Bridging the Digital Divide – From Your Desktop to a Test Drive at Your Doorstep

We at RedCap were struck recently by a comment from Max Folliard, CEO of Carmax, in his recent earnings conference call to investors:

“We want to keep making sure that our customers have a great experience, regardless of how they interact with CarMax. It could be from a desktop, it could be from a mobile device, a tablet, or in the store and we are very focused on making the transition from their digital experience to the store simple and seamless so that the experience they have online matches up with the experience that they have in the store.” (Emphasis added.)

RedCap lives in that space, the bridge between digital infinity and the bricks and mortar of auto dealerships. This space – perhaps no longer a chasm but still a divide – is being filled aggressively by companies that will change the nature of auto retailing.

The availability and quality of information on vehicles is no longer surprising. With the click of a button (or an audible command to Siri), a customer in market for a car can: search available inventory across the country from their mobile phone and test drive the car at a nearby dealership; read technical analyst reports and individual customer reviews; compare prices by matching cars upgrade by upgrade from across the country; figure out dealer margins and reasonable sales commissions; and determine for themselves which car at what price is right for them before ever stepping into their friendly neighborhood auto dealership.

Seriously? So what? This is so 2014. It’s just basic information, totally not blog worthy. The customer still has to come into the dealership to drive out in their newly purchased vehicle, right? The dealer offers test drives, arranges financing, collects taxes, handles registration, appraises and manages vehicle trade-ins, provides factory warrant service, handles recalls. There is still massive value added by the dealership.

But that digital divide is quickly narrowing. Dealerships blind to online customer experience will be face slapped in due time. So what’s a dealer to do? The answer is to bridge your digital experience one step at a time. (Permit us one indulgence to humbly submit a brand whose dealers we believe will have soar cheeks: Volvo Looks For U.S. Sales Boost With Showroom Makeovers.)

While RedCap’s platform bridges this divide by offering a number of out-of-store experiences, we’ll only focus on just one in this blog– test drives — since the disparity between the digital and the real world experiences are still a chasm.

While Autoblog’s user-controlled 360 degree view of the interior and exterior of a vehicle is cool, it certainly is not a test drive. The customer does not click the key chain button to start the car, sit in plush leather seats, listen to the surround sound system, play with the memory seat controls, feel the torque to 60 mph in seconds, accelerate through turns with stability, brake on a dime. And, oh mama, that new car smell. None of this is happening online.

So what’s missing in our proposition? Customers need to come to the dealership for this experience, right? No sir, not at all. How about bridging the online and dealership divide by allowing a customer to click on a button and have their test drive delivered to their doorstep?

Picture this: Customer clicks on a social media advertisement or a link in an email and is taken to a web reservation page where they select among new car models to take for a test drive. They fill in (a) some basic contact information date, (b) date, time and location of where they want their car delivered, and (c) driver license information. They click send, and shazam, said vehicle arrives at the appointed time and place for a 30 minute test drive.

This can be done today, not some far off day in the future with self-driving cars.

Uber and The Luxury OEM: Strange Bedfellows

A luxury OEM and Uber recently teamed up to offer free rides in the backseat of a newly redesigned 2016 luxury vehicle. Granted the partnership was only for 8 hours in four cities (unless the partnership was a success and then presumably it will continue), but still, strange bedfellows indeed. Let’s take a look.

In one corner we have Uber (established 2009, $50 billion valuation) whose CEO, Travis Kalanick, has a stated corporate mission of ending car ownership and turning personal transportation into a utility. When Uber launched, its goal was to become “Everyone’s private driver.” Now it’s transportation as reliable as running water, everywhere for everyone.”

In the other corner we have a 100 year old luxury OEM with a similar valuation, manufacturer of some of the best engineered products in mankind’s history, and one of the most respected brands in the world.

We won’t get into whether Kalanick’s vision is feasible, or the economics of ride sharing vs. car ownership, or even the wisdom of the (short term) partnership. We understand the benefits to both companies. Uber gets to promote its brand alongside a luxury OEM implying that ride sharing is good even for the affluent market, not to mention capturing some of the OEMs well-heeled customers. We’re not entirely sure what the benefit is of asking loyal customers to download a ride sharing App. Ostensibly, the OEM believes there is value in getting its soon-to-be released luxury automobile into the hands of prospective customers to experience – not a test drive, since they are sitting in the back seat of the car – that new car smell and the back seat. And let’s be real, for the subject luxury vehicle it is one delicious scent and may indeed inspire sales. No, we want to explore the message the partnership sends to the market, especially franchise dealerships.

Underlying Uber’s tagline is Kalanick’s dream and stated corporate mission to “make car ownership a thing of the past”. He tweeted:

“Our intention is to make Uber so efficient, cars so highly utilized that for most people it is cheaper than owning a car.”

Here’s another Kalanick quote from an interview at the 2014 Code Conference in Southern California when talking about self-driving cars:

“The reason Uber could be expensive is because you’re not just paying for the car, you’re paying for the other dude in the car. . . .  So the magic there is you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”

Stated bluntly, Uber is anti-automobile industry. Uber wants to turn transportation into a commodity, as free flowing, as ubiquitous and as bland as water. Kalanick could care two wits about the beauty of the automobile, the freedom it affords, the individuality it symbolizes. Car ownership is inconsequential in his future. You don’t need to own one of these machines, just hail it, push a button and it’s there. Get in, go, get out.

Even worse for the OEM than partnering with an anti-auto industry heavyweight is the message teaming with Kalanick sends about drivers of cars, whether they are Uber drivers or the cargo they transport. It’s not about the car, nor is it even about the “dudes” in the car. Uber cares about efficiency, economy and utility. Granted Kalanick’s quote about “dudes” is in the context of the driverless automobile but the point remains. Uber stands for nothing but faceless convenience.

The messaging it sends to luxury car owners, and to the people in their lives, couldn’t be more awkward. Luxury automobiles are all about individuality, distinction and emotion. The whole purpose of owning a luxury vehicle is to make you FEEL special. You don’t even have to drive the car, just get in it and you feel good (again, that new car smell).  You could be sitting in your kitchen, and the car could be parked in your driveway, and you still feel special. Of course high line OEMs want people to buy their cars, and teaming with Uber could perhaps advance that goal in the very short term. But luxury buyers  don’t purchase expensive cars just to get from point A to point B, they pay for luxury because it is manna for the soul.

Few and far between is the pairing of messages and symbolism this contradictory. But so what? Why does this matter and who should be concerned? Getting customers in the new model is the important thing… right?  They’ll experience the car, and they’ll want to buy one. Not so fast.

Other than the contradictory message it sends to the market, the partnership matters because the OEM bypasses their real partners, the franchise dealers. Instead of summoning a car through a faceless app to take a ride in the backseat, why not give the opportunity to show off the vehicle – AND EVERTHING THAT COMES STANDARD WITH THIS VEHICLE, SUCH AS COMPLIMENTARY SERVICE VALET – to a real salesperson or product specialist from a real franchise where the car will likely be purchased. Not only will the branding stay consistent, but the OEM would be delivering a much more appropriate, if not the quintessential message, to prospective customers: “We care about you — your safety, your time and happiness. We drive to you.”  Not some Uber Joe who really could care less about the experience as long as he gets his pay.

Now comes, admittedly, the self-serving portion of this blog post. (We believe that it’s ok, however, to be self-serving when you are right and it’s in the best interest of your customers.) Instead of Uber, the OEM should be using RedCap’s software to help the dealerships facilitate the experience. Our platform is built specifically for auto dealerships to give their customers out-of-store experiences with a fully-branded suite of technology and driver solutions. The customers  get a REAL test drive, not a sit-in-the-back and blow your nose ride. Instead, they get behind the wheel, and experience precision engineering and the fine luxury of the ultimate driving machine. Customers shouldn’t hail the car for a fleeting experience. They should have it delivered to their doorstep to experience the long term benefits of luxury CAR OWNERSHIP.

OEMs should give the opportunity to the hard working folks at the franchisees to provide the experience. Definitely not Uber which is trying to demolish the industry in the long run.

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.


Psychology of Service Valet and the RO Value Increase

Why do customers who do not visit the dealership spend 18% more on auto service? Evidence and armchair psychology support our analysis.

RedCap recently published a case study about the effects of service pick-up and delivery (service valet) on loaner turn time.  You can read the paper here. (Spoiler alert: Loaner turn time was reduced by approximately 1.2 days, or over 40%.)

The study had a few other gems.  Among them, analysis showed customers who used service valet had RO values 18% higher than those who did not use service valet. Theoretically, these service valet customers  could have had more expensive repairs but that is not likely given the large sample size.

Instead, our longstanding experience shows service valet customers purchase more recommended services. So this begs the question:  Why do customers who do not visit the dealership spend 18% more on auto service?

Evidence and armchair psychology support our analysis.  Consider the psychology from the customer’s viewpoint.

The dealership saved the customer a few  hours by not requiring them to visit the store to service their car. Result: customer saved time, feels valued.

Customers expecting to wait in the customer lounge for an hour are less likely to purchase additional services if it requires more time at the dealership and less time where they were planning to be (i.e. work, family, golf).

Customers in the comfort of their home or office, with a loaner, have no time constraint and are more likely to say yes to a suggested repair as the car is already at the dealership, the repair is likely needed, and there is little sense is saying No only to bring the car back at a later time.

Many customer segments (females and non-automotive savvy males) are more likely to say no to an “in person” pitch, when the suggested repair is outside the realm of what they were expecting. This is a natural reflex, especially in the automotive sector.

The median annual income of a luxury car owner in the United States is $99,364 or approx. $50/hour. The average luxury car owner would equate two hours of savings to $100. A customer is more likely to make additional purchases if it’s directly connected to a savings or discount in the same transaction.

The pick-up and delivery service sets up the sales concept of reciprocity. Now that the dealership has given the customer something (time, less pressure, more convenience), the customer will feel better about reciprocating.

Is another explanation for the increased RO value that a service advisor could be a better salesperson over the phone? Granted, service advisors like to have a direct (emotional) connection with their customers but there is a valid explanation as to why service advisors who offer pick-up and delivery show higher RO values.

We’ll look at the upsell transaction and service valet from the viewpoint of the service advisor in the next blog post. Stay tuned. Be driven.


Offer Service Valet, Decrease Loaner Turnaround Time by 40%

Ever think about the efficiency, or lack thereof, of your loaner fleet? What would happen if you could improve efficiency by 15%? What about 40%

A leading South Florida automotive group was experiencing significant expense managing a sizable service loaner fleet. The dealership’s loaner policy was to offer all longstanding customers use of a loaner vehicle at no cost regardless of the scope of service and to otherwise offer loaners to all customers whose service will likely extend beyond one hour.

In an effort to improve efficiency and increase CSI , the dealership installed RedCap’s web and app enabled service valet technology and used RedCap’s driver network to pick up and deliver loaner vehicles and bring customer vehicles in and out of service at one of its dealerships.  During the periods examined, the RedCap program improved loaner fleet efficiency by 40%, increased average RO value by 18%, and nearly 80% of the customers who were offered complimentary service valet chose to use it.

The Challenge
The dealership experienced the same cycle of loaner fleet challenges as most, if nearly all, others do in the industry. Nationally, the average loaner out time is 3.5 days, while the average RO labor time is two to three hours.

What accounts for this extraordinary discrepancy in valuable time?

If the repair takes three hours why does the customer have the loaner for 3 or more days?

The root problem is that the customers control loaner availability. Not knowing when a loaner will be returned to the shop, BDC is unable book an appointment for a customer waiting for service. Once a customer arrives back at the dealership with a loaner, the dealership relinquishes control of the loaner to the next customers’ scheduling whims, causing the next round of customers to wait for a loaner. The process continues in a negative feedback loop each time the dealership turns over control of a loaner to a customer.



Negative Feedback Loop


Value Propositions Tested
When executed properly and consistently, service valet shortens the average loaner out time. Rather than have customers pick-up loaners at their convenience, the dealership delivers loaners closer to the time of technician availability. On the back end, the dealership delivers the customer’s serviced vehicle and picks-up the loaner nearly immediately after the time service is complete rather than having the customer drop off the loaner at their convenience, which is at least one half day later and usually longer. The main objective of the pilot was to prove this efficiency gain.

Further, the dealership had worked hard over many years to make the customer experience at the dealership pleasant thereby giving the service team (and sales team) an opportunity to develop a relationship with the customer and sell more products. Management was concerned about the possibility of RO values decreasing if customers did not visit the store and SAs did not get the opportunity to upsell. Therefore the pilot also had to show no diminution in RO value for customers who chose to use service valet.

Finally, the dealership wanted to know how many customers would accept the offer to use complimentary service valet. If only a small fraction of customers were interested in the service, it would not be practical to continue the program or roll it out to other customers at the auto group’s other dealerships.

Methodology & Results
RedCap integrated with the dealership’s dealer management system (DMS) and automated text/email delivery of both front-end and back-end invitations to the customer. With integration, SAs and BDC expended no time or effort to inform customers of the service valet offer. RedCap trained the BDC and each SA on the best practices to incorporate into their interaction with the customer, including effective talk tracks. RedCap also works closely with the service director to communicate corporate objectives and oversee proper execution at the SA level.

Loaner Out-Time Analysis
RedCap examined 804 loaner records between March 3, 2015 and July 6, 2015. RedCap picked-up and delivered the customer’s vehicle and exchanged it with a loaner on both the front-end and back-end of the transaction for 176 of the loaner records (executing 352 total rides out of the total sample set). Of the remaining 628 loaner records, the customer came into the dealership to exchange vehicles. The results were significant:

Loaner Turnaround Time Improvement

Loaner Turn Time

Loaner out time for customers using RedCap was 2.91 days compared to 4.11 days for customers not using RedCap. Loaner cycle time was reduced by approximately 1.2 day, or over 40%.

RedCap attributes the efficiency gains largely to absolving the reasons for delays: (i) customer is legitimately busy and is unable bring back car in a timely fashion, (ii) customer enjoys driving loaner more than their own car and takes advantage of opportunity, or (iii) customer prefers to put mileage on loaner rather than their own vehicle.

RO Value Analysis
RedCap expanded the data set to conduct the RO value analysis to cover all ROs between the dates of January 1, 2015 and July 31, 2015. During this period the dealership created 6,446 RO records, of which 432 ROs included RedCap service. Again, the data shows significant positive results. The mean RO value for customers using RedCap was $439.90 compared to a mean RO value of $371.47 for customers not using RedCap. RedCap’s service value yielded an increase in RO value of approximately 18%. The RO lift almost always covers the cost of the RedCap service, if the dealership were to provide the service complimentary.

Average RO Value Increased

RO Value

Based on anecdotal evidence, RedCap attributes the revenue lift to certain classes of people, particularly women and non-car enthusiast men.  These groups generally prefer to make buying decisions related to auto service over the phone. They feel less susceptible to the “hard sell” and are more agreeable to suggested repairs when at their home or office equipped with a loaner that has been delivered to them at no charge. The customer feels they are being valued and treated fairly and is therefore more amenable to suggested repairs.

There is also the issue of time. The dealer tries to encourage customers to wait in the “nice” waiting area rather than sending them out with a loaner. As a result, waiting customers who are proposed an upsell tend to focus as much on the time it will take as the cost. This does not occur when a customer has left the store with a loaner.

Customer Conversion
Along with the data points discussed above, RedCap examined ROs between the dates of March 3 and July 6, 2015. During this period 759 customers were offered complimentary service valet. Not surprisingly, 601 customers, or 79%, accepted the offer and had their vehicle returned to them in exchange for the loaner. Clearly, when offered complimentary service valet, at least for the return of the vehicle, the vast majority of customers prefer to have their car serviced without having to come into the dealership.

The direct impact of the RedCap program left management primarily with two compelling options with what to do its newly discovered resource. Management could decrease the number of loaners in its fleet or it could offer more customers access to loaners. In this case the decision between saving money and increasing CSI was a welcome decision to make. The group’s senior management has since offered service valet for both the front-end and back-end of the customer transaction at all of its four dealerships.

The RedCap program influenced management’s thinking even beyond the service drive and loaner efficiency. Management is considering its capital assets and thinking hard about turning the traditional auto retail environment on its head. Instead of having customers visit the dealership, bring the dealership to the customers For its next out-of-store experience project, the company is considering bringing new vehicles to its customers, wherever and whenever its convenient, for a test drive.

Click here to learn more about RedCap’s Out-of-Store Experience platform or contact us today!

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