Stan Udler

Stan Udler is the change manager at McCarroll’s Automotive Group.

If you wish to contribute to this discussion, email GoAutoNews Premium on: comment@goautomedia.net.

GUARANTEED future value (GFV) is designed to be a customer retention powerhouse for dealers, but so far it has not been as effective as promised due to the final price not providing enough incentive for customers to come back.

Most dealerships are working frantically to increase the number of GFV finance contracts they sell, hoping that this will:

• reduce the repurchase cycle;
• create high quality used-car stock; and
• build customer retention.

Unfortunately, hope is not a strategy dealers can rely on for success.

To ensure our long-term sustainable future, dealerships need to invest time in establishing a retention culture to co-exist with our current conquest processes while putting money on the table to reward our customers’ loyalty.

Finance companies price the GFV at or just below the wholesale value. That makes sense for the finance companies, but what about our customers?

What is our retention proposition for a customer to come back to us when other dealers can offer the same or similar wholesale trade in value (GFV) at maturity? Where is our advantage?

So, in the spirit of generating discussion, I am proposing a number of alternatives.

Suggestion 1:

What if we overvalued the GFV and allocate that additional cost as part of our retention marketing budget?

By adding a bit more to the GFV amount, the repurchase process is more compelling to the customers. This rewards customers for their loyalty and builds the dealer’s equity in the relationship with the customer. There is no downside for the customer at all.

On the dealer side, the benefits would be:

• It would take other dealers out of the game for our customers.
• Contribute to customer retention.
• Provide high-quality used-car stock.
• Aid service retention.

Cost to dealers:

• Cost of additional amount added to GFV.
• If the wholesale market adversely shifts, the finance company is still responsible for the original GFV amount so there is no extra exposure to the dealer.

Suggestion 2:

An alternative is for the dealers to partner with an OEM financier to overvalue the GFV amount.

Benefits to the customer:   

• Lower monthly repayments.
• Provides a reward for their loyalty.
• Builds relationship equity.
• Aids service retention.

Disadvantage:

• None.

Benefits to the dealer:

• It would take other dealers out of the game for our customers.
• Contribute to customer retention.
• Provide high-quality used-car stock.
• Aid service retention.

Cost to dealers/OEM financier:

• Cost of additional amount added to GFV.
• Finance company has the same exposure for the original GFV amount.
• No extra exposure to the dealer.

Suggestion 3:

Another area of opportunity to improve is OEM-subsidised finance rate campaigns. These serve to increase uncertainty in the customer’s ownership lifecycle as buyers wait for the next low rate campaign to repurchase.

Instead of using the subsidy to reduce the interest rate, we could use the subsidy amount to increase the GFV amount.

Benefit to the customer:

• No extra benefit to the customer.

Disadvantage to the customer:

• If they pay the loan out early they won’t get the benefit of the higher GFV.

Benefits to the dealer:

• It would take other dealers out of the game for our customers.
• Build relationship with customer.
• Contribute to customer retention.
• Provide high-quality used-car stock.
• Aid service retention.

Cost to dealers:

• None.

Cost to OEM financier:

• Less than the subsidised rate campaign, as some of the customers will pay out the finance contract before the end of the term due to a change in their circumstances.

Currently, most dealerships operate under a conquest sale culture, but for dealerships to be a prosperous business we need to have a strong mix of conquest and retention.

Initial expectations were that the GFV product was going to provide dealers with that critical mass of customers coming back to establish a retention infrastructure.

Unfortunately that hasn’t been the case because the GFV value is just not attractive enough under the current system.

But if we find ways to provide a more attractive GFV price, that would aid in establishing a retention culture. We could then design and orchestrate a series of events that add value to the customer experience.

In our service department, for example, we would engage the customer and lay down the foundations for future sales repurchase. During the service write-up and walkaround we can provide peace of mind by looking over the car and reassuring the customer and reminding them that the car is within the wear-and-tear guidelines and kilometre plan to replace at expiry.

We could also align the culture of our sales team with our retention strategy by changing the way they are remunerated. We should shift our dealerships away from a ‘one-off’ transactional mentality to ‘customer lifecycle’ relational mentality.

Guaranteed future value has the potential to be a game-changer. With some tweaking and creative ways to fund it, GFV can live up to its promise.

 Stan Udler is the change manager at McCarroll’s Automotive Group.

If you wish to contribute to this discussion, email GoAutoNews Premium on: comment@goautomedia.net.

By Stan Udler