Auto dealers who evolve, have a different, but bright future.

In 2019, Forbes magazine offered one of the best descriptions of disruption I’ve read:

“Disruption is rarely invited… it is almost always forced on us, particularly in a mature industry, when some external circumstance forces businesses to react, usually after trying to resist for as long as possible… and there are always winners and losers.”

This is an apt description for our industry, and, if we’re honest, for auto retailers in particular. It’s funny how decades of success create inertia to change. The winners and losers comment resonates as it implies we have a choice. I’d like to offer a few thoughts on how Canadian dealers can remain winners.

Respected industry analyst Steve Greenfield of Automotive Ventures LLC recently published a comprehensive dealership risk assessment. In this analysis, over 15 potential threats are examined across two dimensions: the likelihood of each threat happening (from improbable to very likely), and the anticipated consequences on the dealer’s business (from minor to catastrophic).

This is an interesting read. But what’s missing in my view is a discussion of how dealers can and should respond to these disruptive forces. Let’s take a quick look at three potential threats most likely to occur (or already are).

Are the consequences really this dire? If we do nothing—potentially.

1. Evolving Customer Expectations

The pandemic accelerated customer expectations for a truly omnichannel experience — the seamless blend of physical and digital engagement with their preferred automotive brand.

Expectations when buying a new vehicle are now shaped as much by experiences outside our industry as previous dealership experiences.

When I consider my own consumer preferences, I gravitate to brands like CIBC, Air Canada Aeroplan, Marriott Bonvoy and Amazon that provide convenient, transparent and personalized “know me” experiences.

Every research study I’ve conducted or read over the last three years confirms I am not alone. Canadians are asking the question: Why can’t my dealer do that too?

So what’s the antidote? How can dealers thrive in a market where customers expect more from us than ever? Successful dealers are adopting a new playbook in sales and aftersales that can be summarized in one, four letter acronym: TEFF. This stands for Transparent, Efficient, Flexible and Facilitated.

TEFF-aligned dealers are transparent in all interactions with their customers, work tirelessly to improve process efficiency to respect the customer’s time, strive to deliver a personalized experience at every touchpoint (in-person and/or online) and ultimately, help the customer to acquire and maintain their new vehicle.    

2. Electrification

Government mandates notwithstanding, OEMs are rapidly moving to an electric future. In Canada, EV adoption is approaching 10 per cent, though with an uneven pace across the country.

In the Prairies and Atlantic Canada, dealers are typically selling EVs to innovators and early adopters — customers seeking the latest technology and/or a lower carbon footprint. These folks are typically less price sensitive and often know more about their new EV than their salesperson or service advisor.

But in B.C. and Quebec, where EV adoption is already in the double-digits, dealers are, or will soon be, selling to customers in the early majority. The needs and expectations of these customers are fundamentally different — less “green” motivation, keen to understand if and how an EV fits into their life, and especially whether they can achieve a lower cost of ownership.

Successful dealers understand the need to pivot — from a sales to advisory model where the most valued skill on the showroom floor is no longer closing but the second “F” in the TEFF playbook, Facilitate.

The dealer’s role is to help the customer acquire their new EV, not to sell it to them.

Most EV buyers need help understanding and adjusting to the “EV ecosystem” including differences in driving dynamics, batteries and regenerative braking, public and home charging options, the various OEM and third-party mobile apps and cost of ownership realities.        

3. Impact on service

Electrification will almost certainly put pressure on dealership fixed operations revenues and profits — fewer moving parts means less frequent service.

This is not new news. But how can dealers mitigate the impact?

While there are no magic bullets, here are three examples of how some dealers are already innovating to a successful future:

Go all-in on tires, especially winter tires, and make the seasonal tire exchange as convenient as possible. The weight and torque of EVs means more frequent tire replacement than with ICE vehicles. And with longer maintenance cycles, seasonal tire storage gives your service team two opportunities a year to provide great service to your EV owners including alignment and suspension work. I’ve heard this described as “velvet handcuffs” but most customers appreciate the convenience. And dealers benefit from retaining work that might otherwise be done elsewhere.

Get serious about EV charging as a profit centre. The average EV customer spends between $1,500 and $4,000 buying a Level 2 charger and installing it at home or at work. Why can’t dealers capture these parts and labour gross margins instead of third-party providers? Oh, and you will deliver a superior, TEFF-aligned customer experience in the process. One of Germany’s largest VW dealer groups Kuhn & Witte created a new “Power Paket Electrik” business providing charger sales and installation to customers across their network.

Pursue new mobility opportunities. EVs are not the only vehicles Canadians are interested in buying. eBikes and eScooters are big business. As one German dealer remarked at a mobile.de conference in 2022: “I have the same margin on a good eBike as I do from a Volkswagen Polo.” Kuhn & Witte is not the only dealer group that has expanded to new mobility sales and service — Canadian dealers like Colbourne Ford in Cape Breton and Roy Foss GM in the GTA are both actively promoting eBikes on their websites.

Sir Winston Churchill famously remarked: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” In a rapidly transforming industry, it sometimes feels like we’re competing on a playing field that’s tilted upwards. How do successful dealers respond? They level the playing field.

The post How can dealers continue to win? appeared first on Canadian Auto Dealer.

What are the implications for dealers of brands that exhibit vs. those that don’t?

Does an auto show deliver a return on investment for exhibiting brands?

This was one of many questions that that Jason Campbell, General Manager, and his team at the Canadian International AutoShow (CIAS) were contemplating as they finalized plans for the 2023 show—the first in three years.

As most readers know, some popular automotive brands in both the volume and luxury segments decided to sit this one out, and other shows across Canada. No doubt, auto show participation requires a significant commitment of financial and managerial resources.

So, how did things play out this year at CIAS?

Clarify partnered with CIAS to conduct visitor experience research—both during the show itself with 1,325 EV Test Track participants, and immediately after the AutoShow, with online feedback from 15,599 visitors, all consumers aged 20+ with no affiliation to the automotive industry.

Consumers roared back in 2023, almost setting a new record with over 350,000 visitors over the AutoShow’s ten public days.

Nearly two-thirds of visitors (65 per cent) intend to purchase or lease a new vehicle within the next 24-months, of which more than half (58 per cent) are in-market now with plans to buy in the next 12 months.

While some visitors came for the entertainment value (Family Day especially), the majority of visitors reported overwhelmingly practical reasons for attending—to see what’s new (brands, models and innovation) and to help them decide what vehicle to buy next. Nearly 1 in 3 visitors specifically wanted to learn about electric vehicles (EVs) and 1 in 10 wanted to experience an EV on the indoor Test Track.

What became clear in our analysis of the data is that the AutoShow attracts in-market buyers.

That’s great news for the AutoShow and especially for dealers in southern Ontario, but does the AutoShow actually influence consumer behaviour?

The data says yes.

The AutoShow is a catalyst for buying behaviours that OEMs and dealers alike care about. A significant portion of visitors have or will soon engage with brands online or in-person as they take the next step in their new vehicle journey:

• Nearly half will go online to learn more about a model (47 per cent);
• Nearly 1 in 3 consumers will visit a dealer (32 per cent); and
• Nearly 1 in 4 visitors will test drive a model (23 per cent).

Among the 10,103 respondents intending to buy within the next 24 months, two-thirds declare the AutoShow was helpful or very helpful in their choice of new vehicle (66 per cent).

Even more compelling: over 2 in 5 visitors (44 per cent) report the AutoShow led them to add at least one brand to their consideration list. Put another way, the AutoShow creates meaningful conquest opportunities among visitors for brands and models they might not otherwise have known about, let alone considered.

The AutoShow is like a rising tide—it lifts all boats to some extent—causing consumers to consider a wider range of options than had they not attended.

To gauge the AutoShow’s impact on consumer behaviour, we compare which brand(s) visitors already own with the brand(s) they have added to their consideration list. By subtracting ownership frequency from incremental consideration frequency, we are able to see the conquest opportunity created for each brand.

On balance, exhibiting brands generate significantly higher conquest opportunities than non-exhibiting brands. When we examine conquest opportunity creation across the 36 highest volume brands in Canada, the Top 10 were all exhibiting brands.

Furthermore, the Top 5 conquest opportunity creating brands—Kia, Vinfast, Cadillac, Jeep and Hyundai—all went beyond static displays to provide experiential opportunities for visitors like Camp Jeep and the chance to drive the EV6, VF8, Lyriq and Ioniq 5 on the indoor EV Test Track.   

At the other end of the spectrum, the weakest 5 brands in terms of conquest opportunity creation—including both volume and luxury marques—were all non-exhibiting brands.

While this may not be surprising, the difference between the strongest and weakest brands is stark. The “out of sight, out of mind” risk for non-exhibiting brands is real because they are failing to keep pace with the new conquest opportunities created by aggressive exhibiting brands like Kia, Vinfast and Cadillac.

In all three cases, each brand generated incremental consideration (visitors adding these brands to their consideration list) at a pace over 3.7 times higher than their existing share of ownership amongst AutoShow visitors. In the case of the weakest brands, the difference was negative.

Two additional insights with implications for OEMs and dealers alike:

1. The AutoShow’s consideration impact is most pronounced with younger Millennial and Gen Z visitors (age 39 and under), despite this demographic traditionally believed to be most receptive to digital marketing efforts. These younger visitors added the most number of new models to their consideration set of any demographic.The AutoShow and the experiential opportunities it provides clearly resonates with younger visitors beyond what digital engagement can deliver.
2. The majority of AutoShow visitors (79 per cent) are not very familiar with electric vehicles. Less than 4 per cent of visitors own an EV.

When asked what powertrain(s) visitors would consider next, ICE vehicles remain the most popular option (56 per cent).

While zero emission vehicles (ZEVs) register meaningful consideration, the relative popularity of plug-in hybrids is higher at 32 per cent than full battery electrics at 25 per cent. While it is likely the difference between PHEVs and BEVs is unclear for some visitors, it also reflects consumer hesitation with BEV range, charging infrastructure, pricing and availability.

Hybrid vehicles (no plug) are the second most popular powertrain option (47 per cent), despite the federal government’s proposed 2035 ZEV mandate.

The bottom line: the transition from ICE to EVs will be a long road. Consumers need education and a lot of handholding to make the transition.

The 2023 Canadian International Auto Show delivered what it set out to do for exhibiting brands. It delivered in-market buyers, it provided strong EV educational and experiential opportunities to visitors, and it created incremental conquest opportunities.

Do we really have to wait until February 2024 for the next CIAS?

The post Can an auto show have winners and losers? appeared first on Canadian Auto Dealer.

Order-to-delivery is going to be with us for a while, and we need to improve our approach for how we keep our customers in the loop.

The rules of the game have changed.

If you think back to the days of pre-pandemic and pre-supply chain constraints, dealers had more inventory than they knew what to do with. The vast majority of customers were selecting vehicles from dealership’s inventory, and if the dealership didn’t have it on the lot, they could get it through a dealer trade. 

That’s not the world we live in now, and will not be the world we are fully back to for some time to come.

I don’t have a crystal ball, but my prediction is that most OEMs—and dealers—have seen the benefit of a more balanced system of supply and demand. Dealers won’t want to go back to the world of a huge floor plan expense for their inventories, and huge incentives from manufacturers to move vehicles. 

Perhaps most importantly, consumers seem to have accepted the order-to-delivery process of ordering in advance and waiting to get what they want. With a big caveat: they are happy with the process as long as their dealership keeps them in the loop about the status of their vehicle order.

What we’ve seen in our research, and in anecdotal conversations with consumers and dealers, is that we are not really doing a great job as an industry keeping consumers informed.

Since this is now becoming a big part of the buying and delivery experience, we need to adapt our tools and processes to ensure we deliver a next level experience that can actually add value and excitement.

Apart from being the right thing to do, and part of our overall efforts to elevate the experience in our industry, staying in regular contact with our buyers can also help prevent order cancellations. 

When you consider the diagram above, representing a buyer’s emotions during a typical order-to-delivery experience, we can see the customer’s stress level rising on the Y-axis as the time elapses between purchase and delivery on the X-axis. 

When they place their order for the vehicle they want, and place a deposit, their stress level is pretty low. They are excited about their purchase. As time goes on, however, their stress level rises, particularly if they aren’t hearing anything about the progress of their order. As those stress levels rise, they are more likely to consider putting a second or third deposit on other vehicles, or canceling their order.

The way to ease their concerns is to proactively reach out to them with updates that are meaningful steps in the build, ship and delivery journey. This is a great way to maintain advocacy, and retain loyalty.

This type of status update on order tracking information and transparency is also what consumers are used to when they order from Amazon, an Uber or even fast-food. Some fast-food restaurants provide an app that helps their hungry customers track the order every step of the way: order received, food being prepared, food on its way. 

Proactive communication, even if the news is not always what our customer wants to hear, is always preferable to leaving them wondering what is happening. 

In an ideal scenario, we see at least five key touchpoints, for keeping customers in the loop and engaged. Here are those touchpoints and some sample talking tracks for each.

Purchase-to-delivery touchpoints:

Customer order entry: “We are happy to report your new order has been entered in our production system.”

Vehicle scheduled for production: “We are happy to confirm your new vehicle is scheduled to be built in May.”

Vehicle has been built: “We are happy to share with you that your new vehicle has been built.”

Vehicle is in transit from the factory: “We are very pleased to confirm your new vehicle is on rail to our dealership.”

Vehicle has arrived at the dealership: “We are thrilled that your new vehicle has arrived safe and sound at our dealership.”

When we master this process, we can also start to add additional value to each of these touchpoints, by providing things like videos with key features of the vehicles to get them excited, or accessories and protection packages you might offer, or coordinating the exact delivery time and date that suits their schedule.

Just as dealers need to adapt, OEMs have to provide more transparent and accurate information to their dealership network. Some are building online portals to help, but until those new tools are available, there are things dealerships can do right now with the information they have.

Going silent and avoiding your customers isn’t a strategy. Being proactive and gathering all the information you can, and being honest and transparent with your customers about things you don’t yet know, is the way to go. 

That way you can help build their excitement every step of the way, and result in a delivery event that will be highly anticipated and enjoyable. 

The post The order game has changed: have we adapted? appeared first on Canadian Auto Dealer.

I’ve never thought of myself as an early adopter.

If my lovely wife had a dollar for every time she encouraged me to “try something new”—say other than navy blue sweaters or penne a la vodka when we go to our favourite Italian restaurant—and was met with resistance, she could have long since retired.

But here we are, the proud owners of a 2022 Hyundai Ioniq 5. 

After fourteen ICE vehicles between us over the last three decades, two hybrids among them, we now use electrons for the vast majority of our kilometres driven. Full disclosure, there is still an ICE powered Honda in the driveway. I’m not quite ready to navigate road trips from the GTA to visit our son in Nova Scotia on electrons only. Not yet.

I am not trying to give myself any credit. I am hardly the first Canadian to buy an EV—over 200,000 have already done so. But the reality is that we are still in the earliest stages of EV adoption in this country, and frankly in the world, other than possibly the People’s Republic. EVs represent barely more than one per cent of all light vehicles on Canadian roads. Lots of pundits are talking about Canada having reached the ICE to EV inflection point, I presume based on the number of new EV models for sale or “coming soon”.  But with under two per cent penetration of all vehicles on the road, I think proclamation of an inflection point is still ahead of us.

Do I think we’ll get there? You bet. There is too much momentum from governments, vehicle manufacturers (established and new), parts suppliers, energy companies and, frankly, from consumers. The wait list for every EV on the market is now measured in months or years, not days or weeks. To be sure supply remains constrained, but EV demand is growing.

Our motivation to acquire an EV is multi-faceted. Like many other Canadians, we want to significantly reduce our carbon footprint. Hurricane Fiona is just the latest example from among hundreds of climate change induced catastrophes in the last year, caused by our warming oceans.

We understand that EV production can be carbon-intensive, especially the battery and the mining of the rare earth minerals required. But when the entire lifecycle of an EV is considered—and especially in provinces like BC, Manitoba, Ontario, Quebec, PEI and Newfoundland-Labrador where the grids are mostly powered by non-carbon generating sources—driving an EV results in a meaningful green dividend. Not to mention my pleasure at being able to ignore the machinations of the per litre price of liquified dinosaur goo. 

My second motivator is equally straightforward. Practice what I preach. If I want to maintain the credibility I enjoy advising clients across the automotive and mobility industry, I had better walk the talk. This reminds me of the Toyota Way maxim of Genchi Genbutsu, roughly translated to “go and see for yourself”.

Plus, as I’ve discovered, driving an EV is great fun. Quiet. Refined. Technologically sophisticated. And quick as heck. My jaw is sore from the permanent grin on my face these last few weeks. And, being fortunate enough to have my own garage, it is particularly satisfying to charge the battery overnight, for a fraction of the cost of filling an ICE tank.  

With nearly a month of EV ownership under my belt, I’d like to share a couple of insights from my EV purchase and delivery journey.

In many ways, the buying experience is similar—prospective EV customers need information, answers to questions, a test drive, financing options and a well planned, thorough delivery.

But other aspects of the experience are different. With an EV, you are buying more than just the vehicle, you’re also buying the EV ecosystem that surrounds the vehicle. While many early adopters know as much or more about the vehicle and the EV ecosystem as their salesperson, for most Canadians, this will be all new. I’m in the business—I already know all of this.

But fast forward a few years, when we actually reach the EV inflection point, and we’re now selling to customers in the early majority of the adoption curve. The needs and expectations of these buyers will be different from the early adopters. Less green motivation. Performance and cost of ownership benefits will matter most. They’ll need a lot more hand holding, probably a second test drive, and critically, extra support from their product advisor to adapt to the EV lifestyle. Most new EV owners will also require a second delivery.

The support needed includes everything from selecting and installing a home charger to downloading and using the functionality of the vehicle app, and how to navigate the (still) complex world of public charging. There are good resources available to Canadians to help them quickly navigate this complexity—including ChargeHub, Plug n’ Drive and others—but these resources should be provided to the customer by their product advisor. New EV buyers should not be left to fend for themselves. 

In Clarify Group’s vernacular, this is the second “F” in our automotive retail experience model TEFF, the four critical components to success:  Transparency,  Efficiency,  Flexibility, and a  Facilitated experience (from facile, the French verb “to make easy”).

The delivery of a facilitated EV experience is currently a huge challenge for most dealerships. But this is also a huge opportunity when they get it right. The new direct-to-consumer challenger brands will struggle to match the high touch, facilitated experience that established brands and dealerships like Hyundai, Kia, Genesis, Ford, GM, Nissan and VW have the potential to offer.   

I am happy to report that my product advisor was extremely knowledgeable, prepared and added value to my purchase experience. He was genuinely excited to deliver my EV including providing me with a thorough product demonstration. My new Ioniq was delivered in perfect condition with a full charge. While my advisor did not proactively raise items like the BlueLink connected app, or discuss home charger installation options with me, this is almost certainly because he knew I already had familiarity with them (I told him as much). Will he provide a more facilitated EV experience to his other customers who are not as well informed? Time will tell. 

A missed opportunity was the lack of proactive communication with me during the extended wait for delivery. My expectations were set clearly at the time of order that delivery would be several months away, potentially as long as a year. But in the interim period, I didn’t have the benefit of any status updates. Again, I know the dynamics of how this all works. But most consumers don’t. In the absence of information, customers assume. And almost never correctly. My first update from the dealership came when the vehicle was about to arrive at port. I appreciated that. It allowed me to initiate the purchase of my home charger and its installation, as well as my insurance. A more transparent, TEFF-aligned experience would include regular (read monthly) updates, assuming the customer has not asked us to refrain from updates, and in the manner the customer prefers. I prefer text, and my advisor was happy to oblige me.

Overall, my journey to EV ownership has been very positive, both the vehicle and the retail experience. Will every first-time EV buyer at your dealership feel the same? 

The post Practicing what I preach appeared first on Canadian Auto Dealer.

Few Canadian provinces are investing in consumer incentives for EVs. It’s time to change that.

The good news: The number of Zero Emission Vehicles (ZEVs) in Canadian driveways grew by 58 per cent in 2021 according to a recent Automotive Insights report from IHS Markit. 

The bad news: ZEVs still only represent 1 in every 20 new vehicles sold in Canada (5.6 per cent) in 2021 according to the same report.

Transport Canada uses the term ZEV to describe vehicles that can operate without producing tailpipe emissions. ZEVs therefore include battery electric (BEV), plug-in hybrid electric (PHEV), and hydrogen fuel cell (FCEV) vehicles.

The Canadian government is committed to reaching 100 per cent ZEV sales by 2035, not dissimilar to aggressive targets set by the US, UK and Germany. Convincing the other 19 in 20 Canadian new vehicle buyers to switch from the routine and comfort of a combustion vehicle feels like a very tall order given the transition runway is only 13 years away.

There are some positive signs.

2022 will bring the introduction of new ZEV models in the segments Canadians care most about—utilities, crossovers and pickup trucks—and from manufacturers and local dealers they know and trust. 

So-called legacy manufacturers like Ford (Mustang Mach-E), Hyundai (Ioniq 5), Kia (EV6), Nissan (Ariya), Volkswagen (ID.4) and Porsche (Taycan) have already launched ZEV models to critical media and consumer acclaim. Providing meaningful choices for consumers “beyond Tesla” is critical to ZEV adoption. Even Elon Musk agrees with this assertion.

We are also seeing promising signs that OEMs are moving to adopt software-driven product development practices similar to Tesla. The days of discrete and unchanging vehicle features by model year don’t exist in the ZEV world. 

Ford’s recent announcement the company is separating the traditional combustion (Ford Blue) and electric (Ford Model e) businesses into separate divisions is emblematic of the need to bring continuous innovation to consumers in real time. When Canadians realize that some aspects of their vehicle actually improve over time, ZEV adoption will accelerate.

But significant challenges remain including:

• Weak consumer knowledge and low engagement—recent data from Clarify’s State of Charge EV Monitor confirms the digital engagement of Canadians on the topic of electric vehicles is only a fraction (one third) of the level of overall automotive topic engagement.
• Range anxiety—with many BEVs now offering 400 kms or more on a single charge, range anxiety may be more imaginary than real, but this perception nevertheless prevents some Canadians from seriously considering ZEV options.
• Charging infrastructure—more precisely the lack of visible public charging options (with the possible exception of Tesla’s supercharging network) and poor reliability of charging stations currently installed.
• Affordability—According to Clarify’s State of Charge EV Monitor, nearly 60 per cent of Canadian households have annual incomes below $100,000. Until ZEVs are readily available at price points under $40,000 (new and pre-owned), engagement and adoption for most Canadians will remain low.  

Another significant challenge in meeting the 2035 ZEV target is that 80 per cent of provinces are not in the ZEV game. In fact, 71 per cent of all ZEVs sold in Canada last year were in BC and Quebec. This is as good an example of the 80/20 rule as you are likely to find.

Ontario is of particular concern. Canada’s largest province delivers nearly 40 per cent of total new vehicle sales annually. Yet only 3.3 per cent of Ontario’s 664,000 new vehicle deliveries were ZEVs in 2021 compared with 5.6 per cent nationally, 9.5 per cent in Quebec, and 13 per cent in B.C. With a largely urban and suburban population and with 91 per cent of the power grid coming from non-carbon emitting sources (2017 Canada Energy Regulator Landscape Report), Ontario has the potential to be a strong ZEV market. 

But, while the Ontario government is actively pursuing investments in ZEV supply (raw materials, R&D, component parts and manufacturing), it has so far resisted making investments on the demand side. Strong consumer rebate programs in B.C. and Quebec are a key reason for their ZEV leadership.

2022 will bring the introduction of new ZEV models in the segments Canadians care most about—utilities, crossovers and pickup trucks

The extent of the “Ontario challenge” is starkly clear when comparing provincial ZEV performance in the form of a ZEV penetration index. At an estimated index of only 58, Ontario punches well below its super heavyweight class. In relative terms, with an estimated index of 235, middleweight B.C. outperforms Ontario by a factor of four.

While the ZEV sales situation in the other seven provinces (rest of Canada) is even worse with an estimated penetration index of only 25, the reality is that Canada cannot hope to achieve its 2035 target without a significantly different approach in Ontario. 

While consumer rebates are not the only answer, they are a key means of temporarily bridging the affordability gap until ZEVs reach cost of ownership parity with ICE vehicles, and until consumers have more ZEV choices in affordable, high-demand segments like compact utilities. 

Strong consumer rebate programs in B.C. and Quebec have accelerated the ZEV transition from “early adopters” to “early majority” buyers. The Maritime provinces have recently introduced rebate incentives. Ontario and the Prairie provinces—the ball is in your court.

As a wise mentor was fond of reminding me, hope is not a strategy.

The post Government incentives can help launch the EV sales wave appeared first on Canadian Auto Dealer.

A powerful new tool, State of Charge Canadian EV Monitor, launches to measure EV consumer behaviour

The pace of automotive innovation continues to accelerate. Almost every OEM has made a company-changing announcement regarding their transition to electrification and the multiple billions of dollars in capital committed to achieve it. 2022 marks the beginning of an electrified vehicle onslaught in Canada across PHEV, BEV and Hybrid categories.

What makes this cadence significant is that we are about to see electrified vehicles in the segments Canadians care most about––utilities and pick-ups. Among the most eagerly awaited launches are the Kia EV6 (coming on the heels of its corporate sibling the Hyundai Ioniq 5), Genesis GV60, Nissan Ariya, Mitsubishi Outlander PHEV, and the Ford F-150 Lightning.

The EV-only disruptors are also pushing aggressively––the Lucid Air is now available in Canada, with VinFast and Rivian vehicles not far behind.

All indications point to the federal government moving to convert the 2035 goal of 100 percent zero-emission sales from “we should” to “we will” along with the legislative teeth to ensure it. All the focus is on EV supply. Build it and they will come.

As I learned all those years ago in Intro to Economics, however, market efficiency is only achieved when demand and supply are in balance.

Are we paying enough attention to the demand side of the equation? Where do Canadians really stand on EV adoption? Are they ready and willing to commit to electrified vehicles on the 2035 timeline? The planet may be screaming “yes,” but are Canadians?

The good news is that industry leaders––across OEMs, Suppliers, AutoFi, Dealers, Charging Providers and Policymakers––now have a new tool at their disposal to understand the demand-side of the equation: where do Canadians sit on the question of EV adoption and how is awareness, understanding and, most critically, intention shifting over time?

All indications point to the federal government moving to convert the 2035 goal of 100 percent zero-emission sales from “we should” to “we will” along with the legislative teeth to ensure it.

I consider it a professional privilege to author this column, and so avoid using this space for commercial purposes. I find myself, however, in the role of “proud parent” based on the work Clarify has been doing to bring an entirely new perspective to the disruptive challenges and opportunities we face. Thank you in advance for this small indulgence.

Source: Clarify State of Charge powered by Polly, representing the engagement of Canadians (representative sample of the general population consisting of over 191,000 adults (18+) from Nov 2018 to Nov 2021. Engagement = estimated number of Canadians discussing the broad topic of “electric vehicles” (excluding specific brands and models) during this time period.

Specifically, Clarify Group is excited to share with you some early insights from the State of Charge Canadian EV Monitor, an industry-wide study of EV consumer behaviour. State of Charge tracks the awareness, attitudes, behaviours, preferences and barriers to EV adoption on a scale and with a speed, frequency, and cost effectiveness that traditional research techniques simply can’t match.

Through use of sophisticated AI and augmented research techniques, State of Charge delivers the predictive insights that automotive decision-makers need to navigate their path forward.

Whereas traditional survey research works well when trying to understand where an industry or brand has been, augmented research delivers superior predictive insights by avoiding the significant disconnects between what consumers say they will do, compared to what they actually do.

Think of the 2016 U.S. presidential election. How many polls predicted a Democratic White House? Most of them. Why? Because respondents said one thing in the survey and did something completely different in the privacy of the voting booth. It’s clear at least some Canadians are doing the same thing when it comes to their EV intentions.

New tools for new challenges

One of the most interesting (early) insights we’re seeing in State of Charge relates to the engagement of Canadians on the broad topic of electric vehicles. For this particular analysis, we excluded discussions related to specific EV brands and models, preferring to first understand the broad level of awareness and engagement of Canadians. To put this analysis in context, we tracked the digital engagement of more than 190,000 Canadian adults over a three year period (Nov 2018 to Nov 2021).

Some things we expected, but a few things surprised us. A few examples:

Not So Surprising Findings:

• When compared to the volume of engagement across all automotive related topics, EV engagement is only at one-third the level. Clearly we are still in the early innings of the EV adoption game. Current levels of engagement are not sufficient to drive to the 2035 target. State of Charge will track this KPI carefully over time because engagement is a necessary first step to intention and ultimately adoption.

• EV engagement is highest in Quebec and BC, the two provinces most aggressive in EV adoption policies and incentives. Both provinces score above average in the Clarify EV Engagement Index at 114 and 113 respectively. The EV Engagement Index is calculated by comparing the proportion of total engagement to the relative size of the population. In this example, there is proportionately more EV engagement in these two provinces than we would expect given their relative size within Canada. By comparison, EV engagement in Saskatchewan (96), Ontario (92) and Manitoba (72) lag, at least in part due to provincial government resistance to EV purchase subsidies.

Surprising Findings:

• While EV engagement is correlated to household income, it is not perfectly so. Conventional wisdom holds that EV engagement is highest in the most affluent Canadian families. In fact, the EV engagement “sweet spot” is actually among households with annual incomes between $150,000 and $199,999. While the wealthiest households ($200,000 and higher) do “over-index” on EV engagement, it is at roughly two-thirds the level. EV engagement falls dramatically in households with incomes below $80,000. Given these households represent nearly 50% of all Canadians, it is clear a combination of generous government incentives (for new and pre-owned EVs) and the introduction of lower priced EV models will be needed to move the sales needle. It is hard to seriously consider an EV when the price points of most vehicles available exceed annual income.

EV engagement is highest in Quebec and BC, the two provinces most aggressive in EV adoption policies and incentives.

You’ll see and hear a lot more about the State of Charge Canadian EV Monitor in the months ahead. We anticipate it will become an indispensable tool for decision-makers across the industry to better understand demand dynamics. We’ll finally have predictive—not historical—research insights with which to maximize the strategic bets of stakeholders across the industry.

The transition to EV? Bring it on.

The post How interested are Canadians in buying EVs? appeared first on Canadian Auto Dealer.

The wave of electrified vehicles is pending, but it is coming. Dealers need to be ready to meet consumer demands for more information and education—directly in the showroom.

With Canadian new vehicle transaction prices reaching all-time highs this year—exceeding $42,000, according to Power Information Network—one might be tempted to celebrate.

Dealer margins are healthy, and there are several reasons for this surge in vehicle pricing, with the continued shift in consumer preference from cars to trucks being among them.

Another factor driving these stratospheric prices is the ever-increasing level of content, from infotainment and convenience features like connected apps, wireless charging and heads-up displays, to safety-related tech like 360 degree cameras and advanced driver assist systems (ADAS).

The problem is that not every owner understands, appreciates, or uses all of this technology. As J.D. Power vehicle technology expert Kristin Kolodge recently commented, “high vehicle prices are fine if owners are getting value for their money, but some features seem like a waste to many owners.”

J.D. Power’s most recent 2021 Tech Experience Index Study, representing feedback from more than 110,000 American owners of 2021 model year vehicles, found that for over one-third of advanced technologies, fewer than half of owners ever used the feature during the first 90 days. This is a staggering finding with negative implications for automakers and dealers alike.

For the OEMs, eager for cash flow to fund expensive electric and autonomous vehicle programs, significant profits are being left on the table by adding expensive tech to vehicles that customers never use.

The risk for dealers is similar: customer frustration, as they don’t understand features in their vehicle, and resentment, since they’re paying every month for features they don’t use.

“This group of customers will come with a different set of expectations than the Innovators and Early Adopters.”

As if unhappy owners weren’t enough, dealers also suffer when these uber expensive vehicles are financed over long terms, which is the only way many customers can afford the monthly payment. According to PIN, fully 50 per cent of new vehicles sold in Canada are financed on contracts of 84 months or more. These customers are effectively out of the market for most of a decade.

Consider how the pending wave of electrified vehicles will exacerbate this situation. EVs are coming with all of the same advanced vehicle technology, as well as an entirely new “vehicle ecosystem” that customers need to understand and embrace, including batteries, home and public charging, connected apps, and subscription services and cost of ownership models.

Source: Diffusion of Innovations Theory, Professor Everett Rogers, 1962

For early adopters, advanced technology is a significant part of the EV appeal. But this group only represents the first 16 per cent or so of buyers, according to the Diffusion of Innovations Theory, published by Everett Rogers at Ohio State University in 1962.

With EV adoption in Canada exceeding five per cent of annual sales (more than 10 per cent in British Columbia and Quebec), we are likely to reach the Early Majority phase in the next few years.

This group of customers will come with a different set of expectations than the Innovators and Early Adopters. It is probable these buyers will be less motivated by vehicle tech, less concerned about “making a statement,” and care more about how an EV can fit into their lives easily and affordably. This pending shift in customer profile has implications for dealers.

As we begin to serve Canadians in the heart of the market, the role of the dealer needs to shift from the current emphasis on “selling” and “closing” to that of “facilitator” (to make easy), helping the customer acquire their new electrified vehicle, including education on advanced vehicle technologies.

Customers in the majority will need support to make the transition from the known and predictable world of combustion vehicles, to the less certain world of e-mobility. Dealers that invest in the levels of education, test drives, and EV ecosystem support needed to convince the market majority to “come on board” will enjoy significant success.

There may come a time when the emphasis will need to shift back to selling, but during this once-in-a-lifetime technology transition to EVs, successful dealers will be expert facilitators.

A recent study of more than 4,300 EV owners and intenders by Plug In America sheds light on two areas of opportunity for OEMs and dealers:

First, the preferred source of EV information and education is neither the manufacturer (third most frequently listed) nor the dealerships (ninth) from eleven possible sources. The most valuable source—by a wide margin—is third-party EV-specific websites, cited more than twice as often as automaker websites and more than nine times as frequently as dealers.

This result should be a red flag for the industry, if prospective owners don’t have the confidence in the brand and its retail network to provide the answers and support they are seeking. Dealers need to be the EV trusted advisor to their customers. Otherwise, the dealer’s role in the value chain will be marginalized, and the likelihood of being disrupted will be increased.

Second, sales consultants are not yet meeting customer expectations for EV-specific knowledge and expertise; only 40 per cent of EV buyers rate their salesperson as knowledgeable or very knowledgeable on this critical measure.

The good news is that we are still in the early innings of the EV transition. For many brands, sales consultants are only now seeing EV models in their showrooms. Confidence and competence in the marketing, sale, education and servicing of EVs is now—or must become—an urgent priority for every dealer.

The Plug In America analysis suggests promising returns for dealers who invest in EV training for their sales teams, in the form of higher volumes and customer experience and referral scores.

As dealers have consistently proven through the decades, adaptation is part of their DNA. What a great opportunity for our industry to accelerate investments in our people and processes and infrastructure to get ahead of the EV adoption curve. The EV wave is coming, let’s be ready.

Innovate to prosper.

Darren Slind is Co-Founder and Managing Director, Clarify Group Inc. and a respected auto industry analyst. You can reach him at dslind@clarify.group

The post The EV wave is coming. Are you ready? appeared first on Canadian Auto Dealer.

Access to unprompted, authentic engagement from consumers can help decision-makers across the industry better understand demand dynamics.

As we contemplate the transition from combustion to electrification, not a day goes by that we don’t read something new regarding what OEMs, suppliers, and industry disruptors are doing to bring new technologies and products to market.

The pace of innovation is incredible; OEMs alone have committed hundreds of billions in capital investment. But not all of these ideas will find commercial success, and some will prove to be nothing more than vapour.

Almost all the buzz relates to the supply side of the industry—look at what’s coming, it’s going to be great! I share this enthusiasm for a carbon-free future. Anyone who has driven a battery electric, plug-in hybrid or fuel cell vehicle knows how satisfying they are to drive. Forecaster LMC Automotive predicts no fewer than 120 full BEV models available to Canadian consumers by 2030. Based on the recent pace of new product announcements, I think this may be conservative.

The Government of Canada has jumped on the supply-side bandwagon with the announcement of the 2035 mandate to achieve 100 per cent zero-emission passenger vehicle sales. I applaud the ambition—Canada needs to do its part to mitigate the impacts of climate change for current and future generations.

One respected survey concluded that nearly seven in 10 consumers are likely to buy an electrified vehicle within the next five years.

However, as I learned all those years ago in ECO100Y, market efficiency is only achieved when demand and supply are in balance, or at least close to it. Are we paying enough attention to the demand side of the equation? Where do Canadians really stand on EV adoption? Are they ready and willing to commit to electrified vehicles on the 2035 timeline? The planet may be screaming “yes,” but are Canadians?

This is not a question to be answered a decade from now as we close in on the 2035 objective. To have any hope of reaching the zero-emission goal, EV adoption needs to increase quickly and with sustained annual acceleration. Starting yesterday.

Several surveys have been released this year suggesting Canadians are hungry for EVs. One respected survey concluded that nearly seven in 10 consumers are likely to buy an electrified vehicle within the next five years. Interesting.

According to Statistics Canada, only 4.6 per cent of light vehicle sales in Q2 2021 had electrified powertrains (BEV and PHEV). Obviously we are comparing apples and oranges with respect to consumer timelines (now, versus five years from now), but a 65 percentage point gap between what consumers say they intend to do, versus what they are actually doing, is cause for concern.

How do we reconcile this gap? How do we develop a deeper understanding of true consumer demand to ensure that, as OEMs, dealers, charge point providers, auto lenders and government policy makers, we are making these big-bet decisions with the full picture of both demand and supply considerations?

If you do what you’ve always done, you’ll get what you’ve always gotten.

As someone who has earned a living conducting consumer studies, I understand the value survey research can deliver. It works extremely well when you know the audience you wish to speak to and can engage with them easily—and customer experience feedback programs are a good example.

But in the last few years, the limitations of this traditional approach have become starkly clear when one is trying to understand future consumer behaviour—low response rates, slow speed and high cost among them. And these aren’t even the biggest challenges facing decision-makers when trying to determine the path forward. The most significant issue relates to the “Say versus Do” gap created when consumers are asked questions related to future intent. How likely are you to consider an EV as your next vehicle?

For many consumers, whether they know anything at all about EVs as an alternative to the ICE vehicle they currently drive, there is a natural tendency to avoid sounding uninformed or not “on trend”—the typical response is “sure.”

Have we seen this kind of response bias before? You bet we have. Think about the 2016 U.S. presidential election. How many polls predicted a Democratic White House? Most of them. Why? Because respondents said one thing in the survey and did something completely different in the privacy of the voting booth. It’s clear at least some Canadians are doing the same thing when it comes to EV intentions.

So what’s the alternative? How do we overcome the “Say” versus “Do” gap to truly understand the purchase motivations, barriers, and authentic intentions of Canadians with respect to EV adoption?

Augmented research

Augmented research uses AI techniques to observe the online discussion and behaviour of tens of thousands (or millions, depending on the subject) of Canadians to assess their attitudes, beliefs, sentiment—and most critically, their anticipated future behaviour on a topic like EV adoption. This approach delivers insights from a far larger sample base than traditional research can achieve, with greater speed and lower cost. And for those of us keenly sensitive to privacy considerations, augmented research does not collect any PII; the identity of individual Canadians is protected.

What makes augmented research so powerful (at least in the case of Clarify Group’s Canadian partner) is the deployment of proprietary algorithms to accurately sample the desired audience, a key advantage of survey research that can now be replicated digitally. This approach yields a target audience where we know with high certainty demographic variables like age, gender, income, and household formation. Lookalike samples are created in each province to ensure we are comparing apples to apples across the country.

Augmented research is not limited by time and space, so we can go back to see how attitudes and behaviours have evolved over time. And, because we are not “prompting” Canadians with survey questions, we are able to assess their natural level of engagement on topics like EV adoption in real time. The “Say” versus “Do” gap is eliminated, leading to more accurate predictions of consumer behaviour.

Augmented research is not limited by time and space, so we can go back to see how attitudes and behaviours have evolved over time.

Our Canadian augmented research partner successfully predicted the outcomes of both the 2016 and 2020 U.S. elections, as well as the U.K. Brexit vote, to name a few high profile examples. How? Augmented research captures unprompted, authentic engagement on topics and does not rely on survey question responses, which can yield significant gaps between what respondents say versus what they ultimately do. Sounds amazing, right?

In the coming weeks, the power of augmented research will be deployed for the first time in the Canadian automotive sector to help decision-makers across the industry better understand demand dynamics. We’ll finally have predictive—not historical—research insights with which to maximize the strategic bets of stakeholders across the industry.

The transition to EV? Bring it on.

Innovate to prosper.

The post Augmented research will be a game-changer for our industry appeared first on Canadian Auto Dealer.

I

Mark Twain allegedly remarked to a reporter in 1897: “The reports of my death have been greatly exaggerated.” Can automotive dealers make the same claim today? On the surface, the answer may appear to be no.

With increasing frequency, we read about new direct-to-consumer (DTC) business models being introduced by manufacturers around the world: Mercedes-Benz in Sweden, South Africa, India and Australia; Toyota in New Zealand; Honda in Australia; Stellantis in the United Kingdom; Volkswagen in Germany; and Volvo globally for its battery electric vehicles. And we have our own made-in-Canada example with Genesis, which launched in 2016 using a reimagined DTC approach featuring an at-home experience, supported by a national network of distributors.

While there are differences across these examples, they share the common elements of OEM inventory management (no wholesale), standardized “no haggle” pricing including F&I, and the customer’s ability to purchase online without visiting a showroom. The retail partner, agency, or distributor supports the customer with information, test drives, vehicle preparation, and delivery on a commission basis. The retail partners operate their pre-owned and fixed operations businesses as they havealways done.

I will argue the future looks bright for auto retail in Canada, if approached the right way.

This description of the rapidly evolving DTC landscape doesn’t even include EV-only companies like Tesla and Polestar, and coming soon to Canada—Rivian, Lucid and Vinfast. There will be more to come as Indian and Chinese OEMs contemplate the nearly 20 million unit North American market. These brands are launching with disruptive vehicle technologies and with an equally disrupting DTC retail model—not a traditional franchised dealer in sight.

As New Jersey GM, Hyundai and Genesis dealer Peter Lanzavecchia recently remarked, “We sometimes get the feeling from some of the legacy OEMs that they wish they could bring their EVs to market as a sub-brand through a different distribution channel.”

So what does all of this mean for Canadian dealers? Are those dark storm clouds forming on the horizon? Do I continue to invest and grow or do I contemplate exiting the business?

Clarify Group’s analysis of the Canadian dealer landscape in 2021 reveals that nearly 1,500 franchise rooftops (43 per cent of the national total) belong to groups of at least five franchises owned by the same dealer.

Consolidation is not a new trend as dealers seek scale efficiencies and risk mitigation across multiple brands and locations. As reported in this publication in July 2020, DesRosiers Automotive Consultants predicted the pandemic would accelerate the pace of consolidation along with the potential for new retail models to emerge, and a more equal balance of power in the OEM-Dealer relationship.

We see no evidence to the contrary. I will argue the future looks bright for auto retail in Canada, if approached the right way.

Yes, the transition to eMobility will put pressure on service and parts and the profitability dealers have historically enjoyed (fewer moving parts equals less maintenance).

Yes, retailers will need to make meaningful investments in digital retailing tools and in EV infrastructure including charging, diagnostic, and special tools.

And it is probable that existing dealer agreements will migrate over time to distributor or agency agreements. This will happen even in those U.S. states that currently prohibit DTC models—the technological, economic, and consumer forces behind the trend are overwhelming.

So why the optimism? TEFF.

TEFF, the acronym coined by Clarify Group, describes how successful auto retailers deliver value to their customers:

Transparent

Retailers who provide transparency with accurate “penny perfect” monthly payments and trade-in values up-front during the online research phase deliver tremendous customer value. The same holds true in service with respect to maintenance and repair costs.

Efficient

Retailers who demonstrate respect for the customer’s time with a streamlined purchase process deliver tremendous value. The same holds in service when it comes to delivering when promised.

Flexible

Retailers who provide flexibility for customers to engage when and how they prefer—and seamlessly, so that it feels like a single customer journey and not two separate online and in-store experiences—deliver tremendous value. The same is true in service when retailers provide customers with options to maintain mobility while their vehicle is being serviced.

Facilitated

Retailers who embrace the idea that their primary role is to facilitate (make easy) the customer’s acquisition of a vehicle, including support with charging options and mobility apps and services, rather than to “close” the deal, add tremendous value. The same holds in service—how can we make your ownership experience more convenient and stress-free?

In a complicated, post-pandemic world, TEFF-aligned retailers ensure their place in the automotive ecosystem by delivering value customer’s can’t get anywhere else.

The financing, lease or subscription of a new or pre-owned vehicle is a very big deal for most Canadians, particularly because vehicles are more expensive and complex than ever before. The ability for customers to enjoy a truly omni-channel experience—to physically engage with the product and a trusted product advisor before they purchase, even if they transact online—is a significant competitive advantage for brands who embrace the role retailers play in local markets across the country.

Retailers who provide transparency with accurate “penny perfect” monthly payments and trade-in values up-front during the online research phase deliver tremendous customer value. The same holds true in service with respect to maintenance and repair costs.

Does this business model sound familiar? It’s a key reason Apple sold nearly 440 million iPhone, iPad, Macbook and related products in 2020. Apple provides a seamless in-store and online “best of both worlds” experience. New automotive brands who choose to forego a retail network, or minimize its importance in their brand experience, will ultimately suffer retention pain.

Dealers uncertain about how the EV market will unfold, especially related to residual values, may prefer the DTC approach as a risk mitigation strategy. Avoiding floor plan expenses, especially in an era of rising interest rates, allowing OEMs to take the lead on marketing, and enjoying gross profit certainty with fixed commissions per model are also attractive DTC benefits.

Combined with the evolution to smaller retail footprints in sales and service as the transition to eMobility accelerates towards 2035, means that Canadian auto retailers can re-think and right-size their businesses to capitalize on the opportunities presented by a rapidly changing industry.

Forward leaning and TEFF-aligned retailers will enjoy a bright future.

Innovate to prosper.

Darren Slind is Co-Founder and Managing Director, Clarify Group Inc. and a respected auto industry analyst. You can reach him at dslind@clarify.group

The post Unfolding the future of auto retail appeared first on Canadian Auto Dealer.

A May 2021 study from Leger reveals that for many Canadians working from home, the experience has been positive, and many are eyeing a hybrid mix of working from home and the office post-pandemic.

As many Canadians eagerly await their second vaccine dose, I am struck by how this once-in-a-lifetime pandemic will bring lasting and permanent change to our lives.

Canadian polling firm Leger, in collaboration with the Canadian Press, recently published the results of their Back to Work study, representing the feedback of 2,626 North American adults over age 18, including 1,624 Canadians. The online poll was conducted over the May long weekend, just as Canada was overtaking America in first-dose vaccinations.

As someone used to reading research studies, it is not often I am struck by a single statistic: among Canadians who worked/are still working from home during the pandemic, only 20 per cent express the desire to return to the office each day and resume their pre-pandemic routine, once health authorities deem it is safe.

For context, 31 per cent of respondents are living the work from home (WFH) experience; the balance are working in an office or non-home workplace (53 per cent).Interestingly, 16 per cent of respondents did not specify their work location—and it is reasonable to conclude the WFH split is at least a third of working-age Canadians, roughly 8 million folks across the country and a disproportionate number of vehicle owners.

Influential management professor Peter Drucker once remarked that the greatest danger in times of turbulence is not the turbulence, but to act with yesterday’s logic.

My surprise at the 20 per cent data point may be a reflection of my age and desire for predictability and routine (cue spousal eye roll). After three decades of commuting to the office, old habits die hard.

But the fact that nearly four in five working Canadians (78 per cent) express a preference to continue their WFH lifestyle in some fashion—from fully WFH to a hybrid mix to the occasional office visit when needed—challenges my assumptions about organizational life and what comes next. Only 2 per cent of respondents were unsure of their preference.

In retrospect, all of the news articles I’ve been reading about explosive growth in residential real estate markets this year, both in transaction volumes and average prices, were already pointing to this reality, as Canadians seek to adjust their homes and communities to optimize the WFH lifestyle.

Source: Leger and The Canadian Press, Back to Work Poll, May 31, 2021

Influential management professor Peter Drucker once remarked that the greatest danger in times of turbulence is not the turbulence, but to act with yesterday’s logic. In this spirit, I offer two takeaways from the Leger poll that will impact our industry:

1. The strong preference for WFH flexibility is evidence of a structural, not temporary, change in how we live and work.

Of those Canadians who worked/are working from home during the pandemic, an overwhelming majority (82 per cent) indicate the experience is positive (a combination of “very” and “somewhat” responses) and nearly two-thirds (64 per cent) feel the WFH experience is either very or somewhat easy.

Suburban dwellers are the most enthusiastic about WFH in comparison to their urban and rural counterparts, presumably because they gain back stressful commuting time. Cloud-based technology tools are proving their ability to enhance the quality of our lives, current levels of Zoom-fatigue notwithstanding.

WFH will dampen long-term vehicle demand and the need for maintenance service as annual kilometres driven decline. Demand for mobility-as-a-service (MaaS) and subscription services are expected to increase, especially from Canadians who no longer need to commute full-time, because the economics of pay-as-you-go mobility are favourable to the fixed costs of owning a depreciating and under-utilized asset (monthly payment, insurance, maintenance, parking and so on).

OEMs and dealers need to create and deliver new value to customers not tied to the private sale of a vehicle. Automotive finance veteran George Bauer, former CEO of both BMW and Mercedes-Benz auto finance subsidiaries, is forecasting that by 2025, 20 per cent of new and used vehicle sales will take the form of subscriptions.

According to Bauer, “subscriptions are today what leasing was 40 years ago… it’s clear [they] strongly resonate with today’s modern consumer, but they also benefit car dealers by expanding their market size through velocity.”

2. The preference of Canadians for WFH flexibility has implications for talent management and retention.

We are no longer restricted to the talent pool living within commuting distance of our business. While the opportunity to attract talent from afar is role dependent, for many knowledge-based positions, geography is no longer a barrier. The tech world has adopted this approach for years with great success—even continents are not barriers when it comes to software developers.

In the auto retail business, while it’s true certain roles like service technician and shop foreman can’t really be separated from the retail location, other roles including technology, accounting, marketing and business development are not bound by the same geographic restrictions. There are already North American dealer examples of digital sales team members being located in different cities.

Developing and retaining remote employees requires managers to deploy new leadership skills.

I have first-hand experience on the subject, having led remote teams across Latin America and Asia. There is not one magic formula to do this successfully, but setting clear performance standards and goals, scheduling regular touchpoints, and liberal use of instant messaging and video chat tools are essential ingredients.

Organizations need to be comfortable assessing employee performance and value on the basis of results delivered, not face time in the office. For automotive dealerships, already laser focused on measurable KPIs like appointments, deliveries, repair orders, and CSI, this transition should come more naturally.

Author Deepak Chopra presciently tweeted in 2018 that “all great changes are preceded by chaos.”

Author Deepak Chopra presciently tweeted in 2018 that “all great changes are preceded by chaos.” We’ve endured enough chaos and sadness over the last year and a half to last a lifetime. Let’s now embrace the positive changes this pandemic is bringing.

Innovate to prosper.

Darren Slind is Co-Founder and Managing Director, Clarify Group Inc. and a respected auto industry analyst. You can reach him at dslind@clarify.group

The post Dealers should consider work at home impact appeared first on Canadian Auto Dealer.

Dealerships have adapted remarkably well through the pandemic, including managing the impact of supply shocks that continue to limit inventories. The result has been an important, but temporary, margin lift. Combined with staffing adjustments and government subsidies, profitability has been better than feared.

As we contemplate sales recovery, we must recognize we’re entering peak auto. Yes, the pandemic is causing some consumers who otherwise rely on public transportation or mobility-on-demand services to consider the benefits of private ownership. But we should not make the mistake of believing this a long term trend. It is a temporary reaction to the virus.

There is too much momentum — technological, demographic, environmental, regulatory and economic — tied to shared mobility solutions. Recovery to two million units may represent our best case scenario. And, once supply chain issues are resolved, we should expect margins to decline to normal levels.

An early mentor at Nissan first explained that dealers have a unique business model, because they simultaneously operate multiple businesses. Given tougher conditions are coming in the sales department, dealers have other profit-generating levers to pull. The NADA Academy recently suggested that when we think of fixed operations, we should substitute the term “back-end” with “back-bone.” I couldn’t agree more.

We’ve reached a tipping point where these same predictive techniques can be applied economically and effectively within our service departments.

Other columnists have written on the subject of absorption, and how dealerships can cover a significant portion of fixed costs through margins generated in service and parts. I will make the case that the most profitable, thriving dealerships of the future will be superstars in the front and back of the house.

There are two reasons why dealerships must increase attention and investment in fixed operations:

1. The market is huge: J.D. Power estimates the annual post-warranty market in Canada (maintenance and repair performed on vehicles four to 12 years of age) to be $9.2 billion in 2020. Dealer share, while increasing in recent years, is only 49 per cent of service visits. This means even a single share point gain is worth $92 million in incremental revenue, or over $26,000 a year for the average dealer.
2. Quality no longer differentiates the way it once did: We’ve seen the quality gap narrow considerably, as documented in J.D. Power’s quality studies. It’s hard to buy a poorly made vehicle today. Retail experience is the loyalty battleground. Customer delight in service dramatically increases the likelihood we’ll sell that customer a new vehicle. And given how many 84-96 month finance contracts we’ve written lately, we need to stay close to these owners if we ever want to sell them another vehicle.

So how do we grow fixed operations without increasing overhead costs? How can we drive revenue and gross margin improvements with today’s pandemic-level headcounts?

Put technology to work.

No, we’re not talking about robotic technicians, though it’s true connected vehicles may mean not every customer needs to return to our shop. The good news for dealerships is that AI tools are available to maximize fixed operations performance.

What if we could shift our focus from the VIN to the customer? What if we could provide a more personalized experience, knowing how to engage with each customer the right way, based on their behavioural preferences for vehicle maintenance?

Our customers already know what this kind of “know me” experience feels like, because they’re receiving it from brands like Amazon, Netflix, and Spotify. These companies harness the power of machine learning to anticipate customer needs and preferences. We’ve reached a tipping point where these same predictive techniques can be applied economically and effectively within our service departments.

We should never engage with a loyal owner the same way we do with a customer who is about to defect. One size fits all is a lie. The days of service marketing by “carpet bombing” (everyone gets the same offer at the same time, in the same way) are over. We have new tools that allow us to engage customers with surgical precision.

A 2021 Gartner study of automotive industry Chief Information Officers revealed that other than cybersecurity, their second investment priority is data intelligence. A simultaneous PricewaterhouseCoopers study reveals why: businesses both large and small that invested in AI (pre-pandemic) to support business processes are now enjoying a widening performance gap — an AI divide — compared to companies who did not.

AI-driven dealer solutions use the data you already generate — DMS transaction data, customer data from your CRM, and CX feedback — to analyse patterns and provide predictive guidance to your BDC team and service advisors, so they can engage with each customer (not the VIN or license plate) the right way. It’s not about the tech; it’s what the tech can do to make your marketing and customer handling processes easier to execute, more personalized and more effective.

Early returns are very encouraging — dealers in Asia who have deployed AI tools in their service departments are seeing meaningful increases in revenue per client (higher service share of wallet), higher customer retention and better capacity utilization, which helps retain hard-to-find technicians — among other benefits.

So, it seems that autonomous driving is not the only automotive application for AI. There are a number of other possibilities that we must consider, and that are being considered.

We must innovate to prosper.

Darren Slind is Co-Founder and Managing Director, Clarify Group Inc. and a respected auto industry analyst. You can reach him at dslind@clarify.group

The post Drive more fixed ops revenue with AI appeared first on Canadian Auto Dealer.

We can’t open a newspaper (correction, open our mobile news feed) these days, let alone the pages of this publication, without reading how technology is reshaping our industry.

A decade ago Silicon Valley technopreneur Marc Andreessen pronounced in the Wall Street Journal that “software is eating the world.” Today, that same statement might use artificial intelligence in place of software.

New mobility companies like Tesla are rewriting the playbook. Established OEMs are realizing that core competencies in design, engineering, manufacturing, and quality are insufficient to guarantee success in a connected, electrified, and autonomous world. We have always understood that each model year of a vehicle had features that were discrete and unchanging over time.

This formula is no longer valid. Vehicles are now software platforms with features and functionality that become better over time as upgrades are delivered OTA (over-the-air), like the iPhone update I recently downloaded.

The scale of transformation that automakers like General Motors, Hyundai, and Volkswagen are in the process of making is nothing short of breathtaking. Global equity markets and governments are demanding it. Consumers benefit from it. To lag in this transformation puts the global enterprise at risk.

But what about the retail network? How is technology changing the role dealers play in the mobility value chain? Like the OEMs they represent, status quo is not an option.

The pandemic accelerated the adoption of digital tools by Canadian dealers. And that’s a good thing, because the imperative to do so (in marketing, sales and service) pre-dates the pandemic. If consumers can order and pay for a customized $6 latte on their Starbucks app, imagine what expectations they have for their automotive retailer.

I can’t take credit for this observation, but my favourite pandemic insight was that the auto industry needs to stop using the expression “digital retail” — it’s just retail, in the same way every other consumer-facing business has evolved, from restaurants to groceries, without adding the descriptor. If we need to label it then omni-channel is better, because it reflects that consumers want choice in how they engage with us — passively online, interactively online, or in-person. For many customers, it’s all three at various points in their journey.

Study after study confirms that consumers expect their automotive retail experience to be: Transparent, Efficient and Flexible. And in the emerging world of electrified vehicles, I propose to add Facilitated to create a new acronym, TEFF. I acknowledge that TEFF doesn’t roll off the tongue as easily as CASE, but it encapsulates the key success factors for auto retailers in a rapidly changing industry.

The word facilitate is key, from the French verb facile, or “to make easy.” With most Canadians using the Internet for at least some of their vehicle purchase, there has been a subtle but important shift in the relationship between dealer and buyer. It is less about selling and closing, and more about facilitating the customer’s acquisition of their new vehicle.

As EVs become more commonplace in our showrooms this evolution from seller to facilitator will accelerate, as we move beyond early-adopters to the heart of the market where many customers need some hand-holding to overcome doubts of moving from ICE to electromobility. The test drive for these buyers is critical, along with supporting home charging and mobile apps to enhance the ownership experience.

New entrants like Rivian are embracing the facilitated experience model with the introduction of Rivian Guides — dedicated brand ambassadors who are paired with the customer to provide personalized support throughout the entire journey, from pre-order through selection, delivery, customer education, and ownership. As the Rivian website explains, whatever you need, your guide is here to help.

The great news is that many Canadian dealers are already innovating to provide customers with a TEFF-aligned experience.

Groupe Park Avenue’s Silver Star Mercedes-Benz in Montreal supports customers with small, dedicated teams (Super Teams) throughout the shopping process, using customized video and vehicle configuration tools. Led by a team leader, the Super Team facilitates paperwork, delivery, and ongoing maintenance needs. No hand-offs, minimal if any friction, and a more personalized dealership and brand experience.

While each Super Team supports fewer customers than a traditional sales consultant, they are able to optimize gross profit across the customer life cycle, including the vehicle sale, accessories, finance, parts and service, and subscription services.

Pfaff Automotive in Ontario was one of the first dealer groups to successfully adopt a “Best Price First” approach across its stores, using market-specific pricing analytics to provide a transparent purchase experience, along with a money-back guarantee. Another TEFF-aligned approach.

Electrified or not, vehicles are a high engagement purchase for most consumers. Dealers play a vital role in the delivery of a great customer experience, and this is true whether in urban, suburban or rural communities.

In future columns, we’ll talk more about the importance of the after-sales experience. But the fact remains, the role of the automotive dealer is changing — just like the vehicles, and the software and apps, that we are selling.

Innovate to prosper.

Darren Slind is Co-Founder and Managing Director, Claify Group Inc. and a respected auto industry analyst. You can reach him at dslind@clarify.group

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