Retail Automotive Industry: Atomic Age meets the Information Age

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Retail Automotive Industry: Atomic Age meets the Information Age

A White Paper by Michael Satterfield

The retail automotive industry is an interesting and slowly evolving business, that fights change every step of the way. Few dealerships today understand how much the market has changed and how much it is going to change in the next few short years. Still clinging to old business practices, shady and misleading advertising, and an antiquated pricing system the rest of the civilized world has abandoned they continue to struggle with client retention and customer service index (CSI) scores.

The general environment of the retail automotive industry has been carefully created over the last fifty years here in the United States (U.S.). Customers have been slowly conditioned in this market to create an entitled consumer that is difficult to please, and more demanding over the years. Couple this to the confusion and too much choice your average consumer is overwhelmed by the endless options and combinations of vehicles, and payment options. In the U.S. today, consumers now must choose between 48 manufactures, each with multiple vehicles, and each vehicle with multiple trim levels and options. As more people have access to internet research, invoice price, costs, and incentives are in the hands of consumers, making it more difficult for dealerships to retain a viable profit margin on new vehicles. However, many dealers, professional training groups, managers and owners, attempt to address the customer in the same way they did before.

The retail automotive industry as a whole is going to be forced to follow the CarMax formula for doing business. As consumers have more control over the buying process with information and misinformation, it makes it harder to direct the sale. The demographics of consumers are different for every dealer as Ford of Beverly Hills has a different clientele then Sunland Ford in the high desert. However, the one key that stays the same is that fact that eight out of ten have been online doing some form of research.

The automotive manufactures are also going to have to become a part of the solution to the issues of consumer choice. Manufactures like Ford, Chevy, and Chrysler need to follow the lead of Saturn, Honda, and Toyota and simplify their overall selection. Saturn has even taken the confusion out of the buying process by offering a Manufactures Retail Price (MRP), in place of Manufactures Suggested Retail Price (MSRP), because the customer does not have as many options it makes selling the vehicle a much smoother process. The European Union requires all manufactures to have MRP only, in place of MSRP in order to keep local economies and businesses stable. This keeps local buyers local and creates more competition for customer service in place of price.

Staffing is also a major issue in the ever-changing car business but again is it is based upon each dealer’s demographic. Dealers in Southern California and Texas are starting to require bilingual staff to service the ever growing population of immigrants, however, with this demographic comes this challenges of dealing with low income customers. CarMax has discovered a way of dealing with the by offering the same product in every demographic, controlling the sales environment by requiring the customer to walk into the showroom before having access to the inventory, and by having set no hassle prices. This concept takes the car business into the realm of normal business, like a McDonalds, or Wal-Mart, it is a process that can be duplicated across the country. The fact of the manner is that auto sales should have always been like selling anything else, washing machines, clothes, or computers.

The major issue with the current structure of the automotive retail industry is that the culture of “the car business” is ingrained that it will be hard to wrest out. There is some truth to the concept that you cannot tell the customer everything in an automotive transaction, simply because the majority of people do not understand. These are the people that ask for the mathematically impossible, (i.e. $300 monthly payment for 60 months on a $50,000 Shelby) but there should also be a simpler way of doing business. The culture must change; people come in and scoff at the idea that a deal is making $500 over invoice on a $30,000 car, while they paid $2,500 for a mattress that cost $200 to make. There is an idea that because it is a high dollar item it is a high profit item. In order to change consumers thinking, owners and management have to change the way they do business and promote their products.

The top down transformation of the industry is going to require the attention of the entire industry. To break the culture and change consumer buying habits it would take time, but would allow the entire industry to follow the CarMax formula that cuts staffing costs, and focuses more on a process then individual personalities to generate sales, allowing fewer interruptions in service due to employee turnover. With the exception of the ultra highline automobiles, this type of business model would plug into any demographic and create a true retail environment like any other business. In this current economic down turn that is effecting the automotive industry a simpler way to process sales with greater predictability of profits and cost would make many owners happy.


Edmunds.com . (n.d.). Retrieved July 19, 2008, from Edumunds.com: http://www.edmunds.com/new/index.html?tid=edmunds.n.zipentry.new..1.*

Kane Automotive. (2008). Automotive Sales Internet Revolution. Kane Automotive Resources.

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