Putting technology in the driving seat

Margins under pressure, market consolidation and expensive franchises.

Perhaps it’s time for resellers to help the car dealers maximise their efficiency, writes Paul Bray.

There are about 6,000 franchised car dealers in the UK. Although there are plenty of family firms trading from one site, the trend is towards consolidation. It costs £1m or more to set up a franchise, so new entrants are rare.

Independent traders are steadily being bought out by the 300 or so larger groups that control the lion’s share of the market. The biggest of these, such as Pendragon, Arnold Clark, Inchcape and Reg Vardy, are substantial businesses, employing 100 or more staff at each of their larger premises.

Margins are under pressure, although sales are stable for the dealerships. “The market has done remarkably well over the past few years,” said Simon Hodson, director of automotive analysis at research firm Datamonitor. “The slowdown in consumer spending is affecting sales, but it comes from a historically very high level.”

Nevertheless, dealers are under pressure to improve efficiency and are using IT to achieve this, according to Louise Wallace, head of business development at the Retail Motor Industry Federation.

“They are spending to increase efficiency, and investing in IT is a good way to make cost savings. I wouldn’t be surprised if dealers spend £25,000 to £30,000 per year, per site on IT, and I expect this to increase,” she said.

A car dealership is a complex business, combining new and used sales with servicing, repairs, parts sales and arranging finance. It requires links to many trading partners, particularly manufacturers.

Few dealerships are actually owned by auto manufacturers, but their influence has always been very strong, not least because it is impossible to sell a new car without a manufacturer’s franchise.

Now European competition rules are loosening the manufacturers’ stranglehold, and growing numbers of dealers are taking on multiple franchises to increase th eir trade and protect themselves by diversification. Even so, industry observers say it will be some time before the manufacturers’ influence wanes significantly.

As manufacturers have automated their procedures for ordering vehicles and parts, processing warranty claims or providing technical information, dealers have had to become more technically sophisticated. The large chains have the kind of in-house IT expertise one would expect to find in a corporate company, while the small single-site family firms often have no IT professional on the staff.

Most car dealers’ core IT requirements are met by a dealer management system (DMS), often endorsed by a manufacturer. It handles accounting, sales, stock, servicing, vehicle and parts ordering, and increasingly functions such as HR, payroll and basic CRM. The bad news for resellers is that a DMS is usually sold direct.

Steve Johnson, marketing communications manager at Kerridge, the UK’s leading DMS vendor, said: “The motor industry is incredibly complex. By having a short supply chain, we ensure the customer is very close to us. If you add an extra layer [the channel] you dilute that.”

Some DMS vendors offer dealers a one-stop-shop, including hardware, networking, service and support, which leaves very few crumbs for the IT reseller. However, there are some chinks in the DMS armour that an alert reseller can exploit.

For example, large mark-ups can make the vendors’ hardware offering too expensive, according to Ben Howe, managing director of physical security VAR Control Z. “Nine times out of 10, we can quote a lot more cheaply for hardware than the DMS vendors,” he said.

Then there is CRM. Customer relationships are vital to the motor trade because, if it is handled with care, a customer relationship can last a lifetime. The importance of CRM is compounded by the car dealer’s profit model.

A large part of its turnover comes from sales, but margins are so thin – as little as one or two per cent in some cases – that most of the profit is made on servicing, repairs and parts distribution, a business model that will be familiar to many IT resellers.

“A key issue for car dealers is hanging on to after-market revenues,” said Hodson. “Sophisticated CRM is one way in which technology can help the dealer sector.”

DMS vendors are including CRM functions in their software, but with varying success. Adrian Hill, director of central services at Sytner, a large dealer chain specialising in prestige cars, said: “Some DMS packages do a better job of marketing and CRM than others. They tend to do CRM as an afterthought.”

Good DMS systems are fine for managing existing customer relationships, for example, reminding people that a service is due, said Hill. Where they often fall down is in handling live sales leads – people who walk in off the street today and might become buyers next week.

Dave Rumsam worked in the motor trade for 20 years before he joined Budd Communications, a telephony reseller, as its business development manager. “I worked for a dealer which used Goldmine in its fleet sales department,” he told CRN. “This kind of product would be absolutely ideal for a car dealer. There should certainly be a niche for it, for example for making large numbers of outbound calls.”

Hand-in-hand with CRM goes efficient telephony, and car dealers are beginning to take an interest in digital telephony solutions.

Mike Budd, managing director of Budd Communications, said: “Dealers are very demanding. Every phone call could be a potential sales lead so they have to ensure that calls are answered efficiently.”

Car manufacturers routinely telephone their dealers to see how quickly they answer. Combined with the pressures of responding to customer calls, this is pushing dealers towards auto-attendants that answer calls and route them to the right department; call recording so that a salesman can double-check aspects of a customer conversation; and call distribution systems which transfer calls to recipients regardless of their location. Full-site digital enhanced cordless telecommunications coverage is another common requirement.

Computer telephony integration is a valuable tool for car dealerships, according to a representative of reseller Redstone Communications. “For example, when a customer calls, number recognition enables the person answering the phone to personalise the service. Recognition solutions can also be applied to number plates, so that when a car pulls into the forecourt, the dealership employees know who is driving it,” he said.

Dealers rely heavily on information from manufacturers’ systems, so fast communication links promise good return on investment. Chris Ducker, a representative for NTL Business, said: “Broadband can save dealers a lot of time and money. Mechanics using broadband to connect to the internet to access manufacturers’ databases and bulletin boards are estimated to save £75 to £100 per mechanic, per week.”

Security is a major concern for car dealerships, which lose thousands of pounds a year to vandalism and theft. With a shop, fuel pumps, new and used cars on display and a workshop and parts centre, dealers often have three or four businesses on one site, all prey to different kinds of crime.

Security resellers such as Control Z therefore find dealers to be a ready market. Howe said a typical installation, featuring the latest digital video cameras, is worth £10,000 to £12,000.

Many security installations also require a new IT network, and demand for wireless networking is growing. “Wireless provides flexibility, which enables cars and desks to be moved around in showrooms and between branches, and allows staff to move easily to another branch,” said Redstone’s representative.

PC usage in dealerships is high, and growing as more functions become computerised, from catalogues and technical manuals to tuning and diagnostic tools. However, according to Rumsam, most dealers give staff very little training in IT, which could be another opportunity for resellers.

Dealers may be reluctant to offer training because they see a 30 to 40 per cent annual staff turnover. Because of the technical complexity of modern vehicles, mechanics need a portfolio of qualifications and certifications from the manufacturers. Keeping track of these requires sophisticated HR systems, which resellers could provide.

However, resellers that want to sell to car dealers must work hard. Sytner’s Adrian Hill said he is looking out for “suppliers that take time to understand our business and its complexities, and are happy to work with these and make our lives easier”.

Having staff with a motor trade background helps too, according to Johnson. “You have to be able to talk their language,” he said

Car dealers often buy from general IT resellers, especially if they require specialist systems and services or if they have no IT expertise in-house. Repeat business is common. “Once you have done a good job, they usually come back to you,” said Howe.

But he added that it can take time to establish the relationship. “Our partnerships often start in a very small way. As people gain an understanding of what we do and how, and once we gain confidence in their ability, the relationship grows,” Hill said

Car dealers tend to be a conservative bunch, and are heavily influenced by their peers. “Once you have the right product and reference sites, it’s easy to sell,” said Budd. “The difficulty is getting your first dealership. My advice would be to get yourself a quality reference site, look after it with kid gloves, then use that to get into other dealerships. This approach has certainly worked for us.”

Howe said he finds it easier to sell to independent, family-owned dealerships. “They make decisions on the spot. With a big chain it’s much more difficult to get decisions made,” he said.

Budd pointed out another potential problem. “You need to be careful with after-sales service. A lot of dealers are open on Saturday and Sunday and they expect cover then.”

The cyclical nature of the motor trade makes it imperative to pick your moment carefully. “In March and September, when the new registration plates come out, they literally don’t have time to talk,” said Budd.

Rumsam said the best time to talk to car dealers is before Christmas, when business is at its slackest and many are approaching the end of their financial year.

Reassuringly, car dealers appear to be a pretty safe financial bet. Even the Rover crash has so far caused only a handful of dealerships to go bust. The car manufacturers need dealers and may be prepared to advance more credit rather than see one go down. Failing dealers are often acquired by one of the big chains. Howe claimed: “I haven’t come across a bad one so far.” And Budd added: “The car dealers I have dealt with have been among our best payers”.

There’s another quirk of the trade that could work to resellers’ advantage. Johnson said: “Although the industry suffers from very high staff turnover, people tend to stay within the motor trade. So you can suddenly find you have a contact at a dealer that you didn’t have before.”