Fixed Operations Roundtable

Kasi Edwards, Senior Vice President of Marketing, Reynolds and Reynolds Hello and thank you so much for joining our Fixed Operations Roundtable discussion. My name is Kasi Edwards, and I am the vice president of marketing here at Reynolds and Reynolds. And today I am joined by Todd Marcelle. Todd is the vice president and founder of GoMoto, a service kiosk solution. I'm also joined by Brad Schafer. Brad is a director of ReconTRAC^®. ReconTRAC is a reconditioning software platform. And I'm also joined by Jason Sideris, our vice president of product management for all things fixed operations here at Reynolds and Reynolds. So with service volumes still down 15 to 20 percent year-over-year, we've gathered these three key influencers in the fixed operations space, each of them bringing a unique and different perspective to the industry and what's going to be needed to regain and to sustain dealership success. Each of these leaders have a different background, and they've worked with hundreds of dealerships on many best practices, whether it's consumer experience improvements or process improvements or something there in between. They've seen it all, and they've seen it all for decades. So with that, gentlemen, thank you so much for joining our conversation today.

Todd Marcelle, Vice President and Founder, GoMoto

Thanks for having us.

Jason Sideris, Vice President of Product Management, Fixed Operations, Reynolds and Reynolds

Thanks Kasi.

KE Absolutely. So let's dive right in. How about we start off broadly here with fixed operations and that market today. There have been a lot of changes that have come out of the last year of life and we're still actively living in a lot of those now. How has the fixed ops market fared? Jason, do you want to take that one and get us started?

JS Sure. Fixed operations is often thought of as the rock of any successful dealership, and certainly that proved true at the beginning of COVID. We know that many dealerships were unable to sell vehicles due to shutdown restrictions that the government imposed, and that created a lot of challenges and really pushed the need for fixed operations to keep things afloat. Unfortunately, people are still driving less today, so the service demand hasn't really bounced back to pretty good times.

KE Interesting. So Todd, from your perspective, what does that mean?

TM It means to maintain profitability, dealers need to make more money per customer, getting more out of each opportunity. And that's certainly a balancing act. You need to find ways to propose more work and increase closing ratios on pre and post MPI opportunities and even trade appraisals. And typically, this is achieved with consistent and repeatable processes and experiences.

JS We've seen this coming for a while. Not that we could predict COVID, but the decline in service opportunities between electric vehicles, maintenance intervals, changing vehicle quality has reduced the amount of work needed on certain vehicles. So we knew that this demand was not sustainable.

KE So with that kind of as the backdrop and looking ahead, what do you see in fixed ops for 2021? Brad, I'll start with you with that one.

Brad Schafer, Director, ReconTRAC I think one of the areas that dealerships should really focus on is the overall process and efficiency improvements. When times are good, they look past those little issues. When times start to get challenging and the margins get thinner, those process inefficiencies really come to light. Dealers are trying to do more with less in every aspect of the business. And where the smart operators have always understood this, when times get tough like during these COVID times, it's paramount for survival for some of these dealers out there.

JS Additionally, dealers need to take advantage of every opportunity. Performing a quality inspection is more important now than it's ever been and being able to present those in a way that allows consumers to make an educated decision. Now, it's not just telling them what they need to have done, but if for whatever reason, they decline services, making sure that we're tracking those services so that we can follow up on those previous recommended items.

KE That certainly makes a lot of sense. Todd, what about from your perspective? Looking forward to 2021. Anything else that you'd like to add on there in terms of what's in store?

TM One thing I definitely see is that consumers are prioritizing retailers that provide convenience, efficient transaction methods, and social distancing aspects of the customer experience, which is certainly becoming the permanent desire. If we've learned anything from past behaviors, changes like these are going to become the new normal. Just think about the last 30 days over the holidays. How many times did you use an ATM, utilize Amazon to order something, utilize curbside pickup to grab your food, or even self-checkout to grab that gallon of milk at the grocery store? All of these methods are the norm and the same is true for dealerships. Those that can provide these experiences will be the ones who see continued growth time and time again.

KE Certainly very true, and I think we can all recognize that all these changes that we've experienced in all aspects of our lives, not just retail, many of them are probably here to stay. So Brad, you touched briefly on the process and efficiency issues and how challenging times can sometimes bring those to light. What have you seen that has really surfaced this last year?

BS Work force, like the staffing shortages, became an issue for a while. And it was tough to get cars in and out of the shop while keeping people safe. We were all learning through this time together, reconditioning specifically. Many dealers have always had a lot of challenges in this area of the business. And COVID kind of extrapolated those due to the fewer associates that were at work. So in March and April, dealers initially started sending people home. They didn't have enough work for them. People just weren't coming to the dealerships. And many dealers started to wholesale everything they had. They increased holding cost of their inventory. Inventory started to become an issue. And then most industry experts believe that a car is going to depreciate with the holding costs about 40 dollars a day, for some numbers as high as 80 dollars a day, depending upon the make and model of the vehicle. So in March and April, after they started liquidating everything, they started to realize that with the lack of new car inventory, there was going to be a massive shortage of used cars. Both new and used cars. They just didn't have cars to sell. So it's a perfect example of how this used car market can shift quickly, making a fast turn. It's not the first time this market has shifted, and it won't be the last.

JS Unfortunately, many don't even realize they have a problem. Reconditioning is often tracked via manual processes, maybe using Google Docs or Excel spreadsheets. And this limits the visibility to huge profit leaks that they can't react to. So if they don't know the time it takes to get a vehicle frontline ready, it's difficult to correct the challenges and the issues that they face today.

KE Todd, what about from your perspective, any other kind of process or efficiency issues that you've observed?

TM Yeah, another process issue completely new to dealerships due to COVID was social distancing. The old way of doing things is having each customer come into the service lounge, meet at the desk, talk to the receptionist or the advisor. And all this was done face-to-face. Sometimes it caused long lines at the check-in process or even at checkout. And with COVID, this method of conducting service absolutely wasn't even an option.

JS Piggybacking on that, there's a need for service departments to be able to efficiently communicate with customers during the service process. They could no longer have service advisors sit face-to-face with the customer and walk them through the multipoint inspection and go over the various recommendations. So dealers really needed a way to do this electronically. There was already a need for this before the pandemic from a consistency and efficiency perspective, but it became even more crucial during the pandemic. And that's not going away.

KE So Jason, you bring up a lot of really good root issues. How can dealers combat these issues?

JS Well, regarding electronic communication, there's a reason why top dealerships use a digital process; it provides a consistent, repeatable method of allowing the dealer to use more accurate and actionable data. This improves the communication everywhere throughout the business. The dealers leveraging this technology, they adapt faster and they perform much better than those using a paper process or relying on in-person communications. It's interesting to note, Kasi, that with this emphasis on digitization, we've seen nearly a 170 percent increase in texting year-over-year.

KE Well, that's a pretty dramatic bump year-over-year. Todd, what about GoMoto from your perspective and how to combat some of these root issues we're talking about?

TM Our self-service kiosks really help with this as well. Instead of having customers lining up, as I mentioned, in the old way of doing business or even outside, in some instances, your customers could check in and wait in their vehicles. And there was no face-to-face interaction needed in the sense that we even went out and created a mobile check-in experience where you could do most of the process at home, get a QR code, and then simply scan that QR code on one of the self-service kiosks, reducing your check-in times from 15 minutes down to under 2 minutes. In fact, we found that 85 percent of consumers actually prefer to utilize a kiosk than to speak with a service advisor during this check-in experience. So it's certainly been a significant shift.

KE So, Todd, I have to ask from a kiosk perspective and touching surfaces. Concerns brought up or customer issues, was that something you guys had to worry about and overcome?

TM Yeah, absolutely. Certainly in the beginning days of the pandemic when information was coming in and we were trying to understand how COVID was spreading, we needed to really assess the information and understand from the CDC what was actually happening. And what we quickly found is that we can really reduce the risk and solve any of the pain points by simply deploying our antimicrobial screen protectors that killed 99.9 percent of all viruses and bacteria, which provided a huge level of security and safety, frankly, to not only the consumers, but also the dealership staff. And we deployed those on all of our kiosks moving forward. Second, it allows the dealership to actually deploy either wipes or hand sanitizer or even gloves to be able to allow the consumers to pick and choose the path that they see fit with interacting with the kiosk to ensure that those safety standards and social distancing guidelines are met. And what we found is that it's quickly become the standard now for most dealerships to check in consumers, which ultimately has been a big benefit.

KE So, Brad, you touched briefly on the increase we've seen in used vehicle sales and some of those root inefficiencies that bubbled up as part of reconditioning in that process. Help me understand a little bit and help our audience understand how ReconTRAC helps address some of these issues.

BS Well, Kasi, there's risk in selling used cars. You need to make sure you're putting a safe car on the road, because your name's on the back of it. So recon is challenging because every car is unique and every dealership has a unique process. So if you don't have a way to monitor all vehicles in the process, little things will get stuck and fall through the cracks, sometimes for days at a time. So many people think it is just the brakes and tires as the reconditioning process. But some of the biggest delays happen outside of the mechanical shop, like just checking them in or vendor involvement or maybe the body shop down the street. So ReconTRAC creates a repeatable process through automation of the work order. And most dealers, you have one person that manages all these internal repairs and when that person's gone, everything comes to a screeching halt. So our tool allows workers and even vendors to move the car through each step of the process without the need of re-dispatching it from person to person or from step to step. You don't have a physical person doing that anymore. So managers can then just monitor the whole process from their desktop or their phone and focus on the cars that aren't moving through. The process of things speed up substantially when the team is always looking for that next used car to work on. The system will do that for them. Our automation creates an efficient way to recondition the car.

KE Excellent. Certainly sounds like a much more comprehensive and complex entire end-to-end process than maybe I even once understood. So Jason, earlier this year, Reynolds brought both GoMoto and ReconTRAC into the Reynolds family. Can you touch on these offerings and how they now fit into the overall Retail Management System that Reynolds brings to market?

JS Absolutely. The Retail Management System creates a seamless, efficient workflow for its users. But Todd touched on earlier the fact that consumers expectations are now being measured against other retail experiences, such as how they buy electronics, groceries, and even home goods. With the addition of GoMoto kiosks, we're able to provide consumers with a frictionless socially distant experience when checking in for service and then picking up their vehicles. Additionally, we're able to provide valuable information specific to their vehicle so that they can choose what needed services they'd like. Now, with ReconTRAC, we're able to transition dealers from a manual process and provide a digitized workflow management tool to drive efficiencies in the course of reconditioning vehicles. And ultimately the goal is how can we make dealers more profitable? And that's what that tool does.

KE Fantastic. Well, certainly excited about the future. So thank you all for sharing your perspectives on the market, the fixed operations world, and some of your solutions. I would like to take a moment and throw you a few questions that have come in. The first one is probably easiest for Todd. Todd, help me understand how you balance advisors with a kiosk tool.

TM It's a good question and certainly one we hear quite a bit. And really, the roles of the kiosks are designed to help advisors become more efficient, certainly because we hear one of the biggest challenges that they express is that they don't have enough time to do everything. And certainly in the world that automotive retail has evolved into, we have become what I would really deem an appointment culture where 75-80 percent of all customers that walk into our service lanes have an appointment. And so in our service BDC's, they've worked hard to confirm those appointments, build a set of services. So when those consumers make that appointment and they roll into our dealerships, they're looking to get in and out of that store within 2 minutes or less because that's the expectation. And what that then allows is the adviser to actually focus on the higher value opportunities and activities like presenting an MPI to every customer and helping build and foster those relationships. And ultimately, what happens is that increases closing ratios on the post-MPI work and ultimately list revenue and profitability for the dealership. And as I mentioned, 85 percent of consumers prefer to utilize the kiosk versus talking with an advisor. They prefer to engage that adviser during the MPI process because they truly want to know what's wrong with their vehicle. With what we've seen in the increase in videos and pictures, that allows the advisor the proper time to educate those consumers on those issues. So it's a win-win across the board.

KE So is it fair to say, Todd, that really what you're doing is you're allowing your service advisors to focus on the more profitable opportunities, allow them to spend their time working on profit generating activities versus some of the more tactical, mundane tasks?

TM Absolutely. And just think about the average customer that comes in for an oil change, right. At 20-30,000 miles, it's a pretty limited set of upsell opportunities that we have. But by doing the self-service check-in, we can intelligently and accurately apply upsells to each of those customers. And so we get about a 20 to 30 percent uplift of customers selecting an upsell. But that now gives the advisor the opportunity for that customer that came in and truly has a significant issue that may be focused around breaks or the transmission or the engine to articulate the problem, be able to educate the consumer on why they need to have that repair done today and then be able to really guide that customer through that journey. It's a much higher value activity for both the advisor and for the dealership and ultimately leads to higher conversion rates and revenue production.

KE So, Brad, here's one for you. What is a good benchmark for reconditioning cycle time?

BS That is a great question, Kasi, and one we get often. So we believe that about a 4 to 5 day cycle time is an excellent job. But the trick is you have to monitor everything. Some people will only track just their mechanical portion of it and think they're doing 3 days, and they're doing a great job. But in reality, they really don't know because they're not checking in the cars that are sitting around the showroom. Maybe they're lost down the street at the body shop. They just don't have a solid grasp of the entire process. I'll tell you, a recent customer that we installed and we asked him the same question, what's your cycle time? They said 10 to 12 days is what they thought. They didn't think they were doing a great job, but they thought it was 10 to 12 days. Well, in reality, once we installed the tool, it was over 22 days when they started tracking all these other areas and photos and all these things involved in reconditioning. So pretty quickly, we got them down to 12 days after the first month and they're now below 9 days, which isn't great, but we're getting better every month. So you've got to be able to connect everything together. It's that part of the problem. When you're not tracking everything, it's part of the problem. But then you've got to make sure that you've got your training, the detailers, you're training the wheel guys to use one tool and put everybody on the same page.

KE Sounds good. So fair to say a big issue is when do you kind of start the clock and stop the clock from reconditioning. So it sounds like there's a lot of variability in how you even measure what you're doing today, what needs to improve, and that you've got the capability to make a lot of those improvement with ReconTRAC.

BS That is correct.

KE Excellent. Jason, one last one for you. So this is probably a little bit more of a lofty question, but in sales, we are moving more and more to online car sales. You read a lot about that certainly week in and week out. Translate that and tell me what that looks like in service.

JS I think we'd all agree it's all about the consumer experience and the consumers today. They want to see improvements in how they deal with the dealership. And oftentimes that now involves scheduling their appointments online and getting valuable information of when they can bring that vehicle in so that they're not stuck at the dealership for minutes or hours, but rather that they can check-in in just a few seconds. The other thing that's really important and we're seeing a big opportunity in is once the technician identifies what's wrong with the vehicle, to be able to provide video and photo evidence of what they found. This allows the consumer to see with their own eyes exactly what the technician's recommending. Now, after we get through that is how can we improve the approval process? So another way to look at using the system to provide notifications on what needs to be done so that the consumer can approve those items. And then when they think about coming back in, they want that return process to be very similar to when they drop the vehicle off. They don't want to be stuck in the dealership for minutes or hours, but rather they want to be able to come in and pick up that vehicle. So the ability to pay online and then come in and using the kiosk to check out again, all of these things are changing the overall consumer experience in fixed operations.

KE Outstanding. Well, thank you all again very much for taking the time to participate in the discussion and certainly thanks to all of you for joining and for listening. Have a great day.