3 Ways to Mitigate Margin Compression

With variable forces like the internet creating an increasingly more transparent and competitive marketplace, margin compression on new and used cars is a widespread issue in the automotive industry. Internal forces like outdated processes, holding costs, traditional merchandising processes, and the lag in frontline readiness contribute to the margin erosions. These three tips will help you move more cars off of your lot more efficiently, and that’s the key to combating margin compression.

1. Improve Your Process for Frontline Readiness
Time is money. Decreasing time to market means thousands of dollars in additional front end gross profits every month. According to NADA, the average holding cost per vehicle per day is $40, with an average time to market of 8-10 days. Every day there is a delay in reconditioning, detailing, and merchandising a vehicle for the digital showroom means literally thousands of dollars in lost profits. Combatting reconditioning inefficiency with software and technology, inter-department communication, and accountability process will increase profitability for dealerships.

2. Use Digital Merchandising in Your Online ShowroomShoppersJourney
Telling the value story or a vehicle to a customer is one frontend way to decrease the impact of margin erosion. By highlighting key features in an engaging and easy-to-understand format, dealers are better able to differentiate their inventory and demonstrate value, moving buying decisions beyond price as the primary purchase driver. By leveraging technology to effectively showcase the most valuable features of each vehicle in a personalized, engaging way, dealers are better able to justify the price and value of a vehicle.

3. Use Retention and Relationships to Reduce Erosion
The moment a shopper walks away from a dealership with the keys to their new car should be the beginning of a continued relationship. According to Dealertrack, parts and services generate an estimated 13.6% of revenue for dealerships and for every dollar made through F&I, dealerships keep 70 to 80 cents – which is why building and nurturing a relationship with a buyer to keep them coming back is a significant opportunity to reduce compression. Sending email or newsletter reminders for services needed and complete transparency will build the necessary trust to keep customers coming back. In today’s age, shoppers don’t conform to the traditional customer journey, so using a CRM system to contact, track, and transact with buyers is the best way for dealerships to adapt to today’s buyer journey. Using Fixed Ops retargeting to drive service orders is another way dealerships can retain customers by making sure they come back to your dealership for anything from new wipers to major repair work.

Superior digital merchandising is key to fighting margin compression. Take a demo of our 360º WalkAround and Feature Tour™ products today and learn how to convert more engaged customers with interactive VDP experiences personalized for each shopper, or just contact us.