Online F&I – Page 2 – Virag Consulting

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:

Present F&I products online, early in the process, and include pricing.
Use an API to select the right coverage, and AI to make recommendations.
Experiment with (A/B test) various digital media.
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.

DR and Public Dealer Groups

In today’s post, subtitled, “the good, the bad, and the ugly,” we look at where the Big Six public dealer groups stand on Digital Retail. Some of them get it, some of them don’t, and others have missed the point.

“Once they start the process online, customers tend to buy a car at a much higher rate than … walking into our showroom” – Daryl Kenningham, Group 1

It’s not essential to spin up a distinct site, though many have taken this approach. It’s a clever way to get in the same space as Carvana. Thus, we have new brands Driveway, Clicklane, and Acceleride. For example, you can enter Group 1’s DR process from either Acceleride or the Group 1 site.

Penske – Penske started experimenting with DR way back in 2015 and something called Preferred Purchase. Today, it’s still called Preferred Purchase, but it’s the DDC Accelerate system.
Group 1 – GP1 recently (2019) launched a Roadster implementation called Acceleride. It is now selling more than 1,000 units per month, including new cars. This is the top initiative in their investor deck, clearly showing management attention.
Asbury – Asbury was also an early adopter, starting with Drive (2016) and now their own Clicklane offering. By my count, this is their third experiment – exactly what you want to see with digital transformation.
Lithia – Lithia has a branded DR site called Driveway which, unfortunately, requires users to create an account before entering the process. As I wrote in Design Concepts for Online Car Buying, you don’t create an account until the customer is ready to save a deal.
AutoNation – AutoNation has made strategic investments in DR vendors like Vroom, and launched its own AutoNation Express in 2014. As with Driveway, step one is a lead form.
Sonic – Sonic announced a plan to use Darwin but, alas, there is still no sign of DR on either the Sonic or EchoPark site. Maybe the new eCommerce team will fix that.

I can understand why new-car dealers might want to start with a lead form. New cars are commodities, and vulnerable to price shopping. This is where used-car dealers CarMax and Carvana have an advantage. Otherwise, DR requires a strong commitment to price transparency.

Digital Retail is synergistic with modern sales practices, like one-touch and hybrid teams. Sonic is the leader here, and has the highest used-car ratio, so you would expect them to have an edge.

Finally, it’s hard to sell protection products online. Groups with growing DR penetration are likely to see reduced PVR. This has long been a knock against Carvana. Experts agree that the solution here is an AI-based “recommender.”

Top Digital Retail Systems

I have been writing about Digital Retail for several years now. Keeping tabs on the players was part of my job at Safe-Guard, and people still call for my notes. Since I am moving on to a new venture, I figured I would simply publish the list.

First, some notes about the category. I split out online car dealers, TPC platforms, and finance-first sites. Obviously, CarMax is omnichannel, but they’re not a software vendor. My definition of a digital storefront is given here, and I differentiate then from TPC sites here.

Anybody with a foothold in the dealer’s website is using it to pivot into digital retail.

The “pivoter” category from this last article is especially relevant, as more and more vendors transition into the space and flesh out their offerings. Finance-first sites are those, like Rodo and AutoGravity, where customers go for finance and then turn over to a dealer.

List of Automotive Digital Retail Vendors

Roadster – Roadster’s Express Storefront was the first to use the “plug-in” delivery strategy. They are in some very innovative dealers, like Paragon and Galpin.
TagRail – Similar to Roadster. My pal Kiran using analytics as a differentiator. Now owned by digital marketing firm Fox. I wrote about DR and Marketing tie-ups in my survey, DR and Dealer Websites.
MotoInsight – I did an OEM project with Moto, and visited their offices in Toronto. I like the team, and what I especially like is the idea that dealers will use the same system instore that the customer uses online. I profiled them here.
Gubagoo – Gubagoo started as a chat engine, and has now developed a DR solution called Clicklane for Asbury Automotive. Lithia also has a branded DR offering, called Driveway.
Modal – Formerly Drive, from serial entrepreneur Aaron Krane. I cited Krane and Roadster CEO Andy Moss, here, as examples of “disrupters” from outside the industry. Modal has recently inked a deal with Honda, and raised $15 million in funding.
CarNow – Another entrant from the chat space, I was surprised to discover so many dealers using CarNow’s BuyNow plug-in. It seems to be especially popular on Dealer.com sites.
AutoFi – AutoFi expanded successfully from a finance plug-in to full DR with Express Checkout, used by a number of dealers including Ricart Ford.
Darwin – Darwin is unique in having pivoted to DR from an instore system. They’re at Herb Chambers, branded as Smart Buy, and also my local Atlanta dealer, Jim Ellis.
Digital Motors – This is a very new entrant (2020) but a strong team including Andy Hinrichs, formerly of AutoGravity.
Dealer eProcess – Getting DR from your website provider seems like a good idea, buy my survey found few instances of it. Others in this category are Dealer Fire and Dealer Inspire.
Make My Deal – MMD is gone now, folded into Accelerate and attached to DDC. So, it’s in the dealer website category, not a storefront.

Sorry if I missed anyone. New entrants pop up every day. I would say that the space is becoming crowded, but there are still thousands of unserved dealers. Follow my Twitter feed, @ViragConsulting and the #DigitalRetail tag, for regular updates.

DR and Dealer Websites

I was chatting with my pal Kiran Karunakaran about his new role at Fox Dealer. You may recall that Kiran’s DR solution, TagRail, was acquired by Fox earlier this year. At that time, I figured DR would be an absolute requirement for dealer websites, and I expected to see CDK bid for, say, CarNow. Here are the pairings:

Fox Dealer, TagRail
Dealer Inspire, Online Shopper
Dealer Fire, Precise Price
Dealer eProcess, SARA
Dealer.com, Accelerate

Note that, with the exception of TagRail, these DR solutions were all developed by their website partners. Missing are the pure DR startups I usually write about: Roadster, Modal, and Moto. Maybe they’re better off uncommitted. I decided to test this theory with a little research.

I went through Wards’ Top 100 Internet Dealers, identifying the website provider for each one, and their DR solution. The Wards sample skews strongly toward DDC, at 60%. The Datanyze survey (chart above) has DDC at 18%. Remember, I am not looking for market share so much as patterns in DR adoption.

For example, 20% of “top internet dealers” had no DR solution. That was a surprise. A few of these had cobbled together the Dealertrack frame with Trade Pending and a homebrew payment calculator – not DR as it is usually defined.

Same-vendor pairings for DR and website were rare

Some dealers use the same website and DR solution across all their stores, and some skip around. Herb Chambers uses DDC and Darwin faithfully except in his Chevy store, which uses CDK and Shop Click Drive. Paul Rusnak and Fred Anderson are faithful to Roadster and Gubagoo, respectively, but vary their choice of website providers. Of course, these choices are often mandated by the manufacturer.

Of manufacturer DR preferences, the best known is probably Shop Click Drive, followed by AutoFi. AutoFi is historically associated with Ford, and still used mainly by Ford dealers. I did find one Kia dealer in Peoria using AutoFi. Chrysler’s DriveFCA is powered by Carzato.

Same-vendor pairings for DR and website were rare, at 12%. These were almost exclusively DDC with Accelerate. I found one instance of Dealer Inspire with its mate, Online Shopper. Free-agent DR solutions did much better than those associated with website providers. Roadster, Darwin, and CarNow together accounted for 59% of DR in the sample dealerships.

As it happens, CDK did not acquire a DR solution. Instead, they sold their website business to Sincro, a digital marketing company. The Sincro announcement reminds us that what I am calling the “website business” may also include digital content, advertising, SEO, social, reputation, CRM, and lead-gen.

The right framework is not DR plus website, or even DR plus website and marketing, but a continuum across the customer journey. The journey begins with the various marketing services required to land the customer on the website, and ends with point-of-sale (POS) systems like menu and desking.

Recall that Roadster, Darwin, and Moto also play in the POS space. At the other end, there are pure-play marketing agencies that don’t do websites. You can evaluate strategy for these companies in terms of where they are concentrated along the journey, and where they are extending.

Dealer Fire moved up funnel, through their partnership with Stream, and Fox extended down a notch with TagRail. Darwin is unique in having moved to DR from point of sale. (I am using the linear model for simplicity. To account for CRM and reputation, you need the loop model.)

My goal here was to explore the synergy between DR and dealer websites, and the answer is that they’re not as compatible as they appear. Research showed much less crossover than I had expected, between marketing agencies on one side of the BUY NOW button, and DR specialists on the other.