Three Industry Thought Leaders: Key Changes in the Retail Automotive Landscape

In this two-part series, Ed Steenman meets with Nathan Hollenbeck, Matthew Phillips, and Mike Conley to discuss problems facing local dealerships. 

The Participants

Ed Steenman runs a full-service boutique digital advertising agency that’s created highly successful digital and traditional marketing campaigns for Tier 3 dealerships.

Nathan Hollenbeck is the Vice President of Marketing for Del Grande Dealer Group. They serve customers with 17 brands and 19 dealerships in the highly competitive Northern California market. 

Matthew Phillips is the CEO of Car Pros Automotive Group which operates seven dealerships (mainly Kia and Hyundai) throughout Washington State and California including Car Pros Kia Glendale which is the number one Kia dealership in the U.S. doing 5,600 new Kia’s a month.

Mike Conley heads the marketing team at Sunset Automotive Family. Sunset is a long-time leader in the Seattle market with Ford, Chevrolet, Kia and Mitsubishi stores. Sunset Chevrolet is Washington State’s #1 volume Chevrolet dealer month after month…year after year for the past 15 years. With over 40 years of experience in the automotive advertising business Mike has been a consistent thought leader in the area of dealership advertising, sales training, and culture development.

Steenman: What are the one or two key challenges that particularly Tier 3 dealerships are currently facing, and how are you tackling them?

Hollenbeck: The state of the union is we’re still selling cars, still profitable, and still seeing really good demand despite the state of interest rates. I think what we’re going to see in the not-too-near term is if people bought cars within the last year - particularly back when they were still selling over sticker, with the depreciation of used cars and the higher interest rates- it’s going to be much harder to perform any sort of equity mining bring people out of that situation into a new one. I think over the long haul, that’s going to stop people from being able to swap out vehicles. We’re seeing in the news recently that auto delinquencies are at their highest rate since 2009. Coupled with the average new car payment - for us, over the last 30 days, it’s been $734 a month - for used cars, it’s been $550 a month - and wages haven’t grown at that same clip, it doesn’t surprise me that delinquencies are high. I think that’s a glimpse into some lows we may face in the future, unfortunately.

Phillips: For the last couple of years (when) customers have come in, they’ve known what car they wanted. Within the industry, good times have created some bad habits, and we really need to get back to being customer focused. I also think we’re just starting to see headwinds from increasing interest rates. That’s really why the dealership model is so important; we are uniquely positioned to ensure that customers not only get the best possible vehicle and experience but also understand all of their options and get the financing that’s appropriate and best for their specific, unique circumstances.

Conley: We just came off of two of the best years in automotive retail history in terms of profitability. I’m not sure anybody could have predicted that could happen. We had no cars on the lot. And dealerships set gross profit records. I believe the reason for that is the laws of supply and demand kicked in, and if you had the vehicle, somebody wanted, the price didn’t matter. I’ve been professing for 30-plus years that selling an automobile has absolutely nothing to do with the price. 

Steenman: and how are things evolving?

Hollenbeck: We’re continuing to really try to adjust to the market as quickly as we can – fortunately, things have stabilized a bit, so we’re getting much more aggressive on pricing to help get the better payments that consumers can afford. A lot of our new car inventory has been (increasing) to levels we haven’t seen in a while. We’ve been fortunate to see some really good support from the OEMs - the average interest rate on loans has been coming down due to their support - so we’re trying to make adjustments on our end to help consumers get to more affordable monthly payments.

Phillips: It’s a rapidly changing marketplace, and I think a lot of dealers are being challenged. Many salespeople, and even some managers who weren’t in this industry before the pandemic, they’ve never actually sold a car. They’ve only taken orders, and as things normalize, dealers are having to get back to doing what we’ve always done - earning customers, business building rapport with the customer, assessing their needs, demonstrating the value, and really helping customers to solve their vehicle problems and meet their transportation needs. At Car Pros, we do training every morning on sales and customer service, and we’ve increased our efforts to make sure that every single team member can connect with customers and give them an excellent experience.

Conley: When you go through 2 years of reduced production and sales of new cars, the ripple effect is you’re going to have fewer used cars. You need to have a solid way to acquire used car inventories - the service bay, more aggressively paying money for a trade because you’ll pay more every place else. A second challenge is interest rate hikes. We’ve had four, five, six, and they’re talking about even more. So, being able to find a way to structure car deals - I would suggest that dealers or dealer groups have great relationships with a couple of key lenders that provide a special sort of rate. Probably the next biggest challenge all of us have is a significant decline in lead generation. Although your website might be getting more visitors, more unique visitors, more views on the SRPs and the VDPs on your website, almost across the board, every dealership I know - and we’re no different- is having a hard time with form fills. 

In his next article, Ed dives deeper into the state of marketing and dealerships. Are dealers largely going back to their previous spend levels and tactics that they used Pre Covid? Have there been any fundamental changes?

Read Part 2