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Retailing and Servicing Autos

The entire retail experience is fascinating, especially that we hear more and more about customer experience (CX) as being a key factor of having loyal customers.

Think about this for a moment.

A while back when vehicles were not as reliable as today, and everyone knew that all vehicles at one time or another would have some sort of a failure. Lets also factor in that all vehicles were dramatically easier to repair. 

It was the humans in the business interacting with human customers that made all the difference, generated the CX, and upheld loyalty.

Fast forward to today...

Vehicles are extremely reliable, and more complex to repair. There is all sorts of technology to make it easier while dealing with a bunch of routine tasks.

Is the customer experience better? Is the ownership experience enduring?

Reflect on this for a few seconds.

Or is it all deal, incentive, process driven with the customer some sort of afterthought?

In the meantime the customer not to be embroyled with product issues is/has adopted a mobility model with a warranty as the interface between the dealer/manufacturer.

Where is the loyalty? Is it deal driven?

You constantly read/hear that CMS (Citizen Main Street) does countless hours of due diligence prior to acquiring a new vehicle. Simple question..."if you have to work too hard to spend money is it worth the effort?"

Does the dealer make it easier or compounds the "work too hard" for CMS to acquire a vehicle. all seems to work we have record auto sales in Canada.

What happens if the current model starts disrupting with an increased emphasis on human interactions?




Residual Values and Risk

As we all look ahead a few years down the road to 2020 there are increasing sound bites that leasing is increasing in Canada, and the risk of residual values.

Here is the deal...

If you have been around leasing for a while (decades) you surely remember there is always a lively debate on residual values, and there will always be a debate.

Leasing in Canada is a great marketing tool. Increasingly CMS (Citizen Main Street) is not interested in owning a vehicle and enduring the aggravations of vehicle ownership/maintenance. The warranty runs out and the wear and tear cycle of any vehicle initiates which is of no interest to CMS.

We could keep on going, and going, and going some more.

But...lets get to residual values.

To lease a vehicle you have to set a residual value at the end of the lease. The residual value is usually a percentage of the retail price (MSRP). Obvious there is a ton of crystal balling that goes on to set residual values. There are a slew of algorithms whirring away to set values, alleviate risk, and also allocate risk to various stakeholders.

Even with all the tools, algorithms, lets be candid the residual risk is a scary thing for a lot of folks.

Canada is a unique and interesting case.

Ten years ago manufacturers were content to assume a residual risk on 50% of the vehicles sold in Canada. At one point manufacturers conveniently got out of leasing and the cloud of residual risk. "If this manufacturer is on unstable financial grounds, and its captive finance company is under a cloud of residual risk from its leasing its really scary".

Especially when leasing was at 50% suddenly the bottom falls out of the leasing model..."Lets offer longer term finance to have a monthly comparable to a lease, and move what was a residual risk to CMS".

"We don't have to crack our heads, run a bunch of algorithms, torture spreadsheets to arrive at residual values and avert finger pointing".

The auto business thrives on a 36 month cycle, the reason leases were usually 36 months. While the strange numbered leases of 39 months, 42 months is to have a units returned at a more opportune time.

In the auto business you can keep a lease cycle going and going and going....reflect on this for a moment.

Converting lease customers to a longer term finance is very easy the outset. "You had a 36 month lease we can put you in a 48 month finance for the same monthly"...."Think about it now you will actually own the vehicle with only your name and the ownership, and you can drive it as much as you want".

The customer returns or is pulled ahead at 36 months, the warranty ran out, and wants a new vehicle "Sadly you owe more than its worth, don't worry about it, we will go to 60 months for the same monthly, but now we suggest you buy gap insurance too".

In Canada the manufacturers that continued to lease (step up to a residual value risk) have grown their business in the past 10 years. The manufacturers that transferred the risk to CMS with extended finance terms are under increasing pressure to accommodate CMS in rolling over deficiencies.

Now you hear sound bites of CPO programs, 60 months leases, residual values plummeting, and leasing is increasing slightly in Canada.

The reality...everyone is stuck in these long finance terms, pulling ahead, rolling over deficiencies.

The individual in the back of the room that did not abandon leasing; has understood that its a powerful tool. Do you think that this individual for a moment will share the leasing knowledge base they acquired in the past 10 years? We don't think so.

Is there a possibility that this individual will support and encourage the current "leasing sound bites"...what do you think?

Which is a bigger risk? Residual values or pulling ahead, rolling over deficiencies on finance terms that are close to the limit...what do you think?




Looking Slightly Over The Horizon

If you are in any business, you always "look ahead" in one fashion or another.

It might just be a case of "what's up with the immediate future?" are there any signposts that will provide some reference points.

There are all sorts of variables, everyone jumps on the digital wagon, pressures from all sides, customers increasingly demanding more, and lets not forget the legion of experts.

We could keep on going, but you surely grasp our direction.

Lets focus on the auto business in Canada. need to move iron for the business to flourish.

Yes again...2016 will be a record year for new vehicles, on top of a record 2015. While the signals during the past couple of months are cautionary.

Looking slightly over the horizon, 2017 is looming larger and larger.

Between digital here and there, all sorts of software, processes, experts, mobility, AV's you still have to look over the horizon and craft some sort of vision for 2017.

Better yet, which dots are you going to connect? The ones that everyone is talking about? The ones that you uncovered and no one is talking about? Agreed its easy to go with the flow and connect the same dots as everyone else.

A few points for your consideration...

  • The auto business is on a mission to increase variables, models, and complexity.
  • At the same time 20% of the models generate 80% of the sales.
  • As a dealer if you think that having a smooth, efficient process in your showroom, or service drive through is a key to have a problem.
  • As a customer, after doing all the online diligence for model XYZ, knowing the price, the incentives, researching the value of your trade in, e-mailing the dealer, setting an appointment...suddenly the metal does not have a problem.

Its a brave new "auto business" world looming on the horizon for 2017 in Canada.



Automated Vehicles

An informative and thought provoking Canadian survey and study on AV's.



Closing A Deal

Reflect on some point a customer will interface with a touch screen and close a deal on a vehicle in a showroom. Similar to a self check out in a grocery store.

Sounds totally far fetched, considering the disparate software that is currently in most showrooms.

Imagine for a moment Watson from IBM takes over the entire showroom activity with a touch screen, and a human assistant to guide the customer along.

Totally the wall...

AV's deserve an autonomous showroom...again off the wall.

Lets look at a few points in no particular order.

  • Everyone has a consistent showroom process (or they wish they did).
  • A consistent process is like an assembly line with robots.
  • A bunch of decisions are made with the assistance of software.
  • Numerous software entities are working towards "software closing and processing a deal".

But the metal must resonate...agreed.

  • With the ever increasing popularity of utility vehicles (a box with a turbocharged 4 cylinder).
  • We all know that utility vehicles are lifestyle oriented with a brief shelf life.
  • When it comes to utility vehicles "how much must the metal resonate?"

Its absolutely far fetched, and looming on the horizon.



Servicing Autonomous Vehicles

We all know that vehicles are more reliable, and complex.

We have come a long way from the simple mechanical car of a few decades or is it generations ago.

As vehicles become more sophisticated, and complex with higher technology content, the disposability of the vehicle increases.

With all the technology, sophistication, complexity, a lot of the under chassis requirements are a constant, tires, brakes, oil change, exhaust, suspension components...its all changed, and its still the same.

From a diagnostic perspective most vehicles have a self diagnostic functionality, all manufacturers have specific diagnostic tools for their vehicles. Its "plug it in and see what comes up on the screen".

But what will be unique about AV's...

From our perspective servicing autonomous vehicles...

  • These vehicles will be connected, and monitored 24/7.
  • Will require mandatory inspections at regular intervals.
  • Autonomous capability will be deactivated if inspection schedules are not respected.
  • The vehicle can drive itself to the service department...think about this.

The safety and liability aspect of the vehicles will enforce a servicing, inspection, maintenance schedule.

Imagine a dealer seeing a bunch of AV's show up at the service drive through, with pre scheduled appointments, and pre authorised payments. Once the inspection/service is complete. The vehicle drives itself back to the owner.

What do you think?




The Autonomous Vehicle Progression

If you are an auto enthusiast, or a die hard gear head. At some point autnomous or self driving cars blipped on your radar screen.

The usual response to the blip is A-that will be the day B-interestng how will cars drive themselves?

At Strada we took in interest a few years back on how cars will drive themselves at some point in the future.

Technology in the auto business takes various paths, often with fascinating twists and  turns. Keep in mind that most of the technologies related to driving are simply there in any vehicle. You don't turn on the ABS, air bags, traction control its all there and we trust that it will activate when needed.

When it comes to self driving vehicles we are at the point, where a vehicle can control its own speed, stay within a lane, brake, and possibly even steer by itself. Its all cool stuff...

Most vehicles from most manufacturers already have most of this technology. As usual the more expensive models connect a few more dots or wires to make it all work together. While most manufacturers mention the technology, and in the owners manual publish pages of warnings.

Let's not forget that currently, the driver turns on the technology, and the driver is expected to keep their hands on the steering wheel.

In an age of social media, where everyone has an opinion, and can publish an opinion. Lets leave it that, we always urge you to be your own editor.

How come all these car experts don't talk much about this, and if they do it was at some supervised demonstartion from a manufacturer. Its simple, from our perspective you have to spend time and cover a distance to have a reasonable understanding of how the "autonomous" works in any vehicle.

How come manufacturers are discreet, they mention the feature, publish the warnings in the owners manual on the premise of "Its there, this is how you use it".

One question is always "How will these vehicles interface with reality on public roads?" From our perspective the one's we have tested do it very well.

The really big question is "How will it develop when an accident occurs?" Suddenly instead of just talking it will be walking the talk in the real world.




The Epiphany of Humans and Autos 

At Strada we believe that humans make a remarkable contribution, and difference in the auto business.


When looking ahead, the obvious landscape is one where technology rules the day, and humans are some sort of an appendage.

Its technology here, there, processes, and the entire business and world evolves on a screen. There are complexities, variables, immense amounts of data all over the place.

There have been folks selling cars, and folks buying cars for almost a century. If you look at what is going on today, and the fashion tomorrow seems to be developing on the horizon. You have to wonder how these folks a few generations ago did it.

If you don't have this technology, that software, a presence on that platform as a dealer you are missing out. If you don't do your due diligence on your mobile device, know the cost, read reviews of vehicles and dealers, as a buyer you are missing out too.

At some point it begs the question "Who has time for all this stuff?". Especially with time being increasingly compressed, and attention spans that are shorter and shorter.

How did these folks from a couple of generations ago do it? How did a customer that had no access a ton of product information buy a vehicle? How did a dealer manage a parts department or a used car department without technology?

The stereotype of the guy in the plaid suit selling a used car was rampant. Think about it...compared to today the reliability of the product was scary...let alone the individual selling an unreliable product.

Factor in a blind loyalty for a manufacturer, or brand...Wow...most folks did not even come close to a competitors product.

We could keep on going...the question lingers how did these folks do it?

A simple scenario...from back in the day when electronic calculators did not exist, let alone a DMS, and product information resided in the showroom.

Many dealers retailed 60-70 new vehicles a month, 30 used vehicles, had a 15 stall service department, and a body shop, lets not forget the 30 car showroom, and close to 150 new vehicles and 60 used vehicles in inventory.

Customers with extremely limited product knowledge would walk in all day long and acquire vehicles both new and used.

Going back a couple generations the auto business in North America was comparable to Silicon Valley of today. While dealing with mechanical cars, and absolutely no technology. Back then it was normal for some folks to trade cars every year for the latest folks trade "smart devices" for the latest model...not so much cars.

Humans made all the difference...worth repeating humans made the difference.

With all the discussions of Millennials, do you think its the technology, or the humans that will endure in making a difference?





Windows of Opportunity

In the auto business there have always been "windows of opportunity" in one fashion or another. Obvious that by the time a window of opportunity becomes "pedestrian knowledge" its already on the wrong side of the curve.

What is a window of opportunity? A window of opportunity is a short time period during which an otherwise unattainable opportunity exists. After the window of opportunity closes, the opportunity ceases to exist.

As you can appreciate empowered by technology, "windows" open and close with increased rapidity. Yes...some folks "get hung up to dry".

The value of the Canadian dollar has presented several windows of opporunity during the past decade. Let's consider 2016 and looking ahead for the short term.

Yes...we all know that the CDN dollar has tanked, visited the bottom of the dumpster for the past several months.

The tanking has created a unique window of opportunity for the auto business in Canada.


For CMS (Citizen Main street) the lower value is unique in generating robust used vehicle (trade in) values for numerous makes, and models. Stronger values have a direct impact on the level of negative equity. Need we say much more?


Its presented a unique opportunity to pay aggressive amounts for trade ins, to close deals. As well as managing used vehicle inventories. Could it be that its a factor in record Canadian new vehicle sales this year?


Have ramped up the inventories of new vehicles, applying pressure on dealers to move iron. While deploying selective "dynamic pricing".


Are enjoying a golden time selling a myriad of vehicles to "American" buyers.

Its all good for everybody...

But...and there is always a now its coming to an end.

If an additional 100,000+ used vehicle were exported from Canada to the US in the grand scheme of things it might be a drop in the bucket, especially for the US market. But it also made it easier to close deals in Canada, and manage inventories.

The bigger BUT...

The scarcity of used vehicles in the US is a thing of the past, they are not so scarce anymore. While its anticipated that values will continue on a downward slope from now till the end of the year.

From our perspective this "window of opportunity" is closing.

Is there a lesson...absolutely...don't get caught too far on the wrong side of a closing "window of opportunity".



Thoughts on "The Spread"

Do you remember when the spread was at least 15% and all the product information resided in the showroom?

This goes back to the days when dealers were of questionable ethics (presumably), and customers were victims. Knowing the "dealer cost" was the key to empowerment for CMS (Citizen Main Street).

Fast forward to 2016 and keep an eye on 2020.

The spread is down to often less than 10 points (10%) on new vehicles.

Invoice or the "dealer cost" is irrelevant.

What the "other" paid is also irrelevant with a ton of trades upside down, accident reports, and various credit scores.

There is an increase in the variables. Who really has a grasp of all the variables? Obvious that everyone is hanging on to "something" to at best uphold their position, and sense of causality.

The advent of dynamic pricing has empowered who? Where does the money to execute aggressive dynamic pricing come from?

A simple example...

When the spread diminished from 15 to lets say 10 points, lets say that 5 points went into the dynamic pricing reserve.

If a manufacturer retains 5 points, and they go into the "dynamic pricing reserve", and no one knows from month to month where the reserve will be applied. It makes for interesting times in the auto business.

What motivated manufacturers to embrace dynamic pricing, and have a reserve? Its a conversation for another time, but think "dealer groups" as a starter.

If you conclude that the spread is still 15% + you might be correct.

If you conclude that the dealer no longer controls the entire spread, you might be correct again.

But CMS is empowered, he/she has all the product information, can compare, has dealer cost all readily at hand. Sure they do!

Does CMS know where the "dynamic pricing reserve" will be applied from month to month by all the manufacturers?

More important does CMS care?

In 2016 CMS in Canada cares about a monthly payment, and "shopping a lesser deficiency".

The spread has not changed for decades, its being repackaged by manufacturers. Reflect on this for a moment, connect your own dots, and fast forward to 2020. will get dramatically more interesting, exciting, and it might just take your breath away if you are ill prepared.