Sunday, October 26, 2014

The New New-Car Buyer We Never Knew
by Michael Sachs

There was a time, not so long ago, when there were two types of car buyers – new-car buyers and used-car buyers, and rarely would the twain meet. However, last month IHS Automotive announced that through the first half of this year, consumers who owned a vehicle that was purchased used were responsible for nearly half of the new vehicles registered to individuals. The report went on to say that nearly 30 percent of those consumers purchased a new vehicle of the same brand as their used car or truck. By comparison, about 50 percent of new-car owners buy the same brand they already have.


I have two theories about why we’re seeing people in the showroom who traditionally buy used cars. Both are temporary phenomena.
  1. The latest safety and entertainment technology in new cars is so compelling that it is drawing interest away from used cars, which lack these latest features.
  2. Banks have loosened their lending standards (and lengthened loan durations) so much that people who were previously ineligible (and could only afford used car prices) can now qualify to buy new.
Regardless of which theory you buy into, the fact is neither one will last forever. Technology we’re seeing in new cars today, like lane departure warning systems and blind spot detection, is truly revolutionary. However, such features will eventually become standard equipment and future enhancements will be more evolutionary than revolutionary (think iPad). If it’s the loose money theory that you believe, then you probably also realize that lending to those whose credit worthiness is low eventually ends when default rates reach intolerable levels. So, we have second owners buying new cars and we think this is a temporary phenomenon. What does this mean for the OEMs? It means that there is a window of opportunity to capture the loyalty of car owners who we would otherwise never see in the dealership, either for car purchases or service.


At our North America Service Benchmark (NASB) meeting later this month, we will be talking about ways to increase retention of second-owner vehicles. Second owners are notorious for getting their cars serviced outside of the dealer channel. In fact, we know from our Consumer Sentiment Survey that first owners are 50% more likely to go to the dealer for service than second owners. Without an initial touch point with the dealer, there is no opportunity to expose second owners to what the dealer service department has to offer. Furthermore, because many used car transactions take place without a new-car dealer involved, second owners are very difficult to reach with messages about, or special offers for, dealer service.


Now, second owners are coming to the dealership to buy new cars. This means that we can finally engage with them, introduce them to dealer service, and stay connected with them throughout the ownership lifecycle. We have a good shot at getting these new customers to come back to the dealer for service, at least initially. The key to making this a long-lasting relationship is meeting (or preferably exceeding) their expectations. From previous blog posts concerning our Consumer Sentiment Survey, we already know what’s important to these customers. If we want to see these customers in the dealership for service more than once, then we need to deliver on their expectations. Keep in mind their expectations aren’t necessarily the same as those of new-car buyers we’re used to seeing. As such, they may need to be treated differently.


Bottom Line: The expanding population of new-car buyers has profound implications for service retention and brand loyalty. You are now seeing a new group of customers in the dealership buying new cars that you, as an OEM or dealer, previously never really had a shot at. This is a unique opportunity. Take advantage of it and convert your new new-car buyers into life-long customers.

Friday, October 17, 2014

How to Serve Heavy Truck Independent Repair Facilities
by Stephanie Karaa

Many heavy truck OEM parts are sold through the dealer service lane, but Independent Repair Facilities (IRFs) generate a considerable share of sales as well. In fact, approximately 21% of dealer parts sales are made to IRFs. OEMs have a dual task of competing with IRFs for service customers, but also enticing them to be customers themselves when it comes to selling genuine parts. While the competition for service customers is important, so too is ensuring that dealers continue to make money selling parts when customers prefer to visit the IRF for service. In an effort to identify how dealers can better capture IRFs’ parts business, Carlisle conducted focus groups with heavy truck IRF owners and managers.


The heavy truck repair market for OEM parts consists of vehicle operators (63%), dealer service departments (~16%), and IRFs (~21%). Examining heavy truck IRFs specifically, our three focus groups targeted owners and managers in Boston, Chicago, and Los Angeles. Most participants worked on class 7-8 trucks, but also did some work on lighter trucks and passenger cars. We learned that when it comes to sourcing parts, participants are very willing to go to the dealer. Yet, despite this willingness, they don’t always do so.


So What Are Dealers Doing Now?


Pricing: Pricing is certainly important, but the last dollar does not determine parts sourcing for IRFs. So, if pricing is relatively competitive, other areas drive purchasing decisions.
  • The Good:
    • Participants said dealer part pricing has become significantly more competitive.
    • Due to the quality, fit, and finish of OEM parts, end-customers view pricing as fair and justifiable in the aftermarket.
Convenience: If pricing passes a reasonableness test, IRFs then focus on speed and responsiveness as part of the value proposition, and their parts sourcing must support this. Essentially, the time IRF managers spend identifying and finding parts over the phone is precious time spent away from repairs and customers.
  • The Good:
    • Dealer parts availability is generally deemed acceptable.
  • The Bad:
    • Delivery standards fall short of the rest of the aftermarket, which delivers more frequently at set times.
    • Hold wait times can be excessive when calling dealers.
Knowledge: As repairs grow more complex, access to technical information becomes essential.
  • The Bad:
    • Dealer parts staff lack expertise, and overall phone handling skills are inefficient. When IRFs finally reach a dealer staff member, the individual lacks technical knowledge or seems unwilling to pass along the information due to competition in the service lane.
    • Dealer technology and technical information lags the aftermarket, which provides online and eCommerce tools.
So What Must the OEM Dealer Network Do?


Showing IRFs you value their business goes a long way! It only takes a few negative experiences for an IRF to discontinue sourcing from a dealer. IRFs are turned off when they perceive dealership staff as indifferent and will quickly tell others not to bother wasting their time at a location. Therefore, it’s even more critical to address these key issues to maintain parts purchase loyalty from the first interaction.


We’ve boiled our recommendations down to a few key actionable changes to provide faster, higher quality service.


Short-term steps:
  1. Define phone handling standards: Do not allow calls to go unanswered and avoid excessive hold times.
  2. Provide phone handling training that is practically oriented towards day-to-day customer requests and systems training that enables quick parts identification and access to technical information.
  3. Gear customer service training to support basic technical knowledge, and assign knowledgeable staff members to manage the complex repair questions.
  4. Create an evaluation process, including mystery shops, for counter staff’s performance.
Long-term steps:
  1. Invest in technology that allows staff to look up parts by VIN, provide cross-referencing, and show inventory availability to speed up call times.
  2. Consider creating a per-minute/per-use technical support hotline – IRFs are willing to pay for this!
  3. Move towards daily delivery in specific time windows to IRFs in major metro areas.
Bottom Line: The heavy truck IRF business is particularly quick-paced and value-oriented, focusing heavily on access to technical information. Understanding these parts purchasing needs and current purchase practices is critical to successfully competing for their parts business.

Friday, October 10, 2014

Vendor Shipped Direct: Not Always Direct
by Charlotte Tang

Like most millennials, I order a lot of stuff online. Amazon Prime makes it a weekly, if not daily, occurrence. And, as someone who recently got married, I’ve had lots of wedding gifts delivered over the last few months. With all these shipments sometimes deliveries don’t go as planned. Maybe you’ve had a similar experience—but, for sure, you don’t want this to happen to your customers.


One of our wedding gifts was a gift card to a store that sells kitchen and home items. I placed an order for three items: a honey pot for the 5 lb. tub of honey we received from a guest’s apiary; a Silpat, which is a non-stick baking mat for lining cookie sheets; and a kitchen floor mat that prevents fatigue from standing. The first two items were shipping from the company we purchased them from, but the kitchen mat was marked as “Vendor Shipped”, which I’m familiar with from collecting vendorshipped-direct data through our Parts Benchmarks each year. What happened next was a comedy of errors.


I placed the order on a Monday evening. The website said standard shipping takes 7-10 business days, but the floor mat would take 10-14 days for delivery. The floor mat shows up after about a week and a half. I hadn’t received a shipment confirmation, so that was a surprise. I get it out and lay it on the kitchen floor. It’s the wrong size (longer than the one I ordered), color (lighter than the one I ordered), and pattern (basket-weave instead of cobblestone). Oh well, it fits and I don’t feel like making a fuss.


A few days later I get a message from UPS (through MyChoice) that I have a delivery scheduled. I come home from work on a Friday and find only a return shipping label stuck to the front door listing “floor mat return” in the memo field. Huh? I guess they want me to send back the one that was wrong. I wonder why no one called to ask me to do that. We put it outside on Monday, but no one comes to take it. Finally, on Wednesday it’s picked up, and the correct mat is dropped off.
Side note: I checked the tracking info on the returned floor mat, and it took several extra days to get delivered due to multiple “recipient has moved, trying to locate new address” errors. What is wrong with this vendor?
The other items in the order had gone missing, despite being reported delivered. The store replaced those items, and we received that package without issue. Then, soon after, another floor mat shows up. It’s been over three weeks since the initial order now. Hmmm, okay, what do we do with this extra one? Can we keep it? Should we return it? I contact the store again. They tell me:
That duplicate was ordered for you as a result of a lost package claim. That claim is closed now, so we would like you to keep that duplicate mat. You were not charged for it, so if you cannot use it please feel free to give it away or donate it to a local food bank or charity of your choice.
I guess no one noted in their records that only the first two items went missing, but not the third?
Side note: I checked the order status again when writing this. The order was placed in July, and the website still says it’s processing. I never received a shipment confirmation for any of the packages. Maybe a 3rd round will show up someday?
I’ve always heard that dealers were less satisfied with vendor ship-direct (VSD) orders than those fulfilled directly by the OEM. This was my first (known) VSD order, and I have to say, I agree with them. Your customers will judge you on the entire order and delivery experience, and if your vendors are not up to par, it reflects poorly on the whole experience. They say all’s well that ends well, but I’m going to stick with in-store purchases from this store in the future.


Bottom Line: What do your delivery policies say about you? Do you resolve issues quickly and without undue hassle for the customers? Do your vendors live up to your delivery standards?

Sunday, September 28, 2014

Car-Share and Ride-Share Companies are Blending the Lines of Public and Private Transportation
by Joy Sun

Here’s something to think about: in early June, Uber—the venture-capital-funded, on-demand car ride service—set a record valuation of $17 billion, which makes this “start-up” worth more than half of the companies listed in the S&P 500. The month before, Uber was integrated into Google Maps. And now, in addition to mapping your travel based on whether you are walking, biking, driving, or taking the bus, Google Maps also offers the option of getting there via an Uber car.


Uber is a four-year-old start-up and success story that is scaling quickly (currently, Uber is up and running in 130 cities worldwide) and here to stay. So what does it mean for automotive OEMs when its founder and CEO envisions the company making “car ownership a thing of the past”, replaced by ubiquitous “car access,” but limited private ownership?


Uber is simply one manifestation of the rise of the shared economy, in which assets that used to be 100% owned and 99% idle (think of your empty guestroom or your commuter car between 9 a.m. and 5 p.m.) are becoming more productive as they are utilized by more people. The shared economy has been unleashed by the internet and smartphones, which have enabled peer-to-peer connections in real time. Whereas your guestroom used to sit idle, now it can be easily rented to vacationers on Airbnb and used to generate value.


Transportation is a sector disproportionally affected by the rise of the shared economy, because sharing transportation has historically been commonplace. Public transportation has always allowed people traveling in the same direction to use the same vehicle for a small fee. However, unless a city has invested in a comprehensive infrastructure, public transportation can rarely match the flexibility and convenience of private transportation.


In contrast to yesterday’s dichotomy between private and public transportation, today’s technology enables a slew of travel options varying on a spectrum of convenience and cost. On one side of the spectrum is your fixed-route traditional public transportation that is low cost and inflexible to your personal needs. On the other side of the spectrum, we are seeing higher cost transportation options that rival the convenience of private ownership. I’ll call these options “shared personal transportation,” and they include Uber, which offers to any urban dweller the convenience of being chauffeured, and Zipcar, which gives users access to a neighborhood car for extended hours.


Shared personal transportation makes the experience of private car ownership available on a pay-per-use basis, which allows for a greater level of price sensitivity and flexibility for consumers. According to Kelly Blue Book, a recognized consumer guide for new and used vehicle price estimation, the annual cost of ownership (including fuel, insurance, financing, maintenance, repairs, and depreciation) for a new 2014 subcompact vehicle amounts to ~$530/month; the equivalent of traveling 441 miles in a chauffeured Uber every month (after the base rate, the travel fare is $1.20/mile in Boston)! In the meantime, ride-share companies are continuing to push down the prices of their services. This is, in part, because they are engaged in pricing wars with each other. It’s also, in part, because they are launching even lower price alternatives, such as real-time carpooling that allows strangers traveling in the same route to share rides and split the fare.


Automotive brands don’t just compete against one another for vehicle sales, they also compete within a greater context of private vs. public transportation, and now those options are being supplemented by a slew of flexible shared transportation options. Shared personal transportation complements public transportation, and, if combining the two can mean lower costs than private car ownership, with the option of flexibility when you need it, then who will be the car owners of the future (at least in urban areas)?


What does the shared economy mean for automotive manufacturers? What does “no car ownership, but full car access” mean for automotive aftersales? How do companies like Uber, Lyft, and SideCar, which contract with large numbers of part-time drivers, influence their service and repair habits? These are questions that will be explored in part II of this blog, but in the meantime, I speculate that it might bear a resemblance to fleet operations (to be investigated in a future blog post).


Bottom Line:In the context of the shared economy, on-demand ride-sharing and car-sharing companies like Uber and ZipCar are enabling more people to have the convenience of automotive access on a pay-per-use basis, without the responsibilities and costs of automotive ownership. The ramifications of these new transportation entrants on car ownership and aftersales behavior are not yet clear and are worth investigating.

Monday, September 22, 2014

Thanks, But No Thanks…
by Brian Steinmetz

The upsell: when a customer is persuaded to purchase a more expensive item than the one they originally indicated, or more than they want or need. It’s likely that we’ve all encountered it, and probably with a bit of frustration. Why can’t I just buy the parts I want? Obviously, salespeople will try to sell us things we didn’t ask for, but that’s their job. The problems arise when sales pitches get in the way of normal negotiations.


I am about to move half-way across the country; I have had enough on my mind before being subjected to some aggressive upselling. I called the local cable provider, where I’ll be moving, to set up my account. I told the sales associate that I simply wanted a basic internet modem and a DVR-ready cable box. Simple enough, right? After a brief hold, I was offered a $219/month package that included advanced high-speed internet with a combined modem/router, a soon-to-be installed land-line (for free!) that included nationwide long-distance calling, a home security system complete with two motion detectors, a window monitor, a camera whose feed I could watch from my phone or laptop, and a siren to thwart would be intruders, all alongside a 350+ channel TV package with HBO, Starz, Epix, Showtime, and the option to tack on an NFL package for an additional monthly subscription to make sure I can still watch my New York Jets every week. “And all of this at nearly 55% savings compared to what most other customers were paying, based on my credit score!”


I politely laughed at the associate’s small talk, jokes, and attempts to convince me to agree to purchase each of these services. Then I reassured the sales associate that I didn’t want the upgraded router, security system, land-line, and a good portion of the described cable package. “OK, now that we are past that, I can hear about the actual service package I want,” I thought, only to have my frustration really begin to build.


What followed was 45 minutes of me continuing to ask for what I wanted to purchase followed by the sales associate’s incremental concessions before the bloated service package approached what I wanted. “You can always just cancel after a 30-day trial, so I’ll just leave that in there for you.” Yeah, right.


When the conversation finally ended I had a service agreement for the exact package I originally asked for, plus, due to a bit of successful upselling, HBO for a small monthly fee. But where did the last hour of my life go? If getting me to purchase a premium movie channel was the sales associate’s end goal the whole time, why did we need to go through the song and dance?


The cable company I spoke with has a monopoly on service in my new neighborhood; otherwise, I wouldn’t have stayed on the phone past the associate’s first or second upsell attempt, and I would have instead taken my TV and internet needs elsewhere. While I did not have the option of taking my business elsewhere, drivers certainly do. When frustrated drivers encounter repeated and aggressive upselling of parts or service, the cheaper aftermarket options down the road start to become more appealing. As part of Carlisle’s 2013 Service Advisor survey, we learned that service advisors from all participating OEMs reported more than half of their compensation is directly tied to commission. As a result, it is obvious that many of these service advisors will try to upsell drivers as they come through dealerships for service. While that is itself not a bad thing, there is considerable incentive for them to do as much upselling as they can, and occasionally this upselling may get excessive and could push drivers, or less assertive consumers, away.


Bottom Line: Drivers are generally expecting some upselling when they bring their vehicles in for service, but we need to be careful not to push it too far. While drivers might be convinced to splurge on the genuine part over the aftermarket version, you and I both know that spark plugs don’t need to be replaced during every oil change any more than I need a siren above the door to my apartment.


Friday, September 12, 2014

The Connected Car – How It Will Fix the Cost Perception Disconnect

What is the next big thing in the automotive aftersales market? The answer probably lies with the connected car. The connected car is defined as a car equipped with a wireless data connection to the cloud. With this connectivity comes a multitude of features – new cars have everything from GPS systems to internet radio to restaurant booking apps. But is the connected car really just about infotainment? The connected car could also impact the aftersales side of the automotive industry. For OEMs, the payoff could be huge.


It all starts with the dealers, and one of the biggest areas they need to improve: consumers’ cost perceptions. Carlisle’s 2014 Consumer Sentiment Survey asked consumers what criteria were most important in the service process (see following chart). “Relative Importance Ranking” illustrates how highly consumers ranked a criterion. “Total cost is reasonable” tops the list both in relative importance and overall rank.


Most Important Criteria for Service Customers
Unfortunately, consumers simply do not feel that costs are reasonable at dealership service departments. The following graph quantifies that feeling by illustrating what customers value vs. what they believe are dealer strengths. The higher a category is on the Y-axis, the more customers value that category. The blue portion of the graph shows how many customers view that category as a dealer strength. As before, “Total Cost is Reasonable” is the top item customers value. However, just 11% of customers see this as a dealer strength.


This hurts dealers. If reasonable costs are important to consumers, and consumers don’t think dealers have reasonable charges, they’ll go elsewhere. This is Business 101, but data proves that dealers still haven’t solved the problem. Our survey asked consumers why they switched to chain or independent shops for their most recent repair (see following two charts). Consumers placed “Total Charge is More Reasonable” at the top of both lists – it was the most popular reason consumers switched to independent mechanics and the second most popular reason consumers switched to chains. Service customers are leaving dealers due to cost perception.


Why should OEMs care? One of the most interesting takeaways from the graph below is the huge jump in repurchase likelihood between “satisfied” and “very satisfied” consumers. That means OEMs clearly do need really satisfied customers, because turning “satisfied” consumers into “very satisfied” could reap huge rewards in vehicle sales.


OEMs want to sell more cars and service customers are more likely to repurchase an OEM’s brand if they’re satisfied with what the dealer charges for maintenance and repairs. The trouble is that those customers aren’t satisfied.


Why? The biggest problem is likely the opaque nature of the service process. Take the typical service experience. A customer brings their car into a dealer’s service department for routine maintenance. The dealer runs a multi-point inspection and comes back to the customer with recommendations for additional services. The service advisor asks the customer to sign off on the additional maintenance.


At this point the consumer begins to feel uneasy. Everyone “knows” the dealership has an incentive to sell more than the customer really needs and to charge a lot for it. If a customer doesn’t know much about cars or what services should cost, they’ll view these recommendations with suspicion. Maybe the dealer offered a fair price and the car genuinely needed those services, but the customer doesn’t know if either of those are true. This leads to a cost perception problem – consumers feel that they either overpay for services or purchase services they do not really need.


So what can OEMs do to rectify this cost perception problem? They need to connect the car.


First, customers need to know what services are necessary. Sensors in different parts of the car could provide this data. The car detects what is needed and sends information to the customer – either through onboard systems or to a computer or smartphone. This way, when the customer rolls into their dealership they have some background knowledge about what service is required; they are not solely taking the word of the service advisor.


Second, consumers need to know that they are paying a fair price for the service. Eventually, the connected car should be able to pull in pricing data from area dealers to give the consumer a dependable estimate. Dealers may not like this idea, as they feel consumers will flock to lower cost service providers. Maybe so, but consumers are free to price shop now – and they do! Even if dealers don’t display their prices, anyone can call a dealer to get an estimate. Having the connected car generate an estimate saves everyone time. Additionally, the connected car can tout the benefits of local dealers. The car could pull in information about various dealerships’ service departments – such as what amenities are offered, what certifications technicians have, and positive reviews from other customers. All this information would give the customer a sense that they really are getting their money’s worth.


Bottom Line: Dealers have a cost perception problem. Consumers feel that they spend too much money at dealers – either by overpaying for services or paying for unnecessary services. OEMs should proactively address this, since service satisfaction impacts repurchase likelihood. The connected car can help OEMs solve the cost perception problem – both by giving trusted recommendations and clearly showing the benefits of servicing at the dealer.


Friday, September 5, 2014

New Vehicles Need Parts Too, Sometimes
by Eliza Johnson

We want customers to find buying a new car an exciting experience. We want them to love their new cars—shiny and sleek, with cutting edge technology. The tradeoff is asking them to fork over what is for most people a big chunk of change. So, imagine the customer’s frustration when two weeks after buying a carefully selected new car, the air conditioning quits in mid-July, or the navigation system starts having glitches. What is wrong with this thing? I spent $25k and it’s already breaking? Imagine the deeper frustration when that annoying issue takes two weeks to fix because the dealer had to place a special order to get the parts. What is wrong with this dealer? Not coming back. And did I make the wrong decision with this car…?


Aside from all of the design and engineering that goes into new model vehicles, the planning necessary to stock and manage service-parts inventory for these cars is a major component of a successful launch. This is pretty critical to the new vehicle customer experience. And if we want them to buy another new car down the road, we have to get this right. Think about the situation described earlier: this customer may turn to an independent service provider and be lost to the dealer from the get-go. Plus, we know that such a poor initial experience will likely push the customer to another brand entirely the next time they go car shopping.


New model parts are important for dealers and OEMs who want to keep their customers, but planning for them creates new and different challenges for OEMs. How can you forecast demand? How can you define critical vs. non-critical parts? How do you balance the needs of service and production?


We recently conducted a benchmark study with a group of automotive and heavy equipment subject matter experts to investigate how new model parts are managed and stocked, and the impact or performance of those strategies on fill rates. “New model part” typically means any new part on a new or redesigned vehicle (a few heavy equipment OEMs also include carryover parts on new vehicles in this bucket).


While there was little consensus on how to best manage new model parts and how to accurately forecast these parts, a few potential best practices emerged.


  • Some OEMs stock just a couple of months of supply for all new parts, while others stock up to 12 months of supply on a fairly limited selection of parts. In general, the standard is to keep months of supply low. Defining critical parts within new model is key so that stocking breadth can be more targeted.
  • New model part fill rates and targets vary fairly widely, both in measure and in practice. Some OEMs measure fill rates at the time of vehicle sales, others one month out, and others up to six months out. Measuring new model fill at the time of vehicle sales will better measure and mirror the actual customer experience.


  • Very few OEMs, if any, are currently tracking or tying customer satisfaction to new model part fill rates and strategies, despite the risk that problems with a new part could ruin a customer’s experience with a vehicle. Happiness with that new car will help drive your customer back to the dealer for service and to the OEM when it’s time to buy another car.
Bottom Line: A new model release requires attention to more than vehicle design and rollout. The service-parts stocking strategies are key to a customer’s satisfaction; they are worth greater thought and focus than they’ve been getting. New model parts management presents a unique, important challenge that can set the tone for a new owner’s experience. At worst, it’s damage control; at best, it can cement a lifelong customer relationship.