The Great Recession sped up practices already in place

Crises spur change. Just as technical advances explode (often literally) during a war, the Great Recession accelerated trends in auto retailing that were slowly percolating previously.

Take online used-vehicle auctions. Travel is one of the first budget items cut in bad times. When the economy nose-dived, used-vehicle buyers at dealerships across the country were told to curtail trips to out-of-state auctions.

Many buyers had already dabbled in online auctions. Some were already proficient at it. But almost all buyers had to learn, fast, how to find and acquire the cars and trucks they needed online.

This trend really picked up speed in the last two or three years, when a flood of off-lease vehicles prompted all parties — buyers and sellers — to do all they could to move those units online before the tsunami could clog the auction lanes. But that was only possible because buyers became comfortable with online buying in 2009 to 2010.

But that's just my opinion, based on what I heard at the time from dealers and other Automotive News staffers.

Dale Pollak has had a front-row view of the changes in auto retailing before, during and since the recession. Pollak, the founder of vAuto in 2005 and now a Cox Automotive vice president, has visited hundreds of dealerships, crossing all brands and segments.

Last month, Pollak delivered the opening convocation address at Northwood University in Midland, Mich. After he did so, and spoke with students and faculty about changes he expects at dealerships and how they should prepare for those changes, he and I talked about the trends that gained momentum during the recession.

The main changes Pollak recalled centered on the used-car and fixed ops departments, as well as how dealerships dealt with the Internet.

In the years before the recession, dealers had been mesmerized by the soaring new-vehicle market, Pollak said. Industry sales were cannonballing along at nearly 17 million a year. Automakers were offering employee pricing for everyone. Dealers wanted to ride that train.

But when the downturn hit and new-car sales collapsed, dealers realized they had to refocus on the operations that actually brought in profits, Pollak said. Used cars were at the top of the list.

The next trend Pollak cited was service department optimization. Consumers who weren't buying needed to keep their current vehicles running. "This is when the idea took hold that every car that comes in for A, B or C was inspected for D, E and F — in case that work also could be sold," Pollak said.

Tied to that was "the rise of equity mining out of the service lane," Pollak said.

Some dealerships had tried placing salespeople in the service lane before, including the Cadillac dealership where Pollak once worked, he noted. But that practice was neither widespread nor particularly successful. It was the recession and the rise of analytics that allowed dealerships to tap data to know when to pitch sales to folks who came in for service, Pollak said.

Used-vehicle prices had soared, helped by the federal Cash for Clunkers program. But consumers often had no idea what their current vehicle was worth. Equity mining allowed dealerships to identify customers whose vehicles, as trade-ins, could cover a down payment.

Automotive News reporters also noticed an increased focus on service and parts. Before, many dealers we interviewed had paid only lip service to fixed ops. But during the recession, those same dealers were laying out detailed plans to add service capacity.

Third- and fourth-generation dealerships — those which had survived the Great Depression and World War II thanks to service — renewed their emphasis on fixed ops as the cornerstone of their business. Automakers' efforts to expand express-service lanes and insist on service loaners, rather than relying on off-brand vehicles from a local rental agency, gained traction.

Again, this trend picked up steam in the recession and hasn't slowed since. Dealerships have continued to find ways to expand service capacity to take advantage of the increased number of vehicles on the road. And they've expanded the parts and services they sell, most notably tires.

Pollak also remembers the recession as the time when customer relationship management software really came into its own. These programs had been around, but most dealerships "weren't really maximizing them." But with the recession, he said, "Dealers realized, 'There aren't that many people coming in. I've got to really start paying attention to those who did come in.' "

In contrast, the recession put an unfavorable spotlight on lead generation, as practiced by companies such as Autobytel and others, as the be-all and end-all of sales strategies, Pollak said.

"It was the crash that really broke its back," he said. He believes that in the recession, dealers took a hard look at the return on investment of everything they did, and lead-generation services just didn't make it on a price-value equation.

Lead generation, CRM systems, analytics-driven equity mining — all of these point to a sharp rise in the importance of the Internet to dealership operations and a closer scrutiny of what works online and what doesn't.

Here again, Pollak saw it firsthand.

Before the recession, he had been promoting his Velocity theory to dealerships, usually with limited success. The theory is based on an awareness that dealerships no longer hold all the cards in price negotiations with consumers. In an era of Web-enabled transparency, customers know the prevailing price in their market for both their trade-in and the vehicle they want to buy.

Rather than hold out for yesteryear's fat margins on each vehicle, the Velocity approach says dealerships should embrace transparency, price their vehicles appropriately and turn their inventory faster.

It wasn't a message many dealerships wanted to hear. For one thing, Pollak recalled, many auto retailers still had not embraced the Internet, while others largely ignored it. This was well before the rise of business development centers. If a dealership had any online presence, he recalled, "It was a dial-up connection."

To get his message out, Pollak wrote a book, Velocity: From the Front Line to the Bottom Line, which came out in paperback in January 2009. Suddenly, instead of "getting thrown out of dealerships," Pollak said, he was getting calls from dealers and general managers wanting to learn more.

As dealerships reviewed all aspects of their operations during the recession, they were forced to acknowledge the growing importance of the Internet — a trend that has only accelerated since.

In 2006, online advertising accounted for 11.5 percent of the average dealership's advertising budget, up from 9.9 percent in 2005, according to NADA Data, an annual report from the National Automobile Dealers Association. That was more than direct mail, at 10.2 percent, but it trailed every other category: newspapers — the leader, at 27.3 percent — TV, radio and "other."

In 2009, in contrast, online advertising accounted for 22.2 percent of the average dealership's ad budget, just a shade below newspapers' leading 22.4 percent. And the Web continued to grow. By 2016, online advertising soaked up a third — 33.6 percent — of dealerships' ad spending. And in 2017, online advertising dwarfed all other media combined, accounting for 55.4 percent of the average dealership's ad budget.

The recession didn't radically remake auto retailing. But it unleashed trends that continue to change how dealerships do business.