CDK – Virag Consulting

Luddites in Las Vegas

At this year’s Industry Summit, I attended a session called Presenting F&I Products Online. I have strong opinions on this, and I wanted to learn what other people are doing. I wrote here about using an expert system. Would I find my colleagues using apps, widgets, expert systems, and analytics? Do they have a menu for consumer use, with responsive design that runs on an iPhone?

Sadly, this session was not so much about how, but whether to present products online. This may explain why I got blank stares when I did this survey last year. I am biased, so I will try to be fair with the other side. Their argument is:

F&I is the last place we can make decent gross, so why would we screw that up by putting it online?

They assume that disclosing, say, VSC rates on a consumer site will inevitably lead to lower margins. Well, maybe. Consumers can apply for credit online, including direct lenders, and that hasn’t harmed dealer reserve. A robot will never sell as well as Justin Gasman, but a consumer on a web site has all day to self-close.

Even if we assume that putting products online is bad for margins, the question remains whether we can hold back the tide of internet commerce. This brings me to the Luddites.

In the early nineteenth century, Joseph Jacquard invented an automated loom that put a generation of weavers out of work. The Jacquard loom can be programmed to weave complicated patterns, using punched cards. This was the first time skilled workers had lost jobs to something resembling a computer.

The weavers didn’t take it lying down. Organized under the apocryphal Ned Ludd, they set about smashing and burning power looms all over England. I am wearing a silk jacquard shirt as I write this, but Luddism lives on wherever people fear losing out to technology.

This is not to demean thoughtful people like panelist Mark Thorpe, who quite reasonably want to see profits kept up for their dealers. From my perspective, however, protection products will inevitably be offered online. Consumers want to buy cars online, and providers want their products included.

When customers want something, the market has a way of giving it to them. If it’s not the usual vendors, like Cox and CDK, then it will be technology startups like ShowroomXpress or new entrants like Amazon. I see a parallel here with TrueCar and transaction prices. The Luddites say these dealers are cutting their own throats. I say they’re planning for the future.

Buy Your Next Car from a Robot

I like Make My Deal, and I never get tired of seeing the demo. I like Make My Deal because they have a novel solution to the key problem with selling cars online. The problem is that, while most of the process can be put online, everything is blocked until a price is negotiated. Make My Deal solves the problem by making price negotiation part of the online process.

My favorite part of the demo is the transcripts of online sales dialogues. I could study these for hours, analyzing the language and style of successful dialogues. Stop and think about that for a second. You could, if you were a motivated sales manager, use these transcripts as a training tool.

Instead of me and the sales manager eyeballing transcripts from a single dealership, we could collect statistics on the entire Make My Deal archive. We could set criteria such as closing ratio, or highest gross, and analyze the language most likely to produce those outcomes.

Responses were fed into Kessler’s Consumer Language Tool, which analyzed common language among the highest and lowest closers.

Jason Kessler of CDK Global has done exactly that, using data from email negotiations, and running them through his proprietary language analysis tool. This technique, sentiment analysis, is also used by stock traders to glean market insights from social media.

The other fun thing about online negotiation is that your ace closer doesn’t have to be onsite. She can work from home, handling leads from multiple stores. She could even be a robot, running talk tracks from a tool like Kessler’s.

I don’t really expect robots to replace salespeople anytime soon, but I do expect to see a selling platform that integrates email and chat, with live and virtual agents sharing the work. Many dealers already use chat systems, of which Make My Deal is a special case.

Integrate email and chat
Include virtual agents
Sell protection products

Virtual agents like those from Help on Click and 247 could handle routine parts of the dialogue and even help coach the weaker salespeople. For those of you wary of sharing your desk with a robot, recall that the talk tracks came from human closers to begin with.

One process ripe for automation is selling protection products. As I wrote in an earlier post, the in-store menu presentation will be replaced by an online interview. Everyone knows the stock questions like, “how long will you keep the car?” and “how far do you commute?” Aspiring robots can hone their skills here.

The Expanding Dealer Automation Space

In my earlier article on Cox Automotive, I wrote that the subsidiaries tile our “function space.” By this, I usually mean the F&I function space, although Cox is broader than that. In today’s post, I will explain about function spaces and why this idea is important for software strategy.

Let’s say that you have been asked to identify all the functions performed in the F&I office, and then find software to automate them. I did exactly this for AutoNation, back when PVR was $600. The first thing you discover is that a simple list won’t do. You at least have to put the functions into workflow sequence.

Tasks in sequence are a one-dimensional function space: a timeline. This will help you to define where the credit process ends, for example, and menu selling begins. Ah, there’s the rub. Maybe the workflow branches out, and now it occupies two dimensions.

As I wrote in F&I Magazine, the workflow that produces a finance contract is a lot like the workflow that produces a VSA. If you can picture the “F” workflow as parallel to the “I” workflow, this is much more useful than a simple timeline.

Typically, when you see a diagram like this, it is already partitioned into the familiar systems: CRM, Desking, etc. That’s the definition of “thinking inside the box.” If you were designing an integrated system, you would want to start with the unpartitioned space. That’s the only way to properly scope and organize your web services.

In fact, it may give you some new insights about how to pass data and control among the functions. Should a desking system pull VSA rates? Should the menu run OFAC? Can you instantiate a “deal object” somewhere, and pass it by reference?

Last summer, I wrote about mapping dealer-system functions onto the consumer space. So, that’s a third dimension based on who the user is, plus a strategic imperative that the online experience must dovetail with the dealership experience.

What we see with Cox Automotive is an expansion of the domain covered by a single vendor. The space dominated by the old CDK-Reynolds duopoly is a subset of this one (I will illustrate this in a later post, using a function point inventory). The overarching function space was always there, of course, but it was filled with disconnected niche vendors.

In practical terms, this means that an increasing share of the dealer’s software budget will flow to integrated vendors outside the duopoly domain. Since this is a strategy post, I will close with a Go metaphor. Reynolds and CDK have been playing the game on a quarter board, and now Cox has highlighted their absence from the other 280 points.

Five-Part Series on Online Car Buying

I wrote this ad-hoc series last fall, around the topic of online car buying. It started out as technical post on how to do tech strategy, and then one thing led to another. Here is a guide to the five articles.

The first two are from the perspective of a traditional dealer system, like a menu, that needs to find a new home online:

The next two are from the opposite perspective, online car buying sites that need to add traditional dealer functions:

Finally, when I had looked at all of the car buying (and shopping) sites, I needed a way to classify them:

Taxonomy of Online Car Shopping Sites

I hope this makes the series more readable. If nothing else, it will help me to keep the blog organized. Enjoy!