NADA Day 1: Four Themes To Consider

March 24, 2018

I took a fair amount of notes during the American Financial Services Association’s annual conference, and Automotive News Retail Forum events here in Las Vegas.

Then, I compared the notes with take-aways from my conversations with dealers on the opening day of the NADA convention.

I was curious if the comparison might yield any big disconnects—particularly between what the speakers are saying about the near-term future of the car business, and what dealers have on their minds as they’re attending NADA.

There was a lot of consistency, and four themes emerged from the exercise that I thought I should share here:

1. Imminent disruption: From the Waymo vehicle parked outside the NADA exhibit hall entrance, to the dealers who report success offering ride-sharing services to their customers, it’s pretty apparent that advances in technology are transforming the way consumers want to experience and own vehicles, and the role dealers play in putting people into their next vehicle. The consensus view seems to be that the viability of traditional dealership business practices have a somewhat limited shelf-life. The clarion call for dealers seems to be, “if you don’t disrupt yourself, someone else will.”

2. Under-performance problems: Dealers are feeling the pain of compressed profitability, which is serving as a catalyst to address how they can become more operationally efficient to maximize their returns on investment. I heard a lot of statistics about dealership profitability that revealed a stark and unsurprising contrast—the top 25 percent of dealers are still making good money in new and used vehicles, while the rest aren’t getting the returns they should. I spoke with a dealer consultant who’s using NADA to help a five-store group crack the top 25 percent mark. A key initiative: Re-thinking the group’s expense structure, across personnel, process and vendor partners, to maximize profitability and ROI. “It’s a seven-figure opportunity,” he says.

I was also impressed by the way John Malishenko, COO for the Ohio-based Germain Motor Company, is working to improve performance by reinventing the roles, responsibilities and tasks of managers. “We’ve redefined what the work is, and what gets done,” Malishenko says. “The ‘how’ is as important as the ‘what,’ and ultimately more important. You don’t want to innovate beyond your ability to execute.”

3. Uncertainty: I spoke with a young, first-time dealer who recently opened a luxury import store—taking over a point that the OEM reactivated. He’s worried about the long-term viability of his investment, and wondering how to best position his operation for future relevance—should service be his ultimate focus rather than retailing vehicles? Is ride-sharing the way to go? “I’m fine thinking outside the box and going in a completely different direction,” he says. I offered that while it’s difficult to determine the correct course today, his adaptability and openness to change would be the best guides to map his gameplan for the years ahead.

4. Market headwinds: In recent years, dealers have been blessed by robust demand and relatively easy credit availability, which has made new and used vehicles more affordable. These tailwinds are shifting to headwinds as interest rates rise and credit tightens. Some analysts suggest the headwinds will crimp used vehicle sales. At the moment, however, it doesn’t appear that the analysts are down-sizing their retail sales projections—offering a caveat that future interest rate increases may soften the outlook.

As always, I’m looking forward to another day on the NADA floor.