Digitally Disrupting Dealer Systems

I hesitated to use the D word here.  So much of digital is normal, healthy evolution, that saying “disruption” is like crying wolf.  So, I will digress briefly into that discussion before presenting my thesis, which is: traditional dealer-system providers are about to be whipsawed bigly by digital retail.

According to Gartner, digital disruption is “an effect that changes the fundamental expectations and behaviors … through digital capabilities.”  This idea of changing expectations is echoed by Aaron Levie, to the effect that businesses “evolve based on assumptions that eventually become outdated.”

If your UI even vaguely resembles an airline cockpit, you’re doing it wrong – John Gruber

Another common theme in studies of digital disruption is that people will come from outside the industry, bringing new attitudes and techniques that incumbents can’t match – something I like to call “advanced alien technology.”

Modal’s Aaron Krane came from online sports betting, and famously wondered why there is no “buy now” button on the Mercedes-Benz web site.  Andy Moss of Roadster came from online fashion retail.  I think I am on solid ground arguing that DR pioneers bring something fundamentally different.

In fact, I can identify the baseline assumption which is now outdated.  In olden times, the user of auto retail software was an auto retail employee.  These were experts, executing an esoteric process, and they could be trained to deal with crappy user experience and disjointed workflow.

Today’s user is, of course, the car buyer.  A few years ago, I wrote that each of the six canonical tasks in DR would need a “buddy” on the dealer side, with which to share information.  For example, the website may disclose prices for protection products, and it would be nice to pull retail markup from the menu system.

It’s hard to believe how quickly DR has evolved.  Roadster had just launched Express Storefront when I wrote that article, and already the buddy system is dead.  If a car buyer can desk her own deal, at home in her pajamas, why use a different system in the dealership?

The advantages to using the same system in store and at home include trust, transparency, cost savings, and reduced demands on the salespeople.  The new generation of in-store DR means that salespeople can be experts in customer service (and cars) instead of complicated software.

This marks the culmination of important trends in auto retail, from “one experience” at Sonic to “single point of contact” at Schomp, and it should serve as a wakeup call to old-school software vendors. Digital retail will drive a gradual shift in dealer process, but a rapid one in software.

Digital Retail Taxonomy

The tech buzz at NADA this year was Digital Retail.  Tagrail has a new partnership, with dealer site provider Fox, and Moto showcased some of their OEM projects.  Roadster has an aggregation marketplace, which I’ll get to in a minute, and Modal (Drive) was conspicuously absent.  I hope they’re okay.

All dealer site providers are now claiming the hip acronym DR, including some that are way off the mark.  This week I want to cut through the clutter and taxonomize a bit.  We’ll see how well my predictions from five years ago have held up.

Dealers will migrate onto the most capable of the platform sites, and … the winning platforms will not be mere lead providers.

I am going to skip the consolidators and the used-car sites, to focus on DR solutions for franchised new car dealers.  That was the context for the earlier article (and the pull quote).  The grid above divides the DR space into four segments: True DR, Pivoters, TPC, and Marketplaces.

True Digital Retail

A true DR solution must handle the six canonical functions, do the paperwork online, and save the deal (not a lead) for use in the dealership.  True, not many customers will do the full process online, but you have to offer the capability.  Qualifying questions here are along the lines of “can you sell a service contract and book it online with the administrator?”

I don’t want to be pilloried for omitting someone, but my short list (when asked) goes: Roadster, Moto, Modal, Tagrail, AutoFi, and CarNow.  I can find CarNow dealers pretty easily online, paired with a variety of site providers.  Here in Atlanta, Ed Voyles is an example.

Pivoters

Anybody with a foothold in the dealer’s website is using it to pivot into DR.  The first group of pivoters are what I call “finance first” sites.  AutoGravity, DriveTime, and AutoFi are sites customers use to check their buying power before going into the dealership.  Based on intel from Ricart Ford, I would say that AutoFi has successfully pivoted into the DR segment.

Gubagoo is using their foothold in chat to pivot as “conversational commerce.”  SpinCar is adding protection products to their VDP real estate, which is right where they belong.  Even popular F&I menu Darwin is moving online with Darwin Direct.

Third Party Classifieds

My model for a marketplace is Autotrader plus its DR feature, Accelerate.  However, the other incumbents have not followed suit.  In fact, Cars.com “does not sell vehicles directly and is never a party to any transaction between buyers and sellers.”  This space is inhabited only by brave new entrants like Joydrive, GoGoCar, and Deliver My Ride.

As I wrote here, this model has plenty of challenges, like finding UX and services that will appeal to all dealers – not to mention the customers.  Dealers may prefer a simple clickthrough to their own DR solution.  This is the backdrop for Roadster’s Express Marketplace.

Roadster Marketplace

Roadster’s marketplace operates just like a TPC site.  It has the familiar VSP/VDP with faceted search, but then it segues into a full digital storefront.  The reference site I looked at, Cochran group in suburban Pittsburgh, lists 3,500 new vehicles in 18 makes, from 26 rooftops – with transparent pricing!

My first reaction, I have to say, was “Holy crap, they’ve actually done it!”  They have made their own private Autotrader.  Of course, the same market area lists ten times as many new cars on Autotrader but – funny thing – they all use Accelerate.  Competition is wonderful that way.

The arrows on my grid suggest some strategic directions:

  • Single-function solutions will pivot to become storefronts. AutoFi is an example.
  • Third-party sites will add DR functionality. Accelerate is an example.
  • As storefronts grow to serve dealer groups, they will tend toward marketplaces.

I guess the only remaining frontier would be for two unaffiliated groups to cooperate on a single platform, as I wrote in Toward a Digital Auto Marketplace, maybe in contiguous nonoverlapping markets.  The eCommerce term is “coopetition.”  Or, maybe Accelerate will gain some traction.

Schrödinger’s Combo Product

NADA has recently published a model policy for properly selling F&I products, i.e., without running afoul of the Attorney General.  It includes the disclosure formerly known as the AutoNation Pledge, and a new procedure which seems to be taking the place of the old-school waiver form.  I say “seems” because there is no mention of the old form, which I believe has something to do with nuclear physicist Erwin Schrödinger.

Prior to the sale of a VPP, the Dealership will request the customer’s acknowledgement of the election to purchase or decline each selected VPP or VPP bundle.

As everyone knows, subatomic particles exist in an indeterminate state until they are pinned down by measurement.  For example, if you have a radioactive isotope of Cesium, you can’t tell whether it has decayed until you aim your Geiger counter at it.  Not only can you not tell what state the atom is in, it is not definitely in any state until you measure it.

To show how this contrasts with traditional physics, Schrödinger proposed the following thought experiment.  Imagine there is a cat in a box with the Cesium rigged to kill the cat when it decays.  According to the Uncertainty Principle, the cat is both alive and dead at the same time.

Similarly, the F&I waiver requires each product to be either accepted or declined.  You bought the dent protection, so it prints in the green column, but you turned down roadside assistance.  It prints in the red column.  To save a few dollars, you are willing to leave your family stranded.  Please sign here to confirm.

But what if dent and roadside – and key and windshield – are part of the same bundle?  You only bought one of the components, so it would be misleading to print it in the green column.  On the other hand, you are not going to confirm declining the bundle, because you did buy part of it.  So, in which column does this product belong?

Here are some ideas:

  • The menu system should account for the child products and print them individually on the waiver. It should also count them separately as product sales.
  • The menu system should print the coverage description, and the coverage description should state which components were accepted.
  • Providers should offer bundles all or nothing, and not allow them to be split up.

Unlike Schrödinger, you will not win the Nobel Prize for solving this one – but you can provide some guidance to your fellow F&I practitioners.  Click the link below to register your answer.

REST Primer for F&I

I have worked with more than a few APIs, both “F” and “I” – pretty much all of the product APIs, plus the original open standard for credit applications – and I write about them occasionally.  See here, here, and here.  Mostly these have been SOAP, but REST is the standard for a growing community of digital retail players.

The first thing you need to know about REST is that it’s not synonymous with JSON.  If you get this wrong, you can produce a really bad API.  I saw one once, where the developers had simply converted all their old XML payloads to JSON.  You could tell because every call was a POST, even the rate requests.

Why is JavaScript more successful on the Web than Java? It certainly isn’t because of its technical quality as a language – Roy Fielding

The key to REST, as you can read in Roy Fielding’s dissertation, is making appropriate use of the Web’s native HTTP environment.  Practically, this means knowing a little bit about HTTP and how to use its commands, URLs, parameters, and headers.  For a concise guide, see The REST API Design Handbook by George Reese.

Philosophically, it means thinking about your API in terms of resources and not services.  This is completely different from SOAP APIs, which are called web services.  For example:

  • GET rates from a product provider, but
  • POST a new contract, and then
  • PUT status codes on the contract to void or remit

Fielding’s achievement was not only to define the REST style, but to derive the style from a specific set of requirements: stateless, client-server, code on demand, etc.  If you have ever wondered why JavaScript has become so popular, it is because JavaScript satisfies the code on demand requirement.

When you build a RESTful API, you should never break existing client code. Really, never. You don’t deprecate – George Reese

The URL in a REST call looks like a path, so you can do groovy things like:

  • GET /rates/{dealer} – gets all applicable rates for this dealer
  • GET /rates/{dealer}/{product} – gets only one product
  • GET /rates/{dealer}/{product}/GOLD – gets only the Gold coverage
  • GET /text/{dealer}/{product}/GOLD – gets the rich text description for Gold

For some live examples you can run right now, check out the NHTSA Vehicle API.  It has many handy methods like:

  • /vehicles/DecodeVin/{VIN}
  • /vehicles/DecodeVinExtended/{VIN}
  • /vehicles/GetAllMakes
  • /vehicles/GetEquipmentPlantCodes/{Year}

Note that you are making the request with straight HTTP and a query string, and you can have the response as JSON, CSV, or XML.  The NHTSA site will also show you the headers, the raw data, and formatted data.  Your tax dollars at work.  You should also check out the Edmunds API, VinSolutions, and Fortellis.

  • //api.edmunds.com/api/vehicle/v2/vins/{VIN}
  • //api.vinsolutions.com/leads/id/{LeadId}
  • //api.fortellis.io/vehicles/reference/v4/vehicle-specifications/vins/{VIN}

These are all examples you can emulate if you’re just getting started.  In particular, I recommend studying how they handle authentication and versioning.  Note how they’re organized around resources and, if you have an OO mindset, think of your objects first.  You will also want to look at platform tools like Swagger and MuleSoft.

Tier One Digital Storefront

Today, we continue our discussion of digital retail, this time from an OEM perspective.  Suppose you work for Morris Motor Finance and you want to get in on the fun.  The most straightforward way is to subsidize your dealers’ use of a storefront.  Simply negotiate a discount with one of the leading vendors and supply it to dealers who meet their penetration goals.  You may already have programs like this, encouraging dealers’ use of a credit system or a menu.

In addition, you may want to add digital retail capabilities to your tier one website.  This is a bit of a balancing act.  The customer is here to see the full range of vehicles and accessories, along with your financing options and Morris branded protection products.  Once you make the turnover to a specific dealer, the selection will be limited.

So, either you drop downfunnel straightaway, like ShopClickDrive, and the customer is only looking at one dealer’s inventory, or you run the risk of promoting something that a specific dealer doesn’t have.

Another conundrum involves the display of pricing online.  Dealers have gotten used to the idea of disclosing MSRP for vehicles, and maybe finance rates, but there is still resistance to online MSRP for products.

I don’t need to tell you how to handle the Morris Motors dealer council, but you might want to assert a division of labor.  Your site is higher in the purchase funnel, where 22% of new car buyers will start their journey, and serving a different purpose.  Now let’s consider the six canonical tasks:

  • Choose a vehicle – The customer is not choosing a specific vehicle from inventory, but a generic new vehicle by model and trim, or a build vehicle. This is also the time to upsell accessories.
  • Price the vehicle – Using MSRP simplifies the design, but it also impairs accuracy. If the price changes, the dealer may recalculate the deal with his own desking system.
  • Price protection products – Show products before structuring the deal, because they will be financed, and you don’t want the customer fixed on a payment that doesn’t include products.
  • Value the trade – In this scenario, I would recommend a simple KBB lookup with the customer choosing “good” condition from a list, assuming that it will be revised in the dealership anyway.
  • Structure the deal – The goal here is basically to choose lease or retail and promote your offerings, plus any incentives. Unlike the dealer’s desking system, you don’t need to be penny perfect.
  • Organize financing – Obviously, you want first crack at the credit apps, and then you need an interface so you can feed the result into your dealer’s credit system. Send your declines, too.

Lastly, the customer will save the deal and transmit it to their chosen dealer.  It is really more of a “lead” than a deal, at this point, and you have a “lite” version of the digital storefronts we have been discussing.  I toss out the interface thing lightly, because this is my specialty, but you will have to choose whether to work with Route One, VinSolutions, Dealer Socket, etc.  Back to the dealer council…

Penetration Chart with Bokeh

I have been honing my charting skills lately, because Bokeh is so amazing, and looking for practical applications (outside my stock trading hobby).  Here’s one I found recently.  This chart explores the timeless question, “are product sales off because the dealer isn’t supportive, or are vehicle sales off, too?”

I am thinking of protection products, but the same question could be asked of finance contracts or, indeed, anywhere you need to consider “penetration.”  That is, the percentage of vehicle sales that are also sales of your product.

Are product sales off because the dealer isn’t supportive, or are vehicle sales off, too?

In this chart, we consider year over year change in contracts relative to the change in vehicle sales for a collection of dealers.  Bubble size indicates the size of each dealership in sales volume.  We’ll get to bubble color in a minute.  Also, note the horizontal and vertical zero lines.

The dealers in the lower left quadrant have an excuse.  Riverside, for example, is down 30% in product sales.  When you call them, though, they’ll counter that they’re having a bad year.  Volume is also down, albeit only 11%.

The dealers in the lower right quadrant have no such excuse.  Downtown, for example, is also off 30% but on much improved vehicle sales.  So, we can infer that penetration has declined, and color them a darker shade of red.  Similarly, although contracts are up at National, they should be up more considering the good year they’re having.  So, orange.

O’Malley is green because, while contracts are off a bit, vehicle sales are worse.  O’Malley is doing the right thing and ramping up products to compensate for weak sales.  What the chart shows on the X and Y axes is straightforward enough, but it shrewdly assigns colors according to the change in penetration.

Bokeh is the visualization library Python programmers use instead of R or Matplotlib.  The color scheme here comes from running its red, yellow, green “linear color mapper” diagonally across the chart from lower right to upper left.  Dealers where penetration is unchanged from last year are yellow, like College and Bellevue.

Moto Commerce Digital Retail

Moto Insight has uploaded a complete demo of their digital storefront, Moto Commerce.  This shows confidence that they’re not worried about being copied, or being anatomized by some smart-aleck software consultant.  Here’s how Moto handles the six key functions:

  • Choose a vehicle – Including accessories.  I write a lot about the importance of protection products, but accessories are important too, especially for certain brands like Honda and Subaru.  Everything is shown at MSRP but, because the site is customized for each dealer, I imagine there is some flexibility.
  • Price the vehicle – Including incentives.  No idea whose data service they’re using for this.  I usually recommend Market Scan, but it is possible to roll your own.  Rodo recently developed their own incentives engine.  I tried to coach one of my clients on this, but they wouldn’t do it.
  • Price protection products – Including digital content.  Not clear how finance term is linked to protection term.  Customer could choose, say, 36 months of GAP on a 72-month deal.
  • Value the trade – They use Trade Pending, which I mentioned here, but they also offer a condition quiz with the ability to upload photos.  This is very strong because it allows the Used Car manager to bid on the vehicle during the online experience.
  • Structure the deal – The calculator is always running and continuously updates the monthly payment.  This is one approach to the nonlinear workflow problem, but it also means the customer is looking at an inaccurate payment throughout most of the shopping tasks.
  • Organize financing – Here, again, it’s hard to have confidence in the payment until we’ve processed a credit app.  The demo shows the customer choosing term and rate, as if his credit tier is already known.  Moto pushes to Route One and Dealertrack, but it should also pull.

Overall, Moto is a solid online shopping experience.  It does not literally sell the car, in the sense of doing the paperwork, but it does produce a complete, deliverable deal.  Next, the customer can reserve the vehicle, save the deal, and make an appointment.

The in-store version of Moto uses the same pages, making a seamless “omnichannel” experience for the customer.  This means it’s a potential replacement for your desking and menu systems.  Customers can also begin the process in-store, and take the deal home.

I’ll close with Andrew’s hook from the video.  Imagine your dealership offers this experience, and the other guy has only a lead form.  Which do you think the customer would rather work with?