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Ten Networking Tips for the New Consultant

January 17, 2017
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My son, Paul Virag, has hung out his shingle as an independent.  Paul’s challenge is differentiating himself as an ace developer, in a market dominated by price competition and cheap labor.  My boss at Coopers lamented the same thing, years ago, as a “buy it by the pound” business.

Mind your Rolodex.  Along with maintaining a marketable skill, this never-ending job tops the list of must-dos for the independent contractor.

The solution, of course, is assiduous networking.  The quote above, complete with antique Rolodex reference, is from the Tom Peters Seminar.  In today’s post, I present my networking routine.

call-roster

  1. I check Linked-In every day for news about people I know, and then I write or at least “like” the update. It has gotten Facebook-y over the years, but Linked-In is still the best (only) site for professional networking.
  2. I am not a “Linked-In whore,” though. I actually know most of my connections.  I call or email at least one of these people every day, especially when I am not looking for work.
  3. Maintain a web site, obviously. Mine is overdue for its periodic update.  Something like Mike Cohn’s blog will be more relevant to Paul.
  4. As a developer, Paul will also want to be noticed on Github and Stack Overflow – though this means mostly peer developers, not hiring managers.
  5. I post roughly twice a month on my blog. It gets about 100 views per month.  WordPress shares my posts to Linked-In.  They get more views on Linked-In than they do native on the blog.
  6. I collect relevant content for my Twitter feed, and then I load Hootsuite to make at least three posts every day. I find content using my RSS reader and the blogroll from my blog.
  7. This is in addition to spontaneous tweets, retweets, and conversations. I follow a great group of people, whom I rely upon for industry news, so for me this is a natural process.
  8. A few tweets every week lead back to my blog. I use bit.ly to track the hits.  Twitter provides analytics for free.
  9. Keep your resume up to date. People still like to see a resume.  When I was starting out (Coopers again) I maintained different versions tailored to our practice areas.  “Virag specializes in nothing but healthcare,” … and auto, and retail, etc.
  10. Go to conferences, and get on the podium if you can. My main one is the F&I conference held every fall in Las Vegas.  This is also an opportunity to hike Red Rock Canyon.

All of this activity takes time, especially writing original content.  I spend five or six hours per week.  Hootsuite helps because I can stoke Twitter on the weekend, outside of billable hours.  Bonus eleventh tip: write blog posts that start with “Top Ten Tips.”  People love that.

Dealer Megatrends Part 1 – Consolidation

January 4, 2017

In the 2006 data, NADA noted a “moderate consolidation trend.”  Since the recession, sales have recovered but the dealer population has not.  My chart, below, is based on the last eleven years of NADA data.  You can go back as far as you like.  The dealer population has been shrinking steadily for fifty years.

chart

This means the surviving dealers are selling more cars per store, but the real story is consolidation – the powerful trend toward fewer owners and bigger groups.

In 2005, the top 100 dealership groups were 9% of the total.  In 2015, they were 17%.  The Automotive News ranking is by gross revenue but, for simplicity, I am counting stores.  I imagine that the big, efficient groups command more than 17% of the total gross.

Gee group’s purchase of 16 Tonkin stores, backed by private equity, is instructive.  Both groups are family owned, with seven and 21 stores respectively.  Brad Tonkin will join the combined entity as president.  The Automotive News article also describes a Soros-backed purchase by the McLarty group, bringing its count to 19 stores.

The owners may be public, like AutoNation and Penske, private equity, or something in between.  Larry Miller group, for example, is still family owned but independently managed.  An IPO seems the next logical step.  Broker Alan Haig predicts his buy-sell business will continue strong in 2017.

This is about economies of scale, obviously.  The New York Times mentions efficiency in staffing, technology, and inventory management (as I did, here).  There is a lot of money chasing this trend, and only so many operators who know how to exploit scale.  That’s why Haig also has a recruiting arm.

Small dealer groups can compete online only by joining platforms that aggregate inventory.

If you are running a small group, you might want to start thinking about M&A.  That’s not my area, though.  I am interested in the related trends toward technology and process change.  I’ll examine these more in my next post.

One example is online retail.  Small dealer groups can compete online only by joining platforms that aggregate inventory, like TrueCar or Autotrader.  What I am proposing is that the (relatively) little guys compete with the consolidators by consolidating themselves online.

Dealers should seek help from their OEMs and software vendors.  Well, maybe not the OEMs.  GM’s Shop Click Drive only searches inventory for a single dealer, and it makes you choose the dealer first.  Not only will it not give you a price, it won’t even present a model list until you’ve selected a dealer.  No one shops this way anymore.

Modern shoppers will have found a model and trim level, a price, and even a lender, before landing on a dealer.  While Shop Click Drive has the machinery to structure a deal, and even sell protection products, some genius decided to make the “choose dealer” button its primary focus.  Most GM dealers I looked at were also on Autotrader.

I did a survey of platform capabilities last year, with Cox Automotive far in the lead.  The other guys seem still to be in the world of single-dealer web sites.  I also noticed that these sites are mostly hideous, and lacking consistency in even simple functions like credit application.

The consolidators have strong tech teams devoted to online shopping.  Dealers may fail to see the threat, because it’s not a physical presence.  If you owned a hardware store, and Home Depot went up across the street, you would notice.

Raising the Bar

December 14, 2016

Armchair strategists are feeling vindicated now that AutoNation CEO Mike Jackson has abandoned his “asinine” plan to ground all vehicles under recall.  I see the same argument whenever anyone tries to change dealer operations.  They estimate the reduction in profits and write about that, as if that were the end of the argument.  It’s not.  That’s not how competition works.

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If you talk about disclosing product prices online, you will hear that F&I gross is now $1,500 and who wants to screw that up?  Same story with TrueCar and their diabolical plan to disclose transaction prices.  You even hear this complaint about vAuto and the velocity method, which sounds to me like the most logical thing ever.

My back-of-envelope calculation says that AutoNation carrying an additional 10,000 units of inventory, at maybe 2%, would cost them roughly $5 million per year.  That’s 0.02% of sales.  For comparison, the related “Drive Safe” ad campaign was $10 million.

AutoNation, with investment-grade credit, enjoys a lower carrying cost than its private dealer competitors.  Selling diverse brands, they are less exposed to a recall by any one manufacturer.  They can also exploit their scale to mitigate the cost of such a policy, not to mention the PR benefits.

If federal regulators had followed Jackson’s lead, this would have raised the bar for all dealers.  Two senators, now disappointed, were lined up to make that happen.  Jackson’s policy, a minor challenge for AutoNation, might have proved fatal for smaller dealers.  That’s how competition works.

It is a mistake to look at process change only in terms of the costs.  Athletes training hard for a competition don’t think about how much it hurts.  They think about how much it’s going to hurt the other guy.

Update:  Motley Fool estimates the cost to AutoNation at $0.06 of EPS, a little higher than my estimate (and Jackson’s) due to the Takata debacle.

Stop Worrying About Self-Driving Cars

November 21, 2016
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I am planning an article on car dealer “megatrends,” and this is the first item not making the list.  It’s a sexy topic, though, and journalists can’t leave it alone.  For example, here is top Cox guy Mark O’Neil trying to change the subject.  Mark would rather talk about online sales which, with predictive analytics, is a key trend dealers should be watching.

Autonomous vehicles are part of a cluster of technologies which have the potential to reduce car sales, dramatically in some scenarios.  This McKinsey study does a nice job of explaining the cluster.  In short: car rental fleets go away because everyone uses Uber, and Uber drivers are obsolete because the cars drive themselves.  Car ownership will be fractional, like a time-share.  If you do own a car, it can work as a taxi all day while you’re at the office.

This is indeed a formula for sharply reduced car sales … in Europe.  Most of the U.S. is sparsely populated, and poorly served by public transportation.  The Boston Consulting Group has produced the best study on autonomous vehicles, here, and this is from their study on car sharing:

Car sharing … will not do to the automotive business what iTunes did to music: it will not redirect a stream of revenues to a disruptive upstart, and it will not spark a widespread change in consumption.

The BCG predicts that, by 2021, car-sharing will have a trifling impact on U.S. sales: fifty-two vehicles, total (chart on page 11).  They predict that fully autonomous vehicles will not be available until 2025, and will not be 10% of the market until 2035.  It is only these vehicles that trigger the nightmare scenario for car dealers.  “Driver assistance” systems are luxury features, which boost dealer profits.

sae-levels

NHTSA policy guidance is based on the five-level SAE model.  This roundup, from Automotive News, envisages Level 4 autonomous vehicles by 2021.  No manufacturer is even guessing at a date for Level 5.

Bringing these vehicles to market is an important challenge for the manufacturers, and they will have an important impact on society.  They will not change the business of selling cars, however, for a good long time.  For car dealers, other trends are more urgent.

Links for the two BCG studies, in case you can’t download the PDFs: Car Sharing, Autonomous Vehicles.

Full Lifecycle API for F&I Products

October 31, 2016

I have just wrapped up design work on a web service to cancel and refund F&I product contracts.  Whether a refund is owed to the customer, from an early termination, or to the lender as recovered funds, it is in the provider’s interest to support an efficient automated process.  On the lender side, it is also a compliance issue.

This job was rewarding for me because it completes the lifecycle I began automating, ten years ago, with electronic rating.  MenuVantage was a leader in rating and originating product contracts, and many providers adopted our model specification.

I then did related work at GMAC Insurance, which was to include claims processing.  Sadly, the crash of 2008 ended that project.  GMAC also had the bright idea to check for an earlier contract, and apply the refund to the results of the rating call.

product-lifecycle

The industry has been developing web service support piecemeal.  First, there was a need for rating and contracting, supported by companies like MenuVantage.  Now, there is financial and regulatory pressure to automate terminations, supported by companies like Express Recoveries.

In hindsight, a savvy provider would have looked at the core processes and developed web service support for the whole lifecycle.  It would look something like this:

  1. Dealer and vehicle information  Return customized rate structure
  2. Deal information with chosen rate  Originate contract
  3. Form request Return contract as PDF
  4. Form with digital signature Store in secure archive
  5. Blank form request  Return blank form
  6. Void request Void contract, if eligible
  7. Remittance query Return remittance log
  8. Remittance notify ⇒ Post pending payment
  9. In-force query Return contract data
  10. Claim diagnosis Verify coverage
  11. Claim estimate Approve/deny claim
  12. Claim entry Issue payment
  13. Vehicle data from contract Return cancellation quote
  14. Contract data plus authorization Cancel contract, issue refund

You could do one big API to manage the product from cradle to grave, and build provider portals and such on top of it.  This would have the usual benefits of decoupling the back-end from the presentation layer, and it would facilitate integration with dealer and lender software.

Three Requirements for Online Car Buying

October 5, 2016

In this post, I am going to elaborate on Dealer Systems in the Consumer Space.  Every system in F&I must have a counterpart in the consumer space.  The diagram below shows the traditional dealer process in orange, and consumer systems in blue.

online-retail

Each of the six tasks is now, or will be, available to customers online.  Obviously, these are web based systems and, for best results, they are also mobile.  Each consumer system must:

  • Share data with its dealer-system counterpart
  • Share data with other consumer systems
  • Save deal data for later use

Each consumer system must share data with its dealer-system counterpart.  If it quotes a VSC rate, the customer will expect to see that rate on the menu in the dealership.  If it obtains a credit decision, the customer will expect the dealer to know about it.  There are various ways to accomplish this.  In the VSC example, both systems should be reading rates from the same API.

Consumer systems must also share data among themselves.  Vehicle data is input to VSC rating, price is input to deal structuring, and the “line five” subtotal is input to credit processing.  It’s a good idea to keep a data-flow diagram handy.

Finally, the consumer systems must cooperate to store in-process deal data.  Customers should be able to choose which tasks they wish to do online, and then save the deal to be completed at the dealership.

I am mainly addressing new entrants from outside the industry, who may have a good system for one of the tasks, but fail to connect with the others.  This may also include dealer groups moving into online car buying, and system vendors like Cox.  My chart of platform capabilities is here.

Luddites in Las Vegas

September 2, 2016
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At this year’s Industry Summit, I attended a session called Presenting F&I Products Online.  I have strong opinions on this, and I wanted to learn what other people are doing.  I wrote here about using an expert system.  Would I find my colleagues using apps, widgets, expert systems, and analytics?  Do they have a menu for consumer use, with responsive design that runs on an iPhone?

Sadly, this session was not so much about how, but whether to present products online.  This may explain why I got blank stares when I did this survey last year.  I am biased, so I will try to be fair with the other side.  Their argument is:

F&I is the last place we can make decent gross, so why would we screw that up by putting it online?

They assume that disclosing, say, VSC rates on a consumer site will inevitably lead to lower margins.  Well, maybe.  Consumers can apply for credit online, including direct lenders, and that hasn’t harmed dealer reserve.  A robot will never sell as well as Justin Gasman, but a consumer on a web site has all day to self-close.

Even if we assume that putting products online is bad for margins, the question remains whether we can hold back the tide of internet commerce.  This brings me to the Luddites.

Luddites

In the early nineteenth century, Joseph Jacquard invented an automated loom that put a generation of weavers out of work.  The Jacquard loom can be programmed to weave complicated patterns, using punched cards.  This was the first time skilled workers had lost jobs to something resembling a computer.

The weavers didn’t take it lying down.  Organized under the apocryphal Ned Ludd, they set about smashing and burning power looms all over England.  I am wearing a silk jacquard shirt as I write this, but Luddism lives on wherever people fear losing out to technology.

This is not to demean thoughtful people like panelist Mark Thorpe, who quite reasonably want to see profits kept up for their dealers.  From my perspective, however, protection products will inevitably be offered online.  Consumers want to buy cars online, and providers want their products included.

When customers want something, the market has a way of giving it to them.  If it’s not the usual vendors, like Cox and CDK, then it will be technology startups like ShowroomXpress or new entrants like Amazon.  I see a parallel here with TrueCar and transaction prices.  The Luddites say these dealers are cutting their own throats.  I say they’re planning for the future.