The elusive 60-minute transaction
1. Price negotiation
2. Data intake
Editor's note: This is the first part of a two-part series. The second part will appear in Automotive News and www.autonews.com on Monday, June. 23.
Karl Schmidt, CEO of Morrie's Automotive Group in suburban Minneapolis, takes pride in seeing the group's 12 stores offer a fast, transparent buying experience for customers.
But he learned this year that the stores still have a long way to go to complete transactions within the magic 60 minutes he insists is possible.
Schmidt invited business consultants from Cox Enterprises in Atlanta to spend a week at Morrie's Mazda store in the Minneapolis suburb of Minnetonka, timing transactions and analyzing processes to see how efficient they were. The results were eye-popping -- and not always flattering.
After reviewing more than 50 transactions, Schmidt said, only one was completed in less than an hour, specifically 42 minutes. The average transaction took more than two hours. And the longest ran more than three hours.
He defined the transaction as the time between a customer settling on a specific vehicle (after test drive) and the time he or she left the finance and insurance office.
"I have strong feelings that 60 minutes is doable," said Schmidt, 51. "But there are several obstacles, some within the dealership's control and some that aren't."
Dealerships nationally are adopting 60 minutes as the gold standard for transactions as they try to optimize throughput. Another goal is to reduce customer wait times that can hurt profits and ding satisfaction scores.
Sonic Automotive Inc. feels so strongly that transactions should take less than an hour that the goal is one of the hallmarks of a new customer experience template that the nation's fourth-largest dealership group is developing.
"We have to speed it up," Jeff Dyke, Sonic's executive vice president of operations, has said. "It should not take two hours or three hours to buy a car. If I walk into any other retailer in this world other than [those] selling cars, I can walk in and buy a pair of shoes and leave."
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Karl Schmidt, Morrie's Automotive Group: "I have strong feelings that 60 minutes is doable. But there are several obstacles, some within the dealership's control and some that aren't."
Dealers don't have much choice, said Kevin Filan, a vice president at AutoTrader Group, which is owned by Cox Enterprises. AutoTrader Group helped coordinate the Cox audits at Morrie's Mazda store and three other dealerships across the country.
Shoppers, especially millennials younger than 30, have been conditioned by visits to Apple Stores and other top retailers to expect a smooth, professional buying experience that respects their time and research preparation, Filan said.
After studying the attitudes of more than 250,000 car buyers over two years, AutoTrader found that customers' satisfaction falls after they've waited 90 minutes for the deal to close, Filan said. "And we see a progression beyond that," he said.
Four- or five-hour vehicle transactions carry far greater risks today than even three years ago.
In the past, a customer would stew and occasionally ding a dealership on a sales satisfaction survey. Today, a salesperson takes a risk when leaving a shopper unattended while the salesperson runs repeatedly to the manager during a price negotiation, or while the customer waits outside the F&I office.
Almost invariably, the customer has a mobile phone or tablet handy to comparison-shop a competitor. Fed-up shoppers leave dealerships before closing a deal more often than managers would care to admit.
Filan, a former Navy search-and-rescue helicopter pilot, says that, like medical personnel trying to save a trauma patient, dealerships have a "golden hour" to ensure the best outcome on a transaction.
"That's when you need the highest level of care," he said.
Dealers say the four main parts of a transaction that waste time are price negotiation, data intake, trade-in and F&I.
Too often, the customer is simply waiting for answers rather than engaged with staff, dealers say.
Tony Rhoades, executive director for information and consumer strategy for the six-store Gunn Automotive Group in San Antonio, says customer attitudes shift when a person transitions from shopping to buying.
At a 24-hour Wal-Mart, he said, a shopper will leisurely walk through the aisles sometimes for hours. Then, when it's time to check out, the shopper wants to be processed immediately. "It's like, 'Now I'm ready to go,'" he said.
The same switch from "leisure time" to "business time" happens in a dealership, Rhoades said. While shopping, the customer feels in control. That control shifts to the dealership once the transaction begins, meaning that consumers will judge the experience based on how professionally and efficiently they are served, Rhoades said.
"Wasted time is the biggest obstacle to satisfying the customer," he said.
Schmidt said the Cox audit, conducted by experts in Six Sigma and other quality processes, revealed how a planned 60-minute transaction can turn into one lasting more than two hours.
For example, at Morrie's Mazda, the sales staff too often duplicated information-gathering about the customers and cars, Schmidt said. On one transaction, the vehicle identification number of a car was entered 15 times and the customer's address four times.
Schmidt said some duplication was due to parts of the store's software not communicating effectively with one another.
Like many stores, Morrie's Mazda has one vendor for its dealer management software, another for its desking tool to draft deals, another for inventory and another for financial services and credit applications. That results in integration challenges that can cause data to be entered multiple times, even when staffers closely follow procedures. Not only does it waste time, it creates additional opportunities for mistakes, he said.
"Information doesn't always roll down the line smoothly and in the same manner," Schmidt said.
Sometimes, the technology just isn't very fast, he said. Recently, the Mazda store bought 10 new printers from its dealership management systems vendor, Reynolds and Reynolds, that were still dot-matrix and slower than the best printers, he said.
Slow transactions can cost dealerships money, said Mark Rikess, a sales and process consultant to dealerships. Plodding transactions tie up the best salespeople so they can do, at most, a couple of deals a day during peaks, Rikess said.
Moreover, a customer who has spent a good part of the day waiting to close a deal may have little patience to buy an extended warranty or extras in F&I once that office finally opens to them. That cuts into profit, he said.
Best practice dealerships train sales staff to do a thorough needs assessment with the customer upfront. Taking maybe 10 minutes, that process can save time later by getting information right the first time, Rikess said.
Good processes also are crucial because dealership traffic surges during peak times. Seventy percent of new vehicles are sold in just 30 percent of the time that stores are open, specifically, during peak times on weekends, select evening hours and at the end of the month, Rikess said.
There's still far too much old-school thinking in stores that three- to four-hour transactions are OK, he said, because managers and staff typically aren't docked financially for slow service.
Berger Chevrolet in Grand Rapids, Mich., a top 25 Chevy store in annual sales volume, thoroughly enforces processes to ensure customer waits are minimized, said General Manager Lenny George.
But, in real life, customers to a large extent control how fast the transaction goes, he said.
If customers want to haggle on price or read every word of a contract, that's their prerogative, George said. But a dealership needs to be prepared to take them through the transaction at the pace they want to go, he said. Berger Chevrolet sells about 400 new and used vehicles per month.
One way to save time is to eliminate price-haggling. Schomp BMW in suburban Denver has been a one-price store for the past 21 years, said General Manager Brian Briscoe.
Its sister Honda store and Mini store in the area also provide a customer the best price upfront, he said.
By eliminating the need for negotiation, Schomp BMW consistently completes transactions within an hour, Briscoe said. Bargaining over price can eat up an hour in many stores, he said.
To make the process work, sales consultants are trained to spend five minutes or so after greeting customers to tell them exactly how the process will unfurl, why cars are priced the way they are and what the values of the dealership are, Briscoe said.
"Many people dread the negotiating process," he said.
Sales consultants are compensated based on the number of cars they sell rather than the gross profit of the sales. That rewards salespeople for steering customers to the vehicle that that best fits their needs, rather than pushing the most expensive vehicles, Briscoe said.
Each of Schomp BMW's 28 salespeople takes his or her respective customer through the entire transaction, including F&I. That eliminates handoffs that can hurt customer satisfaction or result in customer data having to be re-entered into the system, he said. The store sells about 400 new and used cars per month.
Briscoe said not only are transactions typically completed in an hour or less, but satisfaction scores are award-winning. For the past three years, Schomp BMW has been a BMW Center of Excellence, which is awarded to less than 10 percent of the automaker's U.S. stores annually.
Next month, Schmidt said he hopes to get another group of Cox consultants to audit the Morrie group's Nissan and Subaru store in the Minneapolis suburb of Brooklyn Park.
AutoTrader's Filan said findings from the initial audit of Morrie's Mazda store and three others he declined to name show there's still work ahead for the industry.
Transaction times at the non-Morrie's stores, which also included a look at about 50 deals per store, ranged from 103 minutes to 300 minutes, he said.
Schmidt said he's taken the exercise to heart. In the past two months, the Mazda store has added two F&I professionals to bring the total to seven, he said.
The store, which sold about 2,800 new and used vehicles in 2013, was suffering wait times at F&I, especially during peak periods. That required the four or five F&I staffers to sometimes work until 8 p.m. to complete deals even though the store's hours are 9 a.m.-5 p.m., Schmidt said.
On Memorial Day last month, all seven F&I employees were on duty -- and they were busy. The store sold 28 vehicles and completed the deals on 27 of them without any significant waits outside the department, Schmidt reports.
For the most part, each customer who bought or leased a car was in and out of F&I in 15 minutes or less.
"The one-hour transaction is absolutely in the cards for us," Schmidt said. "There's a lot of opportunity to get better."
Amy Wilson contributed to this report.
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