Auto Recall? Make the Dealership the White Knight

It’s probably getting more mainstream press than any other auto recall in history.

Defects happen, and not just in highly engineered products. But consumer fraud effecting 11 million vehicles worldwide with total cost estimates as high as $87 billion is quite another story altogether. Martin Winterkorn, CEO of Volkswagen, one of the world’s largest companies, resigned in disgrace. (Ironic feature story: How Volkswagen Will Rule The World, Forbes, May 2013).

There’s no need to elaborate on how customers feel. Let’s just make the auto dealership the white knight. Dealers have an opportunity to gain new business and help rehabilitate a damaged OEM brand, but they have to be organized and aggressive.

We outline below a four point action plan targeting highly segmented recall opportunities (e.g. based on, among many factors, (i) size of recall in the dealership’s market service area, (ii) profit margin of recall repair, (iii) shop capacity, and (iv) vehicle ownership longevity and equity) for customers who literally could complete the vehicle recall with no cost, no absence of transportation and no hassle whatsoever. (Read this blog post to learn how our action plan includes an 18% revenue lift on each RO.)

Usually, getting customers into the store takes a lot of money and effort. In the face of a recall, customers are “supposed to” bring their car into the store to get repaired.  If handled well, there is an opportunity to upsell other service while the car is in the shop. Nothing novel here, but don’t move on just yet.

If handled extraordinarily well there is not only additional revenue in the upsell but an opportunity to conquest new customers who take advantage of the recall and have a likelihood of purchasing a new car. Consider these statistics in the Automotive Warranty & Recall Report 2015: Road Map for a New Era:

♦   According to the study, completion rates for recalls are effected by a number of factors, which can be used to segment a discrete recall market best suited for your dealership:

—  Component Part: Completion rates for powertrain, steering and engine component parts are higher than completion rates for structural components, air bags, lighting, and speed control. This statistic ties in with the alarming finding that nearly 90 percent of the U.S. vehicles recalled because of faulty Takata air bags were not fixed as of the end of 2014, according to NHTSA.

—  Vehicle Age: Completion rates for recalls involving older vehicles are generally lower, sometimes significantly.

—  Recall Size: Completion rates for larger recalls (>100,000 units) are often approximately 5-10% lower than for smaller-sized recalls.

♦   With intense pressure from lawmakers and government agencies, especially NHTSA, and with the overall increase of recalls in the past few years (record breaking >60 million recalls in 2014 and trending higher in 2015) OEMs are seeking to improve on the industry recall completion rate of 70% to 80%. While this percentage sounds positive, it still means there are millions of defective vehicles on the road. In fact, a study by Carfax, Inc. estimated that 46 million vehicles had unfixed defects at the end of 2014 which represents 46 million opportunities for dealers or nearly 3,000 per franchised dealer.

♦   There’s one more aspect, albeit obvious, that bears on our action plan. The information in the report is based on at least 6 quarters of data. Not all consumers bring their vehicle in for recall service immediately upon announcement. In the best case scenario, it takes at least 18 months for the most successful recalls to reach the limits (70% to 80%) of consumers who will take advantage of the recall repair. The graph below illustrates this point based on vehicles that have reached the three year tipping point where the widest disparity of completion rates was found.

 Recall Blog Pic2
There are many other nuggets of information in the recall reports and analysis that we will explore in our forthcoming white paper on the subject. But let’s take what we have now and bullet-point an action plan.

1.  Identify a Refined Market Opportunity: There is a clear opportunity for dealerships to segment a market opportunity based on (a) OEM franchise, (b) availability of recall parts, (c) size of recall market opportunity in the dealership’s market service area, (d) profit margin of recall repair, (e) shop capacity taking into consideration availability of technicians and component parts, and (f) customer’s ownership longevity and ownership equity. There are plenty of other factors that can be taken into consideration to refine the market opportunity. Keep in mind the opportunity is so large that the challenge is not size of the opportunity but the narrowing into a highly refined target market based on your dealership’s specific capabilities.

2.  Implement a Multi-Channel Target Marketing Campaign: Don’t rely on the OEM to inform consumers of the recall and their rights. The report states that the methods OEMs use to reach out to consumers lags substantially behind consumer media consumption:

“dramatic changes in how people receive and process information illustrate why OEMs need to rethink their outreach model: (a) first-class mail volume has decreased from 98.1 billion in 2005 to 63.6 billion in 2014, (b) newspaper circulation has plummeted over the years, (c) about 58 percent of adults own a smartphone and 42 percent own tablets, (d) an estimated 74 percent of adults use social networking sites.”

3.  Deliver a “To Good To Be True” Message: Inform your market segment of the recall, explain the scope of the repair, and obviously let them know that the manufacturer picks up the tab. They will have no cost in the transaction. And the best is yet to come.

4.  Exploit the RedCap Secret Sauce: From the customer’s perspective, there is no hassle whatsoever in getting the vehicle into the shop for the repair. RedCap software coordinates the pick-up the customer’s vehicle at a time and place of their choosing, exchanges it with a loaner, and returns their vehicle to them and brings the loaner back to the shop, again whenever and wherever they would like. The whole recall takes place without the customer ever leaving their home or office. The consumer literally can complete the vehicle recall with no cost, no absence of transportation and no hassle whatsoever.

The dealership has an opportunity to generate new business from a customer segment that offers opportunity to profit from three possible transactions: (1) the recall service paid for by the OEM, (2) the upsell for other service while the car is in the shop, (3) the sale of a new car to a new customer who has just benefited from an “over the top” customer experience.

Here is just one example of the dealership becoming the white knight by taking advantage of what many would mistakenly consider to be a relatively obscure opportunity that could yield extraordinary results. A Honda dealership markets a “no cost, no hassle whatsoever” recall repair to customers subject to the safety risks of the Takata air bag recall (literally millions of vehicles in need of recall repair). The dealership narrows the target market to prime candidates for the sale of a new car based on ownership longevity (vehicle > 3 years not under warranty) and vehicle equity (new car financing available with an equal or less than current monthly payment). At the same time, the dealership prepares shop capacity – technician and parts and parts availability — to manage the flow of business efficiently.

Results: Unsafe vehicle off the road. Customer serviced with no cost, no hassle. OEM reputation rehabilitated. Service department benefits from regular flow of high profit transactions.  Dealership sales personnel served up highly qualified leads.

Kapow: Who is the white knight here? Be Driven.


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