Dealers mine data for repeat buyers

Rodger Lau, vice president of the six-franchise Jeffrey Tamaroff Automotive Family in suburban Detroit, said he knew that retaining customers was far more cost-effective than fishing for new ones.

Yet for weeks, Lau resisted trying an online tool that would plumb the dealership computer data and identify customers in the best position to buy or lease again. These customers typically have owned their vehicles for many months and have high equity in the vehicles. Equity is the market value of a vehicle minus unpaid loans.

After getting over his inertia last June, Lau said he used a software tool called Deal Activator from Dominion Dealer Solutions to send mailers to 500 prospects who had been Nissan customers of Tamaroff's store in Detroit's eastern suburbs.

Lau's main pitch: The prospects could, with a trade-in, buy or lease a new car for the same or lower monthly payment. The test was a huge success.

"We sold 32 cars from the mailer and got back 28 late-model cars as a result," Lau said.

"We turned around and retailed 16 of those trade-ins in the first 30 days at an average gross profit of $2,200 a car."

Software that searches through a dealer's roster of customers saves the sales staff a mountain of tedious work. The tools can instantly calculate the variables to determine a likely candidate for a sales offer, including the vehicle's residual value, the owner's equity, remaining term on the lease, interest rates on a new vehicle and factory incentives.

A small but growing number of dealerships are using software tools that search in-house for so-called in-equity prospects.

AutoAlert, a pioneer of equity-management tools, has about 1,300 stores using its products, said AutoAlert CEO Boyd Warner. Other vendors include Driving Loyalty, Dealer Wizard, DealerSocket and the equity calculator of Reynolds and Reynolds.

Warner estimated that at any given time, about 10 percent of a dealer's customers have substantial equity in their vehicles and are prime prospects for new vehicles.

Today's low interest rates and high used-car residuals mean a growing number of customers can buy new vehicles at the same or lower payments, Warner said.

Warner estimates that less than 10 percent of U.S. dealers use top-of-the-line in-equity tools such as AutoAlert for finding and pitching customers, though the technology "is catching on briskly." The company's sales doubled in 2011, he said.

In-equity tools come in different degrees of sophistication and cost dealers between $600 and $2,500 per month.

Lau said the east-side dealership's full rollout of the in-equity tool among its Honda, Acura and Kia customers also yielded successful results. The dealership sold or leased 224 vehicles generated by in-equity alerts between July and December, which translated to $685,000 in gross profit, he said.

In about 70 percent of those sales, Lau said, the store met the goal of at least matching the current vehicle's monthly payment. And with the rest, the increase was usually only $10 to $20 a month for a new vehicle.

Lau said he sees 25 to 30 in-equity alerts every day at the east-side store. Typically, salespeople phone customers with a "good news" message that the dealership can switch them into a new car at the existing or lower monthly payment, he said.

Jeffrey Tamaroff's two stores sold about 6,000 new and used vehicles last year.

"It's a lot cheaper to retain a customer than go get a fresh one," Lau said.

Michael McHenry, director of sales and business development at Benzel-Busch Motor Car Corp., said he brought AutoAlert to the suburban New York Mercedes-Benz store when he arrived there in September 2010.

McHenry said the 10 to 15 vehicles sold per month from in-equity alerts were low-hanging fruit for a store that sold about 3,200 new vehicles and 1,000 used vehicles in 2011. The store pays about $2,500 a month for the service.

McHenry said it's not just the in-equity customers that are flagged by AutoAlert. The tool automatically tabulates factory incentives, residuals and things like lease expirations to allow sales staff to find good prospects among its customer base. The tool also peers into the equity position of customers seeking service.

During Mercedes-Benz's Winter Sales Event, Benzel-Busch Mercedes-Benz used the AutoAlert tool to pull ahead eight E-class sedan owners by as much as eight months on their leases to get them in new cars, McHenry said. The dealership is making a tidy profit on the resale of those low-mileage certified used cars, he said.

McHenry said: "It's mutually beneficial. We can get people out of their old lease" and into a new one "often for the same price as before."