all their servicing and maintenance needs. Moreover, experts anticipate Advanced Driver Assistance Systems (ADAS) to soar. It’s a market that is expected to grow by $19 billion between 2021 and 2025 per Technavio Research. Therefore, it’s another opportunity to reach customers and expand your offerings when you sell ADAS parts and equipment.

Does your service department do inspections and provide tire and wheel services? J&L Marketing research shows customers are 86 times more likely to purchase their next car from the dealership they use for service and maintenance. Increasing this service will help you reach first-time service customers and ensure they have a WOW experience.

It can lead to upselling opportunities. While doing inspections, techs may find the vehicle needs an alignment. This is one of the highest margins in dealership services.

Another thing to add to your service department is the repair and maintenance of EVs. It turns out EVs have a shorter life span for tires than for non-electric vehicles. Again, this can be a gateway to more services and bringing the customer back. Expanding your service department and providing memorable customer experiences can bring in more profits.

3. Offer online financing

Websites like Carvana make it simple for shoppers to obtain preapproval on financing before looking for a new vehicle. This process has a high satisfaction rate because it’s fast and easy. It does not require going into the dealership to fill out mounds of paperwork. If you want your dealership to compete, then it demands digitizing and simplifying the financing process.

4. Invest in a dealership service lane kit

Society has grown more litigious as people search for ways to make easy money. They do this by suing companies for personal injuries and liability claims. Dealerships can be a golden goose as customers may attempt to claim the dealership broke or damaged their vehicle. These are hard cases to win and eat into profits as the dealership has to fix the damage without charging the customer.

What can a dealership do to protect itself from these claims? That’s where the service lane kit can help. Stealth Monitoring’s service lane kit consists of high-definition IP cameras with advanced video analytics. The cameras can capture every part of the vehicle when it enters the service lane.

A Stealth Monitoring customer dodged the cost associated with a customer’s claim that the dealership had dented their vehicle while it was under the dealership’s care. The dealership contacted Stealth to investigate and it showed the customer arrived in the service lane with the damage already present.

A second dealership avoided the cost associated with a personal injury claim. A customer claimed they slipped and fell on the lot. Since a service lane kit includes video recordings, these provided clear evidence that the dealership wasn’t responsible.

Future-proof your dealership by doing these four things. You’ll maximize customer service and efficiency. The profits will follow. To find out more about dealership service lane kits and dealership security, pick up this guide to four auto dealership theft trends. If you have questions, please contact us.

Texas Private Security License Number: B14187