It is sad to say, but not a surprise that we have a loyalty crisis in car dealerships right now.
At NADA 2023 I sat on a panel with some very sharp people. One of those people was Brian Pasch who can be quite polarizing. He said something that stuck with me as it was the first time I had head it in my 30+ year car biz career. He said:
35% of a dealers monthly sales should come from current customers.
It hit me hard because it wasn’t just that nobody had ever stated this before, but it also struck me because very few companies put an effort in tracking it. Since 2022, FRIKINtech had been tracking it and I was excited to share that most dealers were not that far off! There was room for improvement, but years prior to 2022 were not very far off….
The key to tracking is service
35% of a dealer’s monthly sales don’t have to just come from past sold customers. It should include people using the service drive. In fact, the bulk of loyalty sales should come from service.
In 2024, the bulk of repeat business came from past sold customers. This is not good!
23% of 2024’s sales were from loyal customers
That’s 12% off pace. Yikes!
Why is loyalty in such decline? It started with a pandemic that led to inventory shortages and ballooned from there.
- Low inventory made the wait for a car the customer initially wanted long enough to explore other options/brands
- Low inventory drove the prices up and some customers were off-put by this
- High demand and low supply drove an attitude of “take it or leave it” at dealerships
- Dealerships turn approximately 65% of their staff annually, so new employees only knew a “take it or leave it” world
- Many sales people and managers’ memories are 30 days long.
When supply and demand shifted, we had a sales floor that forgot what it was like to sell in 2019.
How to fix it?
Two month ago we published an article detailing some ways to incentivize customers to be more loyal. Unfortunately, it may be tougher than just implementing a few programs. It is a cultural shift back to making the customer feel like gold again. People need to feel that you’re excited to help them buy a car regardless of the profit. Service customers want to be communicated with in a convenient way. Instead of being upset that inflation is hurting your dealership, think about how you can better communicate with customers who are incredibly frustrated by the rapid increases in pricing they’re paying for their cars. Consider what happened to them:
- Average cost of new vehicles is up $12,000 since 2019
- Average cost of each service visit broke $521 in Q4 of 2024 – it was under $300 in 2019
- Car insurance skyrocketed and may just now be plateauing
That’s a lot of financial stress to take on in a short window.
Americans are in for a tough ride for a little while longer
We are all in this boat together. We will all need to do our part to get out of it. Just knowing we’re still in turbulent waters might be enough to help you make better decisions.
FRIKINtech is here to help automate some processes that can help in the loyalty efforts. And we have not increased our rates. We have yet to ask a dealer to pay more for something he is already receiving. Despite every data partner we have increasing their rates to us.
We are innovating our TRADEiQ product into something bigger and better – the beginnings of that roll out this month! I am asking my Chief Financial Officer to find ways to keep our pricing stable while we enhance what we give to dealers.
This is what we are currently doing to play our part. I’m sure more will come the longer we stay in these waters. Our goal is to help dealers solve their loyalty crisis.
