I overheard something the other day that made me cringe. I’m paraphrasing here, but it was something along the lines of “Well, it just doesn’t make sense [as a media sales rep] to call on auto dealers today.”
Whoa. We had better pause a moment before carrying through on such irrational thoughts.
Last month, Toyota announced its April 2009 sales were down 41%. If you look closely at that number, it’s right in step with where U.S. volume is hovering — down from 17 million units per year and lingering in the 10 million range (also a 41% decline). So the general assumption for the broadcast executive might be the automotive category is “41% the pipeline” it was a year or two ago. Not true. Especially for the broadcast television sales rep.
Let’s take a step back and allow the numbers to do the talking before making a knee-jerk generalization on the viability of auto dealerships.
Take a mid-sized market, like Tulsa, Oklahoma. Before the great market contraction, there were nearly 80,000 automobiles sold per year in Tulsa, at roughly 100 dealerships. Today there are fewer than 50,000 autos sold — assuming that Tulsa is fairly representative of the 41% drop we’ve seen across the board. Yet those 50,000 units won’t be sold at 100 dealerships. There might be 80 left, if we’re lucky. Probably fewer.
Of those 80,000 autos sold back in 2007 in Tulsa, a portion of those sales occurred on smaller lots or at independent dealerships. It wasn’t the lion’s share, don’t get me wrong. But these were the types of dealers that were below average in terms of average sales volume (average being roughly 500 – 1,000 cars a year per dealership, depending on the make). Many of these dealers never advertised in mass media like broadcast television — and never had the desire to do so. Quite simply, they were potential destination businesses that never demonstrated the efforts or mechanics to actually become one.
Many of these dealerships are the same ones that will be swallowed up in the “giant consolidation” occurring right now.
Is this good for America? Absolutely not. It’s bad for the consumer, as there will be fewer dealers competing, placing long-term upward pressure on the price of a new car. It’s bad for the workforce, as thousands will lose jobs. But it’s one of a finite number of measures that may help rescue a struggling industry — one that is vital here in the U.S. It’s not always about fairness or even logic — as some profitable dealers are being forced into consolidation or closure.
The silver lining for the surviving dealers and local broadcast sales reps is that the concentration of true “destination” businesses within this category is growing by the day. In other words, auto dealerships will be fewer but larger. Those larger dealerships will still need to beckon the consumer, more so than ever, to visit and buy. Those larger dealerships will be — and always have been — more predisposed to the enormous efficiencies of local broadcast television, on the pure logic that the medium drops their PVR (the amount the dealer spends in advertising per car sold) unlike any other.
Those surviving dealerships will need to drive up their average units sold without breaking the bank. How? By casting a wider net using the market’s most efficient medium. There are more gaping voids in their local market as dealers consolidate and close-up shop. Somebody will acquire that share. How will they do it? With broadcast television.
So in Tulsa, and every market in the U.S., we will see a continued decline in the number of dealerships. This is nothing new to us, as those 21,000 dealerships in existence back in 2007 — before the decline — were actually a far cry from the 25,000 dealerships in place back in the 90s.
The average dealer sells about 750 cars a year. But this is a perfect example of averages lying, because the average Toyota dealer actually sells 1,150 cars, while a GM lot averages 440 units per year.
Why is this important? Well, how many GM dealerships are in your market today? Not just the ones you know about, or the ones that advertise — but how many licensed GM dealerships are physically located in your DMA? When you find the actual answer, you’ll see it’s higher than you may have guessed. How many of them advertise on broadcast television? How many will be television advertisers a year from today? Better yet, how will the survivors grab the vacated share?
The answer to that last question may be a little easier to come by if we avoid jumping to conclusions, and continue with some fundamental blocking and tackling. The road to recovery will be paved by efficient and profitable organizations — and nothing gets more miles to the gallon for the dealership than broadcast television.
SOURCES: US Census Statistical Abstract, Ward’s Automotive Reports, NADA Data.
Dave Eckstein is a partner in the firm ESA & Company, based in Madison, Wisconsin. Dave specializes in highly profitable market share growth for local business and gets a kick out of demonstrating a declining cost of customer acquisition for his clients.