The Auto Industry Gears Up for CRM
The car-buying experience is the ultimate American love/hate relationship: People love to drive away with a new set of wheels, but the process that puts the keys in their hands historically has filled most consumers with fear and loathing. Now, one of America's largest and most tradition-steeped industries is finally catching up with the changing face of customer interaction--largely for its own survival.
"Profit margins on new vehicles are paper-thin," says Thilo Koslowski, senior analyst with GartnerGroup's automotive practice. "Manufacturers want to make sure they are capturing the consumer after the sale of the car and keep the consumer once they look for another car."
The potential payoffs for the industry are enormous. In general, good CRM drives out bad sales and marketing efforts and, according to David Nathanson, director of retail automotive operations for PricewaterhouseCoopers, those expenditures can reach 30 percent of the cost of a new car.
In an increasingly multichannel world, automakers are discovering with the rest of the enterprise community that their target audience is uninterested in the details. "Customers don't seem to remember if they phoned you or wrote you or visited the dealer, but they do remember the product," says Charles Kirk, general manager of GM's enterprise customer management (ECM) program.
Slow Off the Line
Despite the industry's size, there are few CRM software suites tailored specifically to meet its needs. The vendors that provide back-end dealer management systems, such as Reynolds & Reynolds and ADP, are only slowing adding CRM modules, and although companies like Siebel and E.piphany have some automotive clientele, there is no definitive package.
Until recently, the automotive industry's distribution systems distanced the auto manufacturers from the end customer. "Traditionally, the real customer for Ford, GM and Chrysler was the dealer," says Kevin Prouty, automotive research director for AMR Research. "The Big Three ran marketing campaigns, but their job was to keep the dealer happy. Once the car was off-loaded to the dealer, the original equipment manufacturers (OEMs) were paid, so other than making sure the dealer could continue to move inventory, they really didn't have a vested interest."
Manufacturers have lived to regret that arrangement. "By absolving themselves of all responsibility for customer contact, they're losing a big piece of control of the channel," says Prouty.
There is little doubt that the charge for a truly vertical CRM solution needs to start at the top. Dealerships are traditionally extremely conservative in their use of technology, and even the largest and most modern dealer groups boast a tiny fraction of OEM resources and reach a small minority of the customer base.
Another problem lies in the relatively small role customer preferences currently play in the manufacture of automobiles. "Cars today are built primarily on a 'push' manufacturing model," explains Dan Garretson, senior analyst for Forrester Research. That model makes the transition to a fully customer-centric, even build-to-order service philosophy difficult. According to Garretson, car companies are simply unaccustomed to taking ultimate responsibility for end-consumer preferences. "Factories are incented to keep the factories running, producing output. The manufacturers produce the cars and ship them off--it's the dealer's responsibility to sell them."
The trouble is, the sale of that car does not necessarily reflect a satisfied consumer, or even one who drove off the lot with the car he originally wanted. If a buyer heads to a local Pontiac dealer hoping to buy a black Firebird with heated seats and a sun roof, but is forced to compromise on a green Firebird with plain seats, a standard roof and a $1,000 discount, nobody wins, according to Steve Waters, vice president of marketing for transportation industry CRM developer FirePond.
"From a Pontiac perspective, customers do not get the type of experience that would necessarily encourage them to buy another Pontiac," he says. Meanwhile, Pontiac's marketing people are now under the impression that green is hot, and heated seats are not, when nothing could be further from the truth. "If they had been able to capture individual needs in the conversation that took place prior to [the sale], they would have been better at understanding demand segmentation," adds Waters.
Computer Sciences Corporation, the El Segundo, Calif.-based technology consulting company, is working to help Saturn do just that. CSC is currently engaged in a 27-month development and deployment program to integrate Siebel eSales, Reynolds & Reynolds' dealer management system and back-end manufacturing capabilities to create the Next Generation Saturn Retail System. The system rolls into the first of Saturn's 500 stores in Q2 2001. "Saturn already had business processes that emphasized CRM, but they didn't have good systems support for it," explains Tom Hachiya, a partner in CSC's consulting group. "You still see a lot of white boards, spiral binders and everyone has their own methods."
Hachiya says that one of the major goals for Saturn is to get away from what he calls "organizational Alzheimer's," making a customer's sales, service and finance activity totally integrated, no matter how the customer, dealership or manufacturer examines the data. "Yes, we know who you are, we know what your business represents to us, and you don't have to tell us for the fourth time what the problem is," he says. "If you fill out a credit application with GMAC online, we can pick up where you left off, rather than starting over again. If you've configured a vehicle on the Web, a sales consultant will see it and can order that vehicle for you."
Saturn is an anomaly, however, as its retail operations are run in close concert with the manufacturer. This is not the case for other major U.S. and foreign makes. For most other automobile operations, franchise dealers, finance companies and manufacturers are under little obligation to share information with each other, and in fact may deliberately avoid exchanging and integrating customer data because of competitiveness and mistrust. "Given the millions of consumers and the way that the data is dispersed across all these different platforms...it's a pretty sizeable undertaking," says Doug Gross, managing director of KPMG Consulting's automotive practice.
Achieving the goal of "the car that CRM built" requires two major steps for the industry: 1) increasing the flexibility of the manufacturing process and 2) improving the integration between manufacturers and dealers. Believe it or not, the manufacturing process may be the easier nut to crack. Forrester's Garretson points to process changes--such as delaying paint and detail work and seating installation until the distribution center or even point of sale--as relatively low-tech, but high-reward customizations the industry could offer.
The challenge will be to pair the singular view of the customer with a singular view of the enterprise inventory. In order to make this system work, "They need to be able to see where every single car they have in inventory is--on a dealer site, on a truck, at a distribution center, in the factory, in the production sequence," says Prouty.
As for the truly built-to-order (BTO) car, it appears that the problem may eventually take care of itself, because sooner or later, manufacturers won't be able to afford doing business any other way. "People from Michael Dell to [Ford CEO] Jacques Nasser have announced this as the next big thing coming down the pike," says CSC's Hachiya.
"BTO will probably be the future, because we have to get away from huge inventories," says Koslowski. He cited GM's $50 billion per year in inventory costs as an intolerable result of the old marketplace theories. "They are trying to cut this back to $20 billion by using a better build-to-order model. The ideal world is to have BTO in place that will require 10 days for the manufacturer to build the car after getting the order from the customer."
It's the dealerships that may be the heaviest anchor in this process, keeping the industry from achieving a truly integrated view of the customer. "There's a cultural issue: Dealers fear the OEMs," says Prouty. Not only do they fear giving up control of the customer relationship, they worry about the bottom-line impact of having to stock an ever-widening variety of cars to keep up with increasing calls for customization.
But GM's Kirk believes that competent CRM management will make build-to-order more manageable for dealers than the current guess-and-test approach to inventory. "You can have fewer varieties of vehicles and more customization," he says. The key is eliminating options nobody wants to buy. "Consumers buy on a narrow range of features. We try to do everything for everybody, and of course that's somewhat inefficient. A way out of having a needless variety of features is to increase communication: I ask you what you want, and I build it for you."
Manufacturers cannot simply dismiss the dealer channel and their concerns with a wave of the hand. State laws that govern auto franchise dealerships prohibit manufacturers from selling new cars to the public, and many restrict the entry of tech-friendly dot com dealers. Koslowski is unflinching in his assessment of the situation. "The fact that dealerships are the only ones who can deliver a car to the consumer has made them feel very safe and has not motivated them to think about how they can provide a better
customer experience," he says.
The trouble may be a floor mentality that values the satisfied quota more than the satisfied customer. "There needs to be more emphasis on the serving and keeping [of customers], as opposed to the continual prospecting that tends to be the norm in the industry," says Mark Brown, general manager of Reynolds & Reynolds' eCRM efforts.
Traditional sales representatives bring tremendous potential value to the CRM process, if they can be convinced to work for the greater vertical good. One of the long-standing problems in the automotive industry is accurately measuring demand, and the solution is not merely technological. PWC's Nathanson points to the Mercedes M-Class car, only available with an automatic transmission in the United states. No matter how intricate and flexible a configurator or prospect profiling tool is, Mercedes cannot accurately gauge demand for a stick shift M-Class, because the customer is never presented with the opportunity to express interest. A sales representative can note that interest and send it back to the manufacturer for consideration, but only if he or she believes in the CRM process.
Randy Rahe, vice president of e-commerce operations for AutoNation, the country's largest automotive group with 400 dealerships in 26 major markets, knows from experience that adopting a customer-centric approach can be a slow process. The company plans, in time, to implement a uniform CRM software system and customer life cycle process, but to date has only worked to migrate legacy dealership software and procedures to the parent group norm slowly.
Rahe believes separating salespeople into those who are interested in long-term customer relationships and those who are effective dealmakers goes a long way. "Our best stores have individual [sales] departments where all they do is contact customers and re-market."
But the industry isn't sitting back waiting for Rahe and other major dealerships to apply CRM practices. New dealer code of conduct certifications--notably the Ford Blue Oval program--reward dealers who maintain certain approved business practices. These programs provide a potential entry point to begin promoting cross-channel CRM policy and practice.
According to Prouty, any foot-dragging by dealers is counterproductive to their own cause. "What they will get out of [CRM] is feedback on their own community and the support of the OEM," he says, including a certain level of implied protection from dot com car sites, and from the cannibalization that results from customers playing multiple dealerships within the same brand off each other. By unifying the customer experience and product price, dealers will have to differentiate on service and customer care, rather than cut into their margins just to start a relationship.
"Small dealers will be the holdouts, chiefly because the technology is not cheap, and they really don't have the critical mass to be able to buy a hefty piece of technology," says Vince Bowey, vice president of solutions marketing for E.piphany, which has deployed CRM solutions for Nissan, Toyota and Mitsubishi. "That could change if [OEMs] decide to adopt this stuff in a big way and roll it out to all of their dealers."
John Lancaster, who operates a five-dealership chain in Madison, Wis., agrees. "It's just way too cost-intensive for an individual dealership," he says. "It needs to be done on a much higher level."
It is clear that a growing number of customers are not willing simply to accept the shopping experience offered by manufacturers and traditional dealerships. Interest in objective, open-access sites like Kelley Blue Book and next-generation buying sites like CarsDirect.com remains high. "They need to create a manufacturer's portal that will have the same level of disclosure as Kelley Blue Book Online" says Lancaster. "Pricing will have to become rather fixed. What I believe will have to end up happening is you'll have to get to a single price and say 'This is the value we create.'"
Kirk believes he can do the independents one better, by offering not only open pricing and extensive factual data, but offering inventory visibility, as well. "Kelley and AutoByTel and other guys don't know when I'm going to make another [car] with a moon roof or how much yellow paint I have," he says. "That [information] creates the utility to incent the consumer to come back to us."
Tight integration between manufacturer and dealer may be necessary to prevent information overload or improper levels of customer contact. "It's possible for one part of the business to do something really stupid, like market you a blanket proposal while another division is doing targeted proposals," says Bowey. In his opinion, OEMs "have to be able to tell dealers, 'No, this is a bad offer,'" and have the enforcement power to prevent the customer from being alienated.
"If you tell Pontiac not to call you at dinnertime, who's going to tell Buick not to call you at dinnertime?" notes GM's Kirk. "If I post that information against your name in the database, it's now in a central place and anyone finds it much easier to apply."
GM has been running targeted marketing campaigns through its ECM program for about a year, and Kirk says that the company is extremely pleased with the results. "If I treat you with marketing programs and your name shows up later in the list of people who bought vehicles, I can draw some causal deductions," he says. "We can measure money in versus sales out, which is a level of instrumentation that we didn't have on most programs [before ECM.] We make better marketing decisions and marketing investment management."
What About the Driver?
Customers will know soon enough when the auto industry gets its CRM initiatives properly implemented. Don't be surprised to see auto Web sites that adjust to suit a customer's known profile and preferences, in the vein of the chameleon Amazon.com homepage. Envision Ford.com leading off with a Focus link for a user browsing from a college domain, and an Explorer splash screen for a matriarch.
Watch for car manufacturers to try to convince consumers that they are anything but. One of the vanguards of this effort is GM's Onstar. Although it may look like a terribly expensive wireless phone service, insiders claim that its life cycle has just begun. "It's about direct connectivity to the consumer, it's a portal into the car," says Lancaster, who believes GM will greatly extend the reach of the service in coming years. Potentially, Onstar could be used to transmit a vehicle trouble report immediately to a dealership as soon as the car's internal diagnostics detect a problem or a scheduled maintenance milestone is reached. The customer can immediately schedule an appointment, without having to take any initiative. Or a GM partner merchant, wirelessly identifying you as a likely customer based on GM data, may beam a discount offer directly into your car as you drive by.
"It's a completely new way of generating revenue--a recurring revenue stream," says Gartner's Koslowski. "That can mean more money in the end than manufacturers are making selling cars to consumers." Koslowski also cites fixed or near-fixed pricing as a logical outgrowth of a more intelligent auto industry, with possible discounts for customers who use efficient purchasing channels such as direct Web sites. "It saves time and doesn't require a sales rep to be involved in the process," he says.
But avowed car bargain hunters may have a more difficult time of "beating the system" in the future. One of the major goals of the industry is to build only those cars that will be sold to the people who want them most, not simply those who can be bargained down into taking them off the lot. "The industry spends $15 to $25 billion on incentives to push models they can't find consumers for," according to Prouty.
When automakers can individualize the car, they and the dealers can also individualize the incentives, offering just enough of a price break to seal the deal, rather than the blanket $1,000 and $2,000 price cuts that are the norm today. Rather than having to send our hypothetical Pontiac shopper away with the wrong car, the dealer can quickly come up with a black Firebird that will be the envy of the neighborhood--and that means the customer will take very little convincing. "We don't have to incent him to buy it, because that's the car he wants," he says.
In much the same way that car prices have gone up as a result of better construction, mandatory air bags and nearly maintenance-free operation, any hit in the pocketbook should be compensated for by the fact that customers will be able to buy exactly what they want.
"[Customers] will pay more if they get more value," says Forrester's Garretson. "The value will be in terms of greater control over exactly what vehicle they get."
Enjoy your new car market, and don't forget to change your database every 3,000 miles.
Make a Wish
By Jason Compton
iMotors.com offers a top-notch customer experience for used car buyers with exacting demands. The year-old online buying service pledges to find a late-model car that matches not only your make and model requirements, but specific mileage, color and even option package preferences.
iMotors quotes a firm price at the beginning of the search, then combs various nationwide used car auctions, off-lease distributors and brokerages to locate the specified vehicle. After a wait of two to six weeks, the car is available for pickup, at a price no higher than the original quoted price plus tax and license fees.
iMotors runs the car through an extensive inspection and reconditioning process, rejecting about 3 percent of the vehicles that enter the rehab center, and presents the buyer with the results along with a complete title history. A 7-day/700-mile full money-back guarantee, and a 3-month/3,000-mile extended warranty are thrown in to sweeten the deal.
sticking to used cars makes life a lot easier for iMotors. "There's a patchwork of state regulation as to who can and can't sell a new car," says Rob Erlichman, the company's vice president of marketing. A few states, Texas among them, have made it virtually impossible for a dot com to do new car business within their borders. Even as a licensed used car dealer, iMotors faces some interesting challenges as it tries to open doors in new states, such as a Connecticut law requiring them to have 3,500 square feet of garage space. But the delivery centers do not offer service; iMotors does its inspection and vehicle rehab at facilities in Sacramento, Cincinnati and Atlanta, and outsources its extended warranty business to NAPA. "Some of it, we'd prefer to find a way around and compromise, so we've got efforts with all of the relevant state DMV and attorneys general to see if there's not some other way."
start with a Zip
Casual shoppers can start configuring cars and obtaining quotes by providing as little as a ZIP code (used to ensure that the buyer is near an iMotors delivery center, where the sale is ultimately consummated), although saving a configuration and price quote for later consideration requires registration on the site.
In June, iMotors turned to Octane Software (now a division of E.piphany) to enhance its targeted customer offer abilities. All customer records, quotes and purchases are stored in Octane 2000, integrated in the contact center to handle personal interactions better. "Our customer care specialists continue to build our data profiles for customers based on what they're inquiring on, so we can present appropriate selections to the customers toward the goal of getting the order," says Erlichman.
Even without a single live contact, let alone an established purchase, iMotors begins making targeted pitches. Assumptions gleaned from a logged and saved car quote (a request for a price on a 1998 Honda Accord reflects a likely interest in imported mid-size sedans) as well as ZIP code demographics from registration data provide the basic customer profile. iMotors will automatically recommend special offers that crop up from time to time when buyers notice a large number of a certain vehicle coming through the channel--say, a juicy Toyota Camry, a fine substitute for an Accord.
Although other used car dealers are adding instant marketing tools to their arsenal through providers such as Reynolds and Reynolds and Carabunga.com, Erlichman points out that iMotors can help a larger audience of customers immediately capitalize on supply gluts not on an individual dealer lot, but at the wholesale level.
Erlichman explains that his company needs to build trust through relevant, CRM-enabled communication in order to overcome the consumer perception problems in his industry. "We start off in a business that people have a fair amount of distrust for to begin with, and we do it over the Internet, which adds another level of skepticism," he says. His instincts turned out to be correct--response rates went up fourfold when iMotors switched to targeted e-mail messaging. iMotors is now in the process of installing E.piphany to improve the integration of customer data and marketing campaigns across not only the sales and customer service channels, but the delivery centers and field car buyers, as well.
iMotors makes a point of contacting customers every three days while their order is in the queue, and the agent that made initial contact is given the responsibility of determining the best channel (e-mail or phone) for order status updates. All automated customer contacts are "branded" with the name of the agent that first established a relationship with the customer.
No used car deal is ever as good as it seems, so naturally, there's a catch. As of this autumn, iMotors can deliver the used car of your dreams to a sales center in one of just six states, although the company plans to add about three dozen delivery centers to the map by year's end.