NADA Day 2: A Good Year For Dealers Shows On The Exhibit Floor

January 24, 2015

It’s easy to tell that dealers had a good year in 2014.

I lost count of the number of time dealers told meNADA 2015 Image 2 Original they set sales and profitability records in their used vehicle department last year, thanks to their “all-in” adoption of Velocity management principles. Such success was also apparent as you walked the exhibit floor at NADA—dealers were in the aisles from “bell to bell,” looking to invest in products and solutions that would benefit their businesses.

Like other vendors here, the vAuto booth was bustling all day.

Dealers took particular interest in the new Subprime Booking module for our Provision system. As one dealer told me, “We’re making customers with marginal credit a bigger priority because we have to. We see more of them all the time.”

I was also pleased to see a high degree of interest in Conquest 2.0, vAuto’s new vehicle inventory management and pricing system, as well as vAuto Genius Labs’ new Kelley Blue Book® Price Advisor Report for new vehicles. This interest reflects a growing understanding among dealers that pricing and product transparency are becoming ever-more important strategies to maximize new car sales and profitability—even as the year ahead promises a higher level of sales volumes than we saw in 2014.

But amid the bullish and buoyant mood on the exhibit floor, I encountered a few gray, if not dark, clouds. These clouds came in my conversations with reporters from industry and mainstream news organizations. Collectively, the reporters were curious about three topics:

1. Imbalances in new/used vehicle supply and demand. The reporters’ inquiries here could be boiled down to a single question: “How long can the good times for dealers go on?” I shared my view that while increased supplies of new and used vehicles will pose challenges, dealers will do just fine provided they counter the inevitable demand and pricing volatility by striving to consistently retail the best-selling vehicles for their markets in the most customer-centric and profit-efficient manner possible.

2. Margin compression. The reporters correctly noted that while dealers are selling new and used vehicles at higher transaction prices, their front-end gross profits are roughly the same. I agreed that this ongoing dynamic is a clear sign of margin compression, and I offered that it can be difficult for dealers blessed with rising sales volumes to truly feel the effects of this profit pressure. But I also noted that many dealers proactively address this challenge by adopting more efficient, technology-enabled processes to sell vehicles in a less cost- and time-intensive manner to mitigate the effects of margin compression.

3. Future operational challenges. One reporter’s queries went beyond new/used vehicle sales and probed other areas of dealership operations that might prove challenging in the months and years ahead. In my response, I drew from my conversations with dealers who indicated they plan to increase customer pay work and retention in their service departments, part of longer-term strategy to offset margin pressures in other dealership departments. The reporter also asked about the federal scrutiny of F&I regulations, which I suggested would be most problematic for dealers who over-rely on this income amid profitability challenges in other areas of their business.

All in all, the opening day for exhibitors here at NADA proved both inspiring and instructive. I can’t wait to continue my conversations with dealers and see what Saturday will bring.