Tag: NADA

Moving to Powersports

Back in 2020, I contacted all the leading F&I administrators, pitching my plan for AI-priced service contracts.  As soon as the conversation touched on VIN decoding, they would invariably stop and ask me if I could get VIN data for powersports.  This turned out to be a trend.

Having been in automotive for many years, I was a little sniffy about powersports – although I had worked with Ducati, Harley, and RumbleOn during my tenure at Safe-Guard.  What I knew then was that powersports had only one DMS (Lightspeed), one menu system (Maxim), and no – there was no good VIN service.

When you’re in the powersports industry, you’re selling fun.

At $34 billion, powersports is dwarfed by the mighty auto market, but it has higher margins and better growth.  According to published financials, gross profit is around 20% for auto retail and 30% for powersports.  I expect that the 3% CAGR will perk up as the ecosystem improves, which is the topic of today’s post.

In automotive, we have a rich software ecosystem.  In powersports, not so much.  The ecosystem is complicated by a wide array of vehicles, from jet skis to snowmobiles, with the attendant challenges in standard process and vehicle ID.

The Powersports Market

There are roughly 17,000 car dealers in America, compared to 7,000 motorcycle dealers.  From a dealer’s perspective, powersports means less competition and higher margins, according to Mercer Capital – and it is terra nova for software vendors, as well.  Public auto group Sonic took Mercer’s advice, recently acquiring 13 powersports dealerships.

Here is another explainer, this one from SEMA, on the market structure of ATVs, UTVs, and motorcycles.  I am including it basically for this great quote from dealer consultant Rob Greenwald.  “When you’re in the powersports industry, you’re selling fun,” he said. “We sell lifestyle.”

Unlike buying a car, a powersports purchase is discretionary.  This means it’s more susceptible to economic downturns, but it’s also more fun.  People enjoy visiting the dealership, and that changes the technology model.

Digital retail, for example, is still important – but not to reduce time in the dealership.  It’s so that we don’t have to pull you out of that RZR to sign papers.

Crossover Software Vendors

A few of the website providers I wrote about are also active in powersports, like Dealer Inspire and Fox.  However, neither of these seems to have their digital retail solution in play.  One DR vendor that I recognize from auto is Joydrive, which made a strong entrance by partnering with Polaris and Octane.

Octane is the leading finance source in powersports, but there is a new entrant from the auto space, RouteOne founder Toyota Financial.  TFS is now the private label consumer and wholesale finance source for Bass Pro.

Another crossover vendor is Darwin which, after dominating the auto space, moved first into motorcycles – challenging Maxim’s lock on Harley-Davidson – and now into other powersports.  Speaking of menu selling, F&I providers here are Galt, Safe-Guard, and Protective.

Movement Toward Powersports

What I encountered in 2020 seems to have been a general movement toward powersports.  Lured by big groups like Bass Pro with its 170 locations, Marine Max (125), and RumbleOn (60), software vendors are extending into powersports.

There sure are a lot of motorcycles at this car show.

They will go where the dealers are and, as I walked the NADA show in Dallas, I had to smile at the untapped demand.  “Drop your business card and win this Harley,” offered one vendor.

“There sure are a lot of motorcycles at this car show,” I remarked.  And then there was the Kawasaki booth, enlisting car dealers looking to diversify – for fun and profit.

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.

New Consolidation Stats from NADA

I chose consolidation for the first of my megatrends series, because it’s the least controversial.  Everyone seems to know it’s happening, and the records and rankings in Automotive News are dominated by big groups.

Ten years down the road, we don’t want to be the 13-point dealership group feeling that pain from the larger groups the way the smaller ones are now

This year, for the first time, NADA Data takes a look at consolidation.  Probably the best single number to look at is the ratio of rooftops to dealers, which represents the average number of stores in a dealer group.  This has grown from 1.8 to 2.2 over the last nine years – not exactly a revolution.  I was a little surprised to see such small numbers, but this is an artifact of how NADA presents the data.

NADA, logically enough, presents the number of dealers owning a group of a given size.  I would have preferred to see the number of stores, not owners, in each category.  This is a better reflection of the market coverage.  To show the distinction, I plotted the total count of both rooftops and owners.  You can see that, while the number of rooftops is recovering since 2010, the number of dealers is not.

Next, I recast the data in terms of rooftops.  The number of rooftops belonging to groups of ten or more has almost doubled over the period, from 12.2% to 21.3%.

Below, I have plotted the number of rooftops in three tiers, by size of the dealer group to which they belong.  The 2 to 10 tier has been remarkably stable, numbering roughly 8,200.  The single points have been in steady decline, losing 2,500 over the period.

Dealers know that single points are vulnerable to market shocks and competitive pressure, if for no other reason than being tied to a single make.  On present trends, we can expect them to vanish entirely within ten or fifteen years.

Dealer Megatrends Part 3 – Process Change

In my previous Megatrends article, I wrote about how advancing technology is changing the role of F&I.  This week, we examine some new business practices.  You already know what I mean.  We’re going to talk about:

  • Hybrid Sales Process
  • No Haggle Pricing
  • Salaried Employees
  • Flat Reserve

High line manufacturers have tried to promote “one face to the customer,” since I was at BMW in the twentieth century.  Lexus Plus is the latest iteration.  Tellingly, BMW called it Retail 2000.  I fondly remember hearing a radio spot for “the last BMW dealer” in San Francisco, because we had styled all the others as retailers.  “If you want to pay retail, go to a retailer,” the ad went, “to get a deal, you need a dealer.”

So, it goes in cycles.  Lexus, or Scion, or AutoNation, will roll out a new process only to be outmaneuvered by the wily dealers.  Then they retrench and, five years later, someone else tries the new process.  They could literally be passing around the same procedure manual.  Look at me.  I have been advocating price transparency since Zag.

One Sonic-One Experience offers no-haggle pricing with one sales rep using an iPad who takes the customer through the entire vehicle sales process, including financing and the F&I product presentation.

A good example of the new process is Jim Deluca’s exposition of the Sonic One Experience.  In their EchoPark process, Sonic also eliminates dealer reserve.  The fight over flats and caps lasted from roughly 2012 to 2014.  See here, and NADA’s endorsement of caps here.  Next, Sonic will leverage their heavy investment in training to roll all of this into an online process called Digital One-Stop.

I suspect that Sonic would soon like to fire all their trained F&I professionals in their self-interest of saving a buck.

Forum comments reveal that old-school practitioners dislike the new process.  It’s funny to hear an F&I manager accuse a dealer of shameless self-interest, but there it is.  On the other side, Sonic’s Jeff Dyke reports good results from hiring people with no prior automotive experience.  Meanwhile, at rival consolidator AutoNation, 70% of the sales staff opted to go on salary.

Well-known F&I trainer Tony Dupaquier is here, advocating the hybrid process at First Texas Honda, and here is Findlay Group’s Las Vegas Subaru.  Savvy dealers everywhere are experimenting with at least two or three of the four new practices (online selling and iPads come up a lot, too).

Smart people have told me that the hybrid process will never produce four-digit PVRs, but many dealers – and certainly the consolidators – reckon that’s a price worth paying for a streamlined process, reduced turnover, and improved customer satisfaction.