PAGE 1PAGE 1

WHO’S LOOKING OUT FOR THE DEALER?WRITTEN BY PAULA TOMPKINS, CEO OF CHANNELNET TM

PAGE 2

Summary 3

The OEM Relationship 4

Dealers Remain the Linchpin 6

Champions of Business 7

The New Imperatives 8

How To Keep Customers Close 10

Bringing It Together 12

TABLE OF CONTENTSSummary 3

The OEM Relationship 4

Dealers Remain the Linchpin 6

Champions of Business 7

The New Imperatives 8

How To Keep Customers Close 10

Bringing It Together 12

PAGE 3

SummaryAmerica’s automobile dealers are pillars of the largest and most enduring retail-sales network in the history of the world, providing goods and services to tens of millions of satisfied consumers annually and accounting for a huge share of the nation’s economic activity. Dealers and auto manufacturers are partners in this amazing enterprise.

But besides ensuring overall prosperity for the car business, manufacturers and dealers each have their own, separate interests at stake. Being savvy business people, car dealers recognize that their interests don’t always align with those of their vehicle suppliers.

So ultimately, it’s up to dealers to forge their own destinies. Fortunately, America’s automotive retailers are some of the most capable entrepreneurs in history. Self-reliance is how most of them became successful in the first place.

Today, another challenge has arisen that tests dealers’ capabilities as never before: technological disruption.

Digital commerce has turned the car-retailing business upside-down. Traditional means of communicating and building consumer relationships have been thrown into turmoil.

Dealers can still win in this environment if they leverage their own expertise and instincts, and also new online platforms that can turn the tables in their favor. They can “own” the customer experience in their stores and create long-term stickiness through their service departments -- using proactive digital engagement to create and nurture one-to-one relationships with customers and winning their loyalty for life.

PAGE 4

Dealers have a love-hate relationship with automotive brands, known as “the OEMs” for “original-equipment manufacturers.” That has always been the case. And it probably always will be.

Decades ago, industry pioneers such as Henry Ford, and Alfred Sloan of General Motors, were eager to partner with enthusiastic entrepreneurs in cities across the United States to help them set up dealerships in every city and town across the country.

The OEM RelationshipThis new class of retailers would risk their own capital, give the auto brand a local presence, take responsibility for “moving the metal,” chip in with marketing, and provide repair services, giving the manufacturers a huge ally in establishing the automobile as an everyday asset of the typical American household. What wasn’t for the OEMs to like?

And as America prospered amid its post-World War II economic boom and for decades more, auto dealers loved the arrangement as well. Their partnership with domestic manufacturers created fortunes for all. Selling cars became a well-oiled machine.

But things began to change in the 1970s and 1980s. High gasoline prices created demand for fuel-sipping Japanese imports. The Big Three’s offerings began suffering in comparisons of manufacturing quality. An increasingly educated American consumer was tiring of the worst aspects of the dealership experience: unpleasant haggling over price, trade-ins and finances.

The Wilson Ford Dealership in Marion, Kentucky in 1915

PAGE 5

retail network, manufacturers hit dealers with another double whammy.

In the most extreme case, General Motors required Hummer dealers to invest several million dollars in standalone new Hummer showrooms and adjacent outdoor test tracks – just before the Great Recession ravaged sales, and GM sold the brand to a Chinese company in 2009.

And second, after the recession leveled the domestic auto industry in 2008 and required the U.S. government to bail out GM and Chrysler, OEMs used the subsequent recovery to gut their ranks of dealers that they considered underperforming or superfluous. By the end of the process, there were only about 18,000 auto dealers in the United States in 2015, about 4,000 fewer than a decade earlier, and fewer than 17,000 last year.

Meanwhile, dealers who traditionally had been tethered to GM, Ford or Chrysler also began to invest in outlets for the Japanese, Korean and European brands that were becoming mainstream. Multiple-brand dealership groups, both corporate and family-owned, proliferated. Dealers thereby began to assert more independence from any one OEM.

By the 1990s, some automakers decided that they could do better by changing or evading the retail structure that had served the overall industry well since the beginning. General Motors tried no-haggle pricing with Saturn but then didn’t supply retailers with enough models to flesh out the lineup, so its “revolutionary” brand eventually failed. Then both GM and Ford experimented with efforts to squeeze dealers out of the sales equation altogether. Not long after OEMs finally came to their senses and rededicated themselves to win-win relationships with their dedicated

First, they began to make demands for dealers to invest hundreds of thousands of dollars, and in some cases millions of dollars, in separate, new or upgraded showrooms; enhanced sales expertise; and even state-of-the-art service facilities that would gild a particular OEM brand by providing unique surroundings and unparalleled experiences.

PAGE 6

Dealers Remain the LinchpinThe pressures on dealers by OEMs’ actions continue. For example, companies continue to split off or launch brands, mandating dealers to invest in bifurcated or separate showrooms. These requirements have only added to the complexities of running today’s dealership operations. Already coping with multiple rooftops and brands to satisfy, retailers must operate in several silos, each of which encompasses complex structures and operations.

Some manufacturers have been slow to respond to the huge and seemingly long-lasting shift in U.S. consumer preferences to crossovers and utility vehicles from sedans, leaving retailers with huge holes in their product mixes and large stockpiles of unpopular vehicles that they somehow must sell.

The recent leveling in the seven-year U.S. sales boom has required more dealer participation in customer financing incentives than at any time in a decade. At the same time, manufacturers have extended their grip on sales outcomes in the showroom by using their captive or allied financial arms to snare a greater percentage of the loan market used to purchase their new cars.

Captive finance arms boosted their share of total financing to 29.3 percent in the first quarter of 2017 from just 26.2 percent a year earlier, according to Experian; only credit unions also boosted their share during that span. Meanwhile, the three other main types of financing – banks, finance companies and buy-here-pay-here dealerships – each lost share.

And when auto brands run into crises due to safety defects, recalls and other huge missteps, as occur regularly, they have no choice but to rely on dealers as their vital connection to provide repairs to – and remediation of relationships with – the owner body.

As OEMs increasingly try to differentiate themselves via the “customer experience,” they also must depend on dealers to invest in and execute the most crucial aspects of their strategies for improving that experience and making it unique.

Whether it’s re-training sales people on the automated-driving features of today’s automobiles, or educating service technicians on how to handle the latest powertrain technologies, or changing the color scheme and furniture in the showroom, or providing high-speed WiFi and warm chocolate-chip cookies in the waiting area, it’s up to dealers to carry out all of the particulars.

Market Share of Total Financing(NEW/USED UNITS & LOAN/LEASE)

BANK

34.8

%

26.2

%

18.0

%

13.4

%

32.5

%

29.3

%

20.0

%

11.3

%7.7%

6.9%

BHPH CAPTIVE CREDIT UNION

FINANCE CO

Imagine an auto industry without dealers, and OEMs couldn’t function. They can advertise their brands and vehicles all they want, but they depend on retailers for the crucial “last mile” of the purchasing experience. Dealers provide inventory, test drives, sales, advice, customer handholding, financing and service.

Fig. 1 - See Sources

PAGE 7PAGE 7

Champions of BusinessGiven all of this, it’s a good thing for the auto industry that American car dealers are some of the most capable entrepreneurs in the world.

Partly as a result, dealers have become some of the largest and most important economic entities in their communities. They employ more than 1.1 million Americans, an average of 69 people per dealership. Their employment base forms a fi nancial backbone of the middle class wherever they operate.

Dealers also often are some of the most important

The nearly 17,000 U.S. dealers sold about $995 billion in products and services in 2016, an average of about $60 million per outlet, according to the National Automobile Dealers Association, each of which sold an average of 1,045 new vehicles. These dealers have put more than 264 million vehicles on American roads over the last century.

16,708 $995,644,612,360

1,131,900

TOTAL NEW CAR DEALERSHIPS

TOTAL DEALERSHIP SALES

DEALERSHIP JOBS

$3.9 $65.0 $1,122 MILLION BILLION DOLLARS

Average annual payroll per dealership

that generates...

Average annual payroll of all dealerships

Average weekly earnings per dealership employee

Fig 2. - See Sources

civic boosters wherever they do business, helping to weave and preserve the fabric of economic support and interdependence that is so important to the American enterprise. From sponsoring Little League teams to keynoting charity drives, U.S. auto dealers and their staffs are reliable place-makers.

But it’s not just the sheer volume of dealerships’ sales and size of their footprints, and not just their operational expertise and their infl uence in individual communities, that attest to their success. It’s also their strategic genius. For example, only by steadfastly leveraging their business experience and political skill have dealers been able to successfully defend the traditional automotive-franchise system in each of the 50 states against all forces that have assailed it, ranging from e-commerce platforms to, most recently, Tesla.

Facing all of the above constraints and expectations, how many other business operators could survive, much less make a profi t? In depending on themselves, America’s auto

DATA & FIGURES2016

PAGE 8

The New ImperativesYet, today, auto dealers face what might be their biggest challenges ever, especially in terms of customer loyalty.

Most important, digital technology has distorted the marketing and sales funnel and frayed the previous connections that kept dealers tethered to car shoppers and that provided reliable ties for relationship-building and customer-keeping.

Now, thanks to e-commerce sites and the ease of conducting car-buying research online, customers can come to the point of purchase perhaps without ever actually visiting a dealership. And while the consumer’s interactions with the brand may help OEMs make a sale and cement their own relationship with the shopper, for dealers there is much less opportunity to build communication – not to mention a sense of gratitude, obligation or loyalty – with that customer.

Meanwhile, there are other new factors in the marketplace that strain the bonds that typically have tied owners to dealerships:

Consider just one of these players: Meineke. In getting more aggressive about trying to nudge car-brand dealers aside, the aftermarket-service provider introduced Revvy, a diagnosis and reporting device that plugs into a standard port in most cars – and makes it much easier for Meineke to build service relationships.

Revvy pumps out a wide variety of information that traditionally has only ben available to dealer service departments, including what a “check engine” light might mean, assessments of driving habits, fuel economy, service reminders and appointment scheduling. Drivers using Revvy can download a daily report on their performance.

AFTERMARKET PLAYERSCompetition for car-brand dealers has proliferated and intensified from aftermarket service providers. Only 30 percent of total service visits now occur at dealerships, and just over half of those are at the same store of purchase. Of a dealership’s sales customers, 72 percent now use third-party mechanics for service. Yet 53 percent expect dealerships to offer higher-quality service than these competing stores.

PAGE 9

Quite naturally, their relative lack of person-to-person contact in a dealership means it can be more diffi cult to establish productive bonds with millennials than any previous generation.

All of these are reasons that dealers must use digital means to seed, retain and build relationships with today’s consumers.

“Connected consumers are in charge,” says the consulting fi rm Capgemini. “They are confi dent about what they want and how they want it, secure in using technology to increase their power as car shoppers and owners, and comfortable driving innovation in the industry.”

The recession also held millennials back. But since 2011, millennials’ share of U.S. retail new-vehicle sales rose nearly 9 percentage points while boomers’ share declined 6 percentage points during the same period, according to J.D. Power & Associates. By 2020, Power expects “Generation Y” to represent about 40 percent of the U.S. new-vehicle market.

Yet millennials are distinct from previous generations in one important respect: their reliance on digital, especially mobile, communications. More than any cohort before them, they live their lives on an internet platform and a small screen.

When it comes to automobiles, that means they manage everything digitally: purchase research, fi nancing alternatives, dealership appointments, maintenance scheduling and everything else.

Indeed, 88 percent of surveyed dealerships say that traditional marketing hasn’t been proven to be as reliable as they desire for engaging the consumer and achieving the level of sales they desire. And without engaging consumers in the fi rst place, it’s impossible to build customer loyalty.

MARKETING STRAINSThe business of generating leads and turning them into actual vehicle sales has changed. Salespeople now are sharing multiple responsibilities – including much more intensive training to understand all the features and systems of today’s vehicles – so they simply don’t have time for cold calling or follow-ups. When today’s consumers do get outreach phone calls or even e-mails, often they ignore or even resent them.

MILLENIAL BUYERSMost important of the new dynamics: millennial car buyers. There were some initial concerns that Americans born between about 1983 and 1997 -- by population, now our largest generation –weren’t nearly as interested in automobiles as their parents. But the industry has been relieved recently by signs that millennials en masse simply put off buying cars for a few years, much as they have delayed marriage, child-bearing, home purchasing and other passages of adulthood.

MILLENIALS BABY BOOMERS

By 2020, Power expects “Generation Y” to represent about 40 percent of the U.S. new-vehicle market.

PAGE 10

How To Keep Customers Close

And not just any online platform will do; it’s got to give dealers the means not just to stay peripherally connected to owners but also to build loyalty.

First, it’s impossible to overstate the importance of digital presentation and communication to today’s consumers. This is especially true of social media such as Facebook, Instagram, Twitter and Snapchat: Millennials are 70 percent more excited about a decision when their friends validate it, and that doesn’t mean going to the corner pub and asking what everyone thinks – it means posting on social media and seeing who salutes.

Yet auto dealers have a high bar to reach to get mind share with millennial consumers. They certainly aren’t seen, as a class, to be trendsetting or especially relevant. But dealers can get into the heads of millennials in a number of ways. One of them is embracing and publicizing “higher” purposes for the operation and the dealership brand, such as outstanding community involvement or even building a

workplace with a cool factor that will create buzz and even attract millennial employees.

These factors are part of what may be broadly defined as the customer experience. This entire realm has become a crucial area of differentiation for OEMs, which increasingly are launching efforts to redefine the experience and to make it more convenient, more fulfilling, even “joyful” for the customer.

Make no mistake: For OEMs, the customer experience is most importantly about the sales experience: the car, the price, the financing, the features. That’s why manufacturers press dealers continually about upgrading the showroom environment, about making sure they have enough inventory of the right models on hand, and so on.

Then OEMs simply move on to introducing the next great model, to bringing lease customers back for a new vehicle, and to getting owners to step up to a higher-profit segment for their next purchase.

Dealers winning in this fast-changing environment are those who emphasize digital means, and their service departments, to create and build bonds with today’s consumers. Auto retailers that interact with their customers five times are three times more likely to see them return for service, three times more likely to have them refer a friend, and six times more likely to enjoy them coming back to buy their next vehicle from the dealership.

PAGE 11

Dealers, too, must own the “customer experience” as much as they can. In an era when shoppers increasingly want to be “in charge” of their own purchase process, and believe that the internet gives them a certain power to do just that, the showroom is an increasingly difficult place to impress consumers.

Obtaining and utilizing customer data digitally is the key for dealers to build and extent their relationship with buyers not only on the showroom floor but way beyond it. This data is the key to providing interaction, functionality and content around the needs of individual customers so the dealership has a good shot at building a valuable relationship over time.

Unfortunately, many dealerships are ineffective about establishing and nurturing these relationships. Thus the purchase or lease of a vehicle is often the final point of interaction between a customer and a dealership until the customer is interested in another vehicle. By then, the customer may have moved on.

New and existing customers must be tied into the service experience. Consumers may have mixed feelings about their sales experience because of its very nature, including haggling. But they’re a blank slate when it comes to service. And they’re predisposed to enjoy their service relationship, in part because for the first few years, nearly all of their repair and maintenance experiences don’t cost them anything because of warranties.

Indeed, customers who are introduced to the service department when they purchase a vehicle are 1.5 times more likely to return to that same dealer for service. Yet for new-car purchases, retention rates are only 49 percent after one or two service visits.

So there’s a great opportunity for dealers to build on that positivity with add-on services including regular oil changes, and sales of accessories. It surprises many people to learn that nine out of 10 new-car customers buy some form of accessory. The service department is also the venue for getting people to think about their next purchase.

The service arena can be a great place to harness digital technologies, in part to appeal to millennials. And for millennials, part of the emerging flip side of their long disengagement from the automotive ownership process is that they may make the best service customers. They know much less about cars than previous generations and don’t pretend otherwise, so their predilection to trust the dealership is eligible to be the highest of any age cohort.

But dealers have to make sure that the digital experience is proactive, relevant and continuous as well as emotionally engaging. Today’s customers expect to be able to access these digital relationships anytime 24x7; they expect the platform to be intuitive; and they assume it will be not just relevant but highly personalized.

PAGE 12

Bringing It TogetherDealers need a strategy to drive sales and expanded relationships through customer retention. Selling an existing customer is eight times less expensive than conquesting new ones.

And if dealers can get that person engaged online and accustomed to a regular cadence of informative and valuable communications, it presents the dealership with still more opportunities to do a great job for that customer, extending the virtuous cycle that truly effective customer relations creates.

Unfortunately, most current dealer web sites and CRM systems are geared for pre-sales and not post-sales customer communication. They’re adequate for their intention but aren’t designed to serve as the platform for the kind of robust, game-changing relationship builder that dealers really need. And they certainly aren’t capable of helping dealers build their own retail brand across the scope of their operations that serve multiple OEMs.

Instead, And overall, dealers struggle to communicate consistently and professional with their existing customer base. The typical effort is fragmented and inconsistent. In fact, consisting of seemingly unrelated direct-mail and e-mail service reminders, phone calls and perhaps minimal other post-sale outreaches, these efforts altogether may confuse customers.

Dealers recognize they’re falling short in this area. But they are busy, time- and resource-starved and generally unable to fi nd their way through these challenges on their own. They need to generate extra revenue with their existing staff.

So the best way for them to create long-term, productive relationships with customers is to embrace a broad platform that gathers and utilizes all the relevant data about an owner and provides a holistic approach to building those ties, such as OneClick Loyalty by ChannelNet.

OneClick Loyalty creates a comprehensive approach to keeping customers informed about their vehicle needs on an individualized, customized and personal basis. For dealers, OneClick Loyalty provides multiple opportunities for cross-selling and up-selling and for revenue generation over the long term. It’s a unique approach that fulfi lls what both sides of the equation are looking for in a relationship.

What’s more, OneClick Loyalty provides, curates and continually upgrades a regular cadence of communications with customers by default – yet it’s a relationship-building platform that is branded for an individual dealer and is presented under that operation’s brand umbrella, with the same look and feel online as the dealer’s.

Easy, informative and relevant for customers. Easy, productive and turnkey for dealers. OneClick Loyalty is the perfect bridge to lifelong customer relationships for the digital age.

Bringing It TogetherDealers need a strategy to drive sales and expanded Dealers recognize they’re falling short in this area. But they

PAGE 13PAGE 13

Sources

The Economist, Death of a Salesman, https://www.economist.com/news/business/21661656-no-one-much-likes-car-dealers-changing-system-will-be-hard-death-car-salesman

Fig 1. Experian, State of the Automotive Finance Market, https://www.experian.com/assets/automotive/quarterly-webinars/2017-Q1-SAFM.pdf

Fig 2. NADA DATA 2016, https://www.nada.org/2016NADAdataHighlights/

Brad Hamer Sr. Director of Account Management & Business Development

415.944.2261

bhamer@channelnet.com

www.OneClickLoyalty.com

OneClick Loyalty, powered by ChannelNet, is the digital customer loyalty and retention platform built by automotive experts for today’s dealership. OneClick Loyalty offers clients a state-of-the art turn-key solution that increases dealership revenue through sales retention, aftersales service, and customer referrals via automated digital communications.

Contact us to find out how to turn every buyer into a customer for life.

Let’s Talk

About OneClick Loyalty