Provider Support for Digital Retail

A couple of press releases caught my attention last week.  The first one was APCO Acquires Strategic Diversified.  So, what’s new about that?  F&I providers have been acquiring agencies ongoingly, in parallel with consolidation among car dealers.  What caught my attention was this, from CEO Rob Volatile, “the additional resources APCO will provide, particularly in digital retailing, will help our dealers thrive in the changing times ahead.”

“The additional resources APCO will provide, particularly in digital retailing, will help our dealers thrive in the changing times ahead.” 

By now, everyone understands that small dealer groups don’t have the resources to compete effectively in digital retail.  This includes even the mighty Larry Miller group.  As CEO Steve Starks said of the Asbury sale, “we had grown the business about as large as we could without having an over-the-top digital retail strategy.”

Product providers, agents, and finance sources must have value-enhancing digital skills – which brings me to the second press release, Assurant Unveils Omnichannel Sales Optimization Suite.  This, again, is not new.  All providers have some kind of digital outreach program.  I served on the digital retail team at Safe-Guard.  In addition to my main job of growing the API business, we provided research, content, and coaching to our clients – not unlike Assurant’s offering.

What caught my attention was the high-profile announcement including, as McKinsey recommends, senior leadership for digital transformation.  This same SVP, Martin Jenns, is quoted here in an Automotive News roundup.

How F&I Providers Can Support Digital Retail

So, what can a product provider do to support “omnichannel sales optimization?”  I asked some of my pals in digital retail.  Definitely the training and API capabilities, plus digital content.  Cited as leaders were Assurant and JM&A.

“Providers should pay specific attention to how their products will present on a digital retail platform.”

The best advice came from AutoFi’s Matt Orlando, who told me, “providers should pay specific attention to how their products will present on a digital retail platform.”  That is, instead of the (completely different) experience on a portal or a menu.

For example, a service contract may have more than one hundred combinations of coverage, term, deductible, and other options.  That doesn’t work for an online consumer.  Providers should apply some analytics, Matt said, and transmit only the most-likely rates.

Short, snappy videos are the preferred digital content.  Digital retail vendors will generally set these up on request although, in my experience, it’s better if the provider can transmit the latest content via API and in various formats.  See my REST Primer for F&I.

  • White papers – Do some research, find success stories, and write informative long-form articles. Also, promotional content like newsletters, roadmaps, infographics, and this eBook.
  • Coaching – For your non-reading clients, be prepared with live-delivery content – and people.
  • API capabilities – Invest in advanced API capabilities like real-time analytics and digital content. Push the envelope of what digital retail can present.
  • Digital content – Produce digital content as video, image, and rich text (not HTML) for each level of your product hierarchy.
  • Resource center – Make all of this available to your clients using a purpose-built microsite – and people.

I remember back when the old-timers used to say that protection products “are not bought, they’re sold.”  Well, digital F&I results now exceed those in-store, with some platforms reliably above 2.0 product index.

In the midst of an inventory shortage, dealers must sell more product on fewer vehicles – and product providers must be part of the solution.

Digital Retail Consolidation

There has been a wave of buyouts and tie-ups lately, and so it is time to reexamine the competitive landscape.  We start by fleshing out the model I described in DR and Dealer Websites.  This is a commerce-oriented model, placing software products along the customer journey.

Looking at the three big DMS vendors, we see Roadster and Gubagoo filling important gaps for CDK and Reynolds.  Cox has long been in this space, now with Accelerate, and MMD before that.  Cox is the only one of this group to own a listing platform, Autotrader.

Last year, CDK sold its dealer marketing operation to Ansira, including the dealer site business formerly known as Cobalt.  The new entity, Sincro, now has a tie-up with Tekion.  As far as I know, this is indeed the first real-time interface from website to DMS.  I have worked with clients on other DMS interfaces, but none that cross the Buy Now boundary.

In the dealership, I list only the DMS, although the model could be extended to break out other point-of-sale systems.  Note that CDK and Dealertrack no longer have their own menu systems.  Both are now offering Darwin under license.  To round out the DR theme, I include TrueCar’s tie up with AutoFi, and Fox Dealer’s acquisition of TagRail.

So far, so typical.  Everybody wants a DR partner, and the big vendors have always acquired the innovative upstarts.  But now, we discover a new theme. CDK paid a lot of money for Roadster, $360 million, to plug a gap in its product line.  Why did J.D. Power, not a software vendor, pay even more for Darwin?

Digital Retail Acquisitions are Big Data Plays

J.D. Power is primarily a data business.  They own ALG and Autodata.  According to the press release, they are “focused on maximizing the value of our extensive data and analytics assets.”  Darwin, through its powerful DMS interface, has been reading and analyzing sales data for thousands of dealers.

MotoInsight, the Canadian DR company (my profile here) was recently acquired by a unit of Thoma Bravo, which in turn owns J.D. Power.  Seeing a pattern yet?  The Autodata merger is pretty recent, and also mentions analytics.

“In working with Modal, we are leveraging aggregated purchase data and AI to improve conversion.”

Another DR player, Modal, recently teamed up with a data science company called Inmar.  I couldn’t find the commercial terms, but founder Aaron Krane has stepped back.  There’s a new CEO, and a plan to “catapult analytics to the forefront.”

The press release for the recent acquisition of Dealer Socket by Solera, “the preeminent global data intelligence and technology leader” specifically mentions machine learning.  While we’re at it, let’s note that Automotive Mastermind is a unit of IHS Markit, as are Carfax and R.L Polk.

You’ve probably heard that “data is the new oil.” Opinions vary, but I think the metaphor holds up here.  If you study analytics the way I do, it’s easy to see the data resources underlying these transactions.  You can also check out this book, or the usual sources like HBR and Sloan.

Digital Retail is “the engine,” giving customers a self-sufficient buying experience.  This engine is amenable to endless AI-based use cases, from recommenders to NLP chatbots … and AI runs on data.

Car Search Aggregation

I was rereading Professor Rogers’ book and I had this brainstorm that somebody should develop an aggregator site to sit on top of digitally-enabled car dealers, the way Kayak does for airlines.  It could scrape all the listings into one vehicle-search page, aided perhaps by a standardized listing API. 

It turns out I am not the first one to have this idea, but the research was interesting.

First, we have to make a distinction between providing a lead and selling the car.  This is not always easy, because few customers require full digital retail, and most lead providers have some limited DR capability.  Still, this distinction is important to an aggregator:

To make said distinction, imagine the dealer in this diagram has a DR system and also uses a third-party classified site.  If you are a DR skeptic, imagine this is Carvana (or CarMax) with their own integrated car-selling site. 

I am using a thin line for leads and a thick line for deals.  This notation helps to show that the Kayak site should only connect to DR-capable dealers.  Otherwise, it’s lead provider on top of lead provider, with no added value.

Once a platform is widely established in its category, it is extremely hard to launch a direct challenger with a similar service – David Rogers

Here, I am just doing what any good futurist does – working backward from the goal state.  What the market wants is a single place to shop, like Amazon.  Rogers would call this a “platform,” and network effects says it’s a winner-take-all business.  There can be only one. 

Once you recognize this three-layer model, you can infer all sorts of fun things.  Like, suppose Carvana (or CarMax) decided to open up their DR capability to other dealers.  These would be certified and operationally compatible dealers, whose inventory Carvana could sell for a commission.  I’ll leave it to you to negotiate who earns the F&I gross:

I have been writing about digital retail for a few years now, speculating on how the goal state would be achieved.  Note that “DR aggregation” on the left side of the diagram, and “platform aggregation” on the right, correspond to the two vectors I described here.  

I have long advocated platform sites adding DR capability, as some are doing now.  This brings us to an interesting piece of history.  Airline booking sites Orbitz and Kayak were founded by the same guy, Steve Hafner, in that order:

Initially, Hafner undertook what we would call the DR piece, while Kayak opted to be simply an aggregated lead provider.  I still think it’s a good idea for listing sites to develop DR features, but history suggests the TrueCar approach – linking up with Roadster – is the correct one.

Caution: Learning Curve Ahead

In last week’s episode, I warned that dealer groups proceeding aggressively into Digital Retail may suffer for it.  This has gotten some pushback.  Regular readers know that I have been a staunch proponent of Online F&I for many years.  Indeed, my work at PEN and F&I Express has done much to advance the cause. 

I gave this warning in the spirit of full disclosure, and to manage expectations.  Now I am in the awkward position of having to press my charge against a technology which I actually support.  If that sounds complicated, consider this:

Luddites – Veteran F&I Director Justin Gasman, quoted recently in Wards, says that F&I will never be totally digital.  “People who say that are from tech companies,” he quipped.  I call this the Luddite position but, in fairness, I am one of the tech guys he’s referring to.

Boosters – Cox Automotive regularly produces surveys with findings like: 63% of customers would be “more likely” to buy F&I products if they could learn about them online.  Coming from an opinion poll, this is mere boosterism. 

Realists – My position is somewhere between these extremes, hence the warning.  I was addressing the Big Six dealer groups, who are regularly ranked on F&I performance.  I do not want to be the consultant telling Mike Jackson to go all in, and then have to explain why he has slipped out of first place.

If you go to a dealer and say, “Hey, look, we’ve got this great solution, but the profitability is only half of what you had before,” that’s really going to slow down adoption.

Automotive News interviewed some realists last year, and they all share my cautious optimism.  The quote above is from Safe-Guard’s David Pryor.  The consensus goes something like this:

  1. Present F&I products online, early in the process, and include pricing.
  2. Use an API to select the right coverage, and AI to make recommendations.
  3. Experiment with (A/B test) various digital media.
  4. Integrate DR with your instore process, training, and metrics.

Roadster’s COVID-19 Dealer Impact Study found that dealers who already had Digital Retail saw improved gross, while the COVID adopters did not.  “Not a magic bullet,” it says, instead emphasizing the improved efficiency.  Other realists, as here, had the same experience.

Digital Retail is like any other new process.  There is risk, reward, and a learning curve.  That’s not too complicated.