With the UK economy undergoing a massive
cyclical downturn – and the life blood of the industry, fuel,
rising in price exponentially – it has never been more crucial for
existing customers to be wooed back and retained.

Furthermore, since the credit squeeze has hit the direct lenders
at least as hard as those offering credit at the point-of-sale
(PoS), then the PoS avenue to market for finance products may not
be as moribund as previously thought.

There is no doubt that right now is the time for lenders and
dealers to work together in adopting the customer retention
management (CRM) technology that is becoming increasingly available
to them. As Colin Bruder of Network Automotive says: “For most
lenders and dealers, it is becoming clear that they will not ensure
future profitability by doing more of the same of what they have
done in recent years. They need to find new avenues to maximise
their potential.”

How it is customarily done – or not

There have traditionally been three approaches to CRM. Firstly,
lenders advise dealers of those customers with less than six months
remaining on a finance agreement, and leave them to canvas for new
business accordingly.

Secondly, dealers’ sales staff are contracted to contact
existing customers at set times throughout the finance agreement
and thirdly, contact only occurs when customers themselves make
contact – such as when they enquire for a settlement figure.

Many car buyers, of course, are only too aware of this third
approach to CRM which can be paraphrased as “be sure never to
contact the customer ever again”. This writer was the subject of
such appalling neglect of CRM when he purchased a new Ford car from
a Ford dealer in the East of England some three and a half years
ago. Following an otherwise text-book sales process, which
culminated in sales staff waving the buyer and his new car out of
the showroom, no further contact has been made whatsoever, even to
arrange a service!

The first hurdle – getting the commitment

For motor lessors, retail motor lenders and motor dealers the
three key factors in CRM have always been: first, to determine and
acquire high-value customers; secondly, to cross-sell effectively
to existing customers; and thirdly, to retain high-profit
customers.

Yet the UK automotive sector has not traditionally been very
good at any of the above three objectives. One dealer tells
Motor Finance that vendors of CRM technology must bear
some blame for this shortfall. He indicates dealer staff who are
“baffled, overwhelmed and frustrated” when it comes to using
systems that require a proficiency-user level.

“The vendors know this is the case and aren’t doing much about
it,” he says. “Dealers also deserve part of the blame if they buy a
system that is way above their staff’s skill set. Also, some
dealers still consider technology as an expense rather than as a
performing asset.”

A properly used CRM system, in conjunction with e-mail
exchanges, allows dealership personnel to know a lot about a
customer before that prospect enters the showroom.
“We need CRM to get back into the service department, parts
department and finance and insurance [F&I] office,” the dealer
adds. “We have become so front-end oriented, and we remain
there.”

Making best use?

There is evidence that some dealers spend around £1,000 a month
for CRM systems that are barely used. If all CRM achieves is to
turn into an electronic up-sheet then dealers are paying an
enormous bill without a proper return on investment.

CRM often means taking sales staff to where they don’t want to
go. It involves getting them systematically to obtain, pursue,
cultivate, track and close leads using sophisticated computer
software that requires a certain skill level and degree of
motivation.

One East Anglian franchised dealer principal that successfully
turned round the company’s approach to CRM explains: “We found that
our staff did not like the challenge of change – even if it helped
them to make more money and got them more customers.”

The answer was motivation from the top downwards. “We said this
is the way we are going. It is non negotiable. We are spending too
much for it to be otherwise. The majority of employees accepted it
– about 30 per cent resisted. The way we overcame resistance was to
reward staff for using the system – not just for achieving improved
sales and margins.”

Insurance: a value-added CRM approach for the long
term

Dealers should focus on selling any added-value package that
encourages regular communication between them and the customer, and
which gives them a reason to return to the showroom on a frequent
basis. Some of the most successful added-value packages currently
in use relate to insurance products.

Kevin Pearce operations director at MB&G estimates that
during an average 12-month warranty period based on a one-in-four
claims ratio, a dealer generates around £235 on each warranty claim
and another £140 on a driver getting their car serviced at the
dealership.

He says: “These two transactions generate around £185 in profit
for the dealer, but more importantly start a crucial relationship
with the customer. Bearing in mind there are some 19m used cars on
the UK roads, customer communication and loyalty must be a dealer’s
main consideration for long-term profitability.”

Pearce argues that too many dealers are looking for a quick
profit fix and choose to sell items such as paint protection cover
to a customer that gives a one-off benefit to their bottom line.
“They may sell a used car with paint protection without a
warranty,” he notes, “and risk never seeing the customer again –
which is a very short-term approach.”

Selling a warranty generates not only revenue and profit but
also gives the dealer regular contact with a driver and an
opportunity to develop a long-term relationship which will generate
more revenue. Pearce adds: “Why not sell paint protection cover and
a warranty and benefit from both opportunities?”

Ian Simpson, sales and marketing director at RAC Warranty
believes there is ample evidence that used car dealers are
currently re-discovering the benefits of selling added-value
products. He explains: “Dealers have had a tougher time selling
their own finance products in recent years because the high street
lenders have provided extremely cheap loans to used car buyers.
However, that is beginning to change. Dealer finance packages are
not only looking more attractive from a competitive point of view
but the convenience and face to face nature of dealer-based lending
could easily gain customers.

“These skills have been a little neglected by some dealers in
recent years,” he adds, “but many are re-discovering the profits
that are to be made from taking a structured approach to selling
the financial products that surround a used car. Certainly,
although used car sales themselves have fallen, the penetration of
warranties and other types of insurance have started to rise. There
is every reason to expect that a concerted approach to selling
dealer finance could bring similar results.”

Other packages that Pearce and Simpson suggest are worth a
dealer selling are MOT insurance, which covers any work that may be
needed in the driver’s next MOT, GAP and GAP Return-to-Invoice
insurance, and lost keys and tyre insurance.

A structured approach to CRM

Finance companies have often been accused of not working closely
enough with their supporting dealers in exploring joint avenues to
market.

Solmotive is a company that supplies CRM systems to captive and
independent finance companies. Paul Bennett, Solmotive’s sales and
marketing director says that the company’s Chrysalis software
allows lenders to prospect their database and add layers of
intelligence to their direct outbound customer contact. It can also
enable them to work in conjunction with their supporting motor
retailers in helping car buyers to replicate their existing
acquisition whilst enjoying the same, or conceivably a lower,
monthly payment.

“Most finance companies,” Bennett says, “look through their
existing finance database and the outstanding terms. They then send
out a stock letter to their dealers with an early settlement figure
suggesting that contact be made with a view to re-solicitation. It
is a very soft sell and does not really achieve very much.
Retailers, to be sure, are usually rather poor at database
management.”

With Chrysalis, lenders and dealers are able to liaise and
invite existing customers to renew well ahead of agreement end,
into a brand new identical, or similar, vehicle, over the same term
– for the same monthly payment – without having to put any cash in
to the deal at all.

“This is the ideal time to contact the customer,” Bennett
stresses, “well before they start to think about another car or
brand and potentially another source for their loan. And in today’s
marketplace the opportunity to offer the customer a lower cost of
motoring is even more powerful.”

Chrysalis operates as a stand-alone system or can integrate
fully with e.GoodManners. It is currently in place in some 50 UK
motor dealers as well as covering larger groupings in
centrally-operated applications.

Meanwhile, Colin Bruder of Network Automotive stresses that, in
addition to then usual pro-active measures, dealers must endeavour
to sell more service hours, go all out for local business-user
penetration, re-double their efforts on Motability sales, consider
developing dealer rentals and re-examine driving school
business.

“It is not enough just to tell staff that they should be doing
more. You need a ‘credit crunch’ plan with buy-in from all across
your dealership where the responsibility for putting the key
elements of the plan in place and seeing how well it works is
clearly allocated and regularly reviewed,” he comments. “Everyone
needs to know their role.”

MARKETING
New CRM marketing techniques focus wins for dealers

Many dealers are increasingly using e-mail and text-based CRM
techniques to reach customers instead of traditional newspaper
advertising. They are aiming tightly focused messages at small
groups of potential customers rather than using wider “scattergun”
marketing channels.

Neville Briggs, managing director of Pinewood believes this is a
genuine shift in the way the industry is operating. He says:
“Newspaper advertising and mass mailshots dominated dealer
marketing strategies for decades but we now see wider use of dealer
management systems to target relatively small groups of existing
and potential customers with highly specific e-mail and
short-message-service messages.”

These techniques are often relatively simple, such as using a
dealer management system to see which vehicles are due for
servicing and texting the driver a reminder. Another good use of
texts, according to Briggs, is to remind customers that their
vehicle is booked in for a service the following day, something
which drastically reduces annoying “no-shows”.

However, there is also huge scope for more creative thinking and
much more sophisticated marketing. Briggs explains: “You could have
a six month old car coming into stock that you want to move on
quickly. So, you can look at the dealer management system, generate
a list of people who bought a similar car two-to-four years ago and
then text or e-mail them to see if they are interested in upgrading
to the newer model. The contrast to newspaper or mailshot
advertising is enormous. The process can be done in moments and
costs almost nothing, yet you could easily complete a sale within
48 hours. It is a much more efficient way of working.

“As a follow-up, this sale will probably produce a part
exchange. Before it comes into the dealership, you can interrogate
your system to look for customers or other traders who might be
interested in that car and contact them by text or e-mail.”

Briggs believes that newspaper advertising and other traditional
marketing methods such as general mailers will probably always have
a place in dealer marketing – but technology-based CRM tools are
set to become more and more important. It is certainly a key way in
which more forward-thinking dealers are tackling the economic
downturn, by using technology to ensure that they are maximising
the opportunities in front of them whilst minimising their
advertising spend.

RECRUITMENT AND RETENTION
A revolution in the showroom?

Some industry observers believe that a true commitment to CRM
will not come about until a revolution takes place within
dealerships. They point to the industry’s inability or reluctance
to engage top-quality sales staff – with many contributing little
or no value to customers’ buying experience.

In addition, motor dealerships stand accused of being overly
management-centric with a too high reliance on deals being closed
by middle managers rather than sales consultants. One lender tells
Motor Finance: “Many dealerships today have one department
manager for every two or three sales consultants. This heavy layer
of middle management drains income away from the people who are
supposed to be building customer relationships and selling cars. No
other retail industry has this costly imbalance of managers to line
personnel.”

The result, he believes, is that good sales staff leave and the
poor ones stay and the industry’s inability to retain quality sales
consultants continues. Similarly, the UK automotive industry’s
dismal record in employing women sales staff continues with women
making up less than 7 per cent of sales consultants. With denying
employment to women, motor dealers significantly reduce their
potential pool of top-class employees.

One industry observer believes that it increase value and retain
customers, dealers must introduce new packages for sales staff.
These include:

• comprehensive and continuous sales and management training
• a best-of-breed benefits package
• changing sales management’s “command and control” approach into
  mentoring and coaching
• establishing progressive recruitment strategies that attract
  those employees that dealers’ customers want to deal with
• integrating CRM technology throughout the entire sales
  process.

BROKERS
The end of the multi-prop?

The current economic climate is likely to be a defining time for
many UK automotive brokers. With current restraints on liquidity,
most lenders are limiting the amount of funds available through
brokers. Some sub-prime lenders, indeed, have severely culled their
broker network or have temporarily withdrawn from the sector
altogether.

Those brokers that are enjoying continued support from their
funders are likely to be those that have displayed their
professional credibility in recent times by investing in technology
– specifically technology with the ability to aggregate their
funding sources and match specific finance proposals to funders’
criteria. The saving for funders in time, reduction in no-show
deals, and increase in acceptance levels is significant in these
instances. In addition, the consequent abolition of
‘multi-propping’ (submitting one proposal to a range if funders
simultaneously, which wastes lenders’ time and resources) from
these forward-thinking brokers leads to fewer searches per
customer, with less risk to their credit history – so the customer
benefits.

In contrast, those brokers that still live by multi-propping,
and deal in fax and phone in the time-honoured way, will find it
increasingly challenging to be still trading when the current cycle
ends.

SPONSOR’S CASE STUDY
Substantial ROI for UK-based VW/Audi group

Chrysalis software is owned and produced by Solmotive Group. It
highlights customers who, in principle, are in a position to change
their vehicle today for an equivalent vehicle with no change in
monthly payment, without lengthening term and without the customer
having to find any further cash deposit.

It was originally deployed in a Midlands-based VW/Audi group at
eight locations. In 2007 this group sought to increase its vehicle
sales and F&I penetration through a managed early-renewal
programme of its retail finance database. It sought to achieve
insight into which customers were most appropriate to focus on for
prospecting campaigns, and improve customer retention across the
group as well as ensure loyalty to VW group and VW Financial
Services.

The group chose to implement Solmotive’s Chrysalis software
throughout all locations. John Caney, operations director explained
that Chrysalis enabled the company easily and effectively to
maintain a focused loyalty-based prospecting programme. “We have
sold,” he said, “more cars and increased our finance penetration
through renewing more customers.”

 

Motor Finance Issue: 45 – July 08
Published for the web: July 24 08 13:12
Last Updated: July 25 08 9:27