Welcome to the 2019 National Automotive Dealers Association (NADA) ReviewEdition 1

February 2019

ContentsIntroduction 1

The state of the US retail automotive market 2

Key Performance Indicators for automotive retailers around the world 2

USA state of the industry – NADA data 2018 mid-year update 3

The best ideas from NADA 20 Groups 4

Guided dealership tour – Toyota Sunnyvale, San Francisco Bay Area 6

Google automotive presentation 7

2019 NADA Review – Edition 2 8

IntroductionThe 2019 National Automotive Dealers Association (NADA) conference was hosted in San Francisco 24 - 27 January 2019, and we were delighted to be in attendance.This annual event continues to be the largest retail automotive convention in the world with over 22,000 people attending from over 50 different countries.

The theme of the conference was “Focus on Innovation.”

An appropriate theme for the NADA event given San Francisco and the Bay area is a global leader in innovation with organisations such as Airbnb, Google, eBay and Facebook have headquartered there. As part of the Australian Automotive Dealers Association (AADA) Study tour, we were lucky to visit the HQ’s of Google and eBay.

Despite the focus on innovation the messaging was very much “digital retail is just a tool, not a mission.”

As noted in the NADA Daily Magazine, “… buying a car simply is more complicated – framed by a century of laws layered upon each other – and a much bigger purchase than a pair of Cole Haan (shoes). So it’s ok if the process takes longer than a pizza delivery.”

So it makes sense that digital retail is a tool, albeit an important one, but not the end-game.

Highlighted in this edition are key takeaways from the conference and learnings from the “Best ideas presentation” from NADA 20 Groups, a guided dealership tour of Toyota Sunnyvale, Bay Area and presentation held by Google Automotive at Google HQ.

We certainly learnt a lot and are more than happy to pass on our learnings to you. Happy reading.

John GavljakPartner – Automotive

1

The state of the US retail automotive marketIn 2018, the US achieved a strong number of car and light truck sales of 17.2 million units – an increase of 0.5%. Light trucks were popular in 2018 – accounting for 69.2% of all light-vehicle sales – while the car market share fell to its lowest point in US automotive sales history.

According to NADA, aside from US stock market volatility, most other economic data (tight labour market, accelerating wage gains, high consumer confidence and low petrol prices) suggests that new vehicle sales will remain robust.

For 2019, NADA expects new light-vehicle sales to fall slightly to 16.8 million units.

Key Performance Indicators for automotive retailers around the worldOff the back of our study tour to NADA, below are some international benchmark comparisons (for non-luxury dealers).

Key Ratio Australia US UK

Net profit % of sales 3 – 3.5% 4% (nat. average 2.6%) 3%

Fixed absorption 55% minimum 100% 80%

Used to new retail ratio 0.5 to 1 1.25 to 1 1.5 to 1

Used vehicle inventory 65 – 70 30 45

New vehicle inventory 60 – 65 45 – 60 -*

Labour hours per retail RO 2.0 2.0 – 2.5 2.5

Service gross profit as % of sales 65 – 68% 68% -*

Parts to labour ratio 0.65 1.1 (national average) -*

Parts gross profit % 23 – 25% 38% 22%

*Data not made publicly available.

As we can see across mature markets for automotive retailers, similar results have been achieved. However, in the area of used vehicles it appears that Australia has room for significant improvement.

Source: Pitcher Partners, NADA, ASE

2

Source: NADA 3

USA state of the industry – NADA data 2018

USD 20,390AVERAGE SELLING PRICEOF USED VEHICLES SOLD

(by new-vehicle dealerships)

USD 35,249AVERAGE SELLING PRICEOF NEW VEHICLES SOLD

435AVERAGE NEW VEHICLES SOLD PER DEALERSHIP

USD 16,794TOTAL NEW-CAR

DEALERSHIPSCALIFORNIA

Highest dollar sales for all dealerships

USD 59,119,125,130

ARIZONAHighest dollar

sales per dealership USD 49,459,312

TOTAL DEALERSHIP SALES

USD 503,859,356,600...per dealership

USD 30, 002,343

TOTAL NEW VEHICLES SOLD THROUGH JAN-18 TO JUN-18

SOLD

11.8Y E A R S

mid-year update

Average age of vehicles on the road (Q1 2018, cars and light trucks)

NEW-CAR INVENTORY

3,983,600NEW-VEHICLEDAYS’ SUPPLY

Domestic

2,074,200Import

1,909,400+

8,574,268

82Domestic

61Import

38%Percentage of dealerships operating on-site body shops

The best ideas from NADA 20 GroupsTim Gavin, 20 Group Consultant from the NADA 20 Group conducted a session at the 2019 NADA conference on the best ideas and practices from the top performing automotive retailers with key tips for every automotive retailer – regardless of franchise, market or sales volume. His insights are as follows:

1 Marketing window sticker: “We have your car”• Sticker is put on every new vehicle next to

MSRP level

• Tells the customer there is more inventory

• Attention! If you don’t see the vehicle you want, please let us know

2 Marketing window sticker: “Benefits of lease”Benefits of leasing:

• Higher grade vehicle

• Closer to your budget

• Peace of mind

• No haggle on trade-in

3 First responder discount program• Create an ad using a photo of actual first

responders – local community focus

• Promote the discount program through traditional and social media

4 Video appointment confirmation• Send the customer a video of car - “This is your

car, this is me showing you your car!”

• Subject line of email “A video of your car”

5 Recondition your wholesale units• Beauty sells

• Light detail, inside and out

• Build the detailing cost into trade appraised

6 Source pre-owned vehicles outside the auction• Street purchases

– Dealership website

– Facebook

– Cold calling

• Other dealer’s websites

• Lease turn-ins

• “We pay cash for cars!”

7 Signage• Service intervals

• Tyres

• Give the customer all the information

• Let the customer upsell themselves/options

• Always supply the most expensive option

Good Better Best

8 Smart phone service app• When you deliver a new or pre-owned vehicle,

have the salesperson (with customer’s permission) install your dealership’s service app on your customers phone

9 Battery test• At every service, test the customers battery

• 15% upsell in new batteries

10 New tech, new toolbox• Offer to sell a new toolbox for $1

• If you stay, after 18 months of service you get to keep it

11 Colour coded folders in service• Green folder = less than 75,000 and 5 years old

(might be getting CSI) survey

• Black folder = regular customer to the service department

• Orange folder = pay attention to this customer (VIP)

• Red folder = come back

12 Risk - free inspection• Not 16 point check but 81 point check

13 No more shuttles• Contract with Uber

• Uses a dealership credit card

• Promoted pick up spot near service drive

• Reduced expenses - USD 11,140 per month

4

14 We sell tyres• An inflatable tyre - 20 feet high

• POS display

– Materials

– Tyre racks with prices

15 Cost-effective annual inventory• Annual inventory conducted on a Sunday,

neighbouring dealer supplies the talent

– Host dealer supplies breakfast and lunch

– Host dealer pays the inventory “checkers”

– Then switch roles the following month

16 Watch the pennies• Each month the department managers met as a

group to review the OEM parts statement which contains all the programs, fees and mysterious charges

• 1ST year savings - USD 152,550

17 Community donations: Cases of water• Rather than donate money, donate cases of

water with dealership logo

18 Community events: Flu shots• Team up with local pharmacy or health care

provider

• Run event in your showroom on a non-busy day

19 Oil filter with tech ad on label• Place a stick-on oil filter saying, “we are hiring

techs - great pay, training and benefits”

• When gets changed at another service outlet the technician will see it

20 Dutch auction• Pre-owned vehicle sales - vehicle is parked in the

showroom for delivery

• Each Monday, the price is lowered by USD 250

The best ideas from NADA 20 Groups

5

Ranked the No. 1 Toyota dealership in customer satisfaction in a JD Power survey of Northern Californian dealers

Fastest growing Toyota dealership in Northern California

Part of a large private group (Price Simms Auto Group)

• 7 locations through the Bay Area

Full return of vehicle (new and used) within 3 days if not satisfied

One price on used, on trade – no negotiations – Hassle Free Zone

Look for efficiency in transaction, everyday low-cost proposition

Offer delivery of vehicle to customers’ home – only 6-8% of customers decide to get their car delivered direct to their home

Internet enquiries are only dealt with by one person from start to finish, that is, through the whole process

New vehicle sales – 60-65% of leads are from the internet, 35-40% off the floor

In Used Vehicle sales the reverse is true – customer wants to know

• Is the car still there?

• Want to see the physical car

4 of the dealerships are “One price, no negotiation” – Hassle Free Zone

Rules of internet leads

Two-way communication to be established within the first 48 hours

Earn the ‘last right of refusal’

Just tell them what you can do, not what you can’t do

Benchmark

10% close on new car leads

12% close on used car leads

The dealership is averaging 7.5% in closing on internet leads

Guided dealership tour – Toyota Sunnyvale, San Francisco Bay Area

The big part about auto dealerships is, you don’t

get another one, unless you’re doing well in one.

One of the owner’s mantras

6

65% research on their smartphones while at your dealership

2.4 dealer visits

1.4 test drives

CONSUMERS MOVE ONLINE

42%

45%

% Offline touch points used at any time until the final decision by all buyers

Test drives

Dealer visits

2.9 car brands considered

of customers watched videos during the research process57%

Of those who watched an online video actually did at least one follow-up action triggered by what was shown in the video73%

Source: Google automotive presentation 2019

THE 3 STAGES OF THE CAR BUYING PROCESS

CONSIDERATION“In -market” Which car is best? Is it right for me? Can I afford it?

INFLUENCE “Out-of-market” I notice you

PURCHASE“In-dealer”Where should I buy? Am I getting a deal? How can I make the most of my car?

321

7

Google automotive presentation

8

2019 NADA Review – Edition 2 In our next edition of the NADA Review, we will cover the following topics:• Expense reduction: Best practices

• Leadership skills and used car strategies for champions

• From apprentice to visionary: How to innovate business and life

About Pitcher PartnersPitcher Partners is a full service accounting, auditing and business advisory firm with a strong reputation for providing quality advice to privately-owned, corporate and public organisations.In Australia, Pitcher Partners has firms in Adelaide, Brisbane, Melbourne, Perth, Sydney and Newcastle. We collaboratively leverage from each other’s networks and draw on the skills and expertise of 1,300+ staff, in order to service our clients.

Pitcher Partners is also an independent member of Baker Tilly International, one of the top ten largest networks in the world by fee income. Our strong relationship with other Baker Tilly International member firms, particularly in Asia Pacific, has allowed us to open many doors across borders for our clients.

Our commercial services to dynamic businesses

Financial essentials• Accounting and Business

Advisory Services

• Audit, Risk Management and Assurance

• Internal Audit

• Recovery, Turnarounds and Insolvency

• Tax advice and Compliance

Planning and growth• Business Consulting

and Commercial Advice

• Business Performance Improvement

• Business Structuring

• Corporate Finance

• Corporate Governance

• International Business Advisory

• Investment Advisory Services

• Succession Planning

• Superannuation Services

• Tax Consulting

• Technology and IT Consulting

• Valuations

Our private wealth services• Estate Planning

• Family Office Management

• Investment Advisory Services

• Philanthropy Services

• Succession Planning

• Superannuation Strategies

• Tax Advice and Compliance

• Insurance

Industry specialisations• Automotive

• Education

• Retail

• Professional services

• Financial services

• Health and aged care

• Manufacturing

• Not-for-Profit

• Property and construction

• Government and the public sector

• Agriculture

• Food and beverage

• Hospitality

• Transport

Pitcher Partners is a national association of independent firms.Liability limited by a scheme approved under Professional Standards Legislation.

Nationwide firms

1,300+People nationally

122Partners nationwide

Baker Tilly International

746Offices worldwide

10th Largest network of accounting firms globally

34,000+Partners and staff globally

$3.6bn Worldwide revenue 2018 (USD)

Our Sydney firm

280Total Sydney staff

32Sydney Partners

$52m Revenue 2018 (AUD)

9

9

NADA Report 2019 Series 1_040219_v2

MELBOURNE

+61 3 8610 5000 partners@pitcher.com.au

ADELAIDE

+61 8 8179 2800 partners@pitcher-sa.com.au

SYDNEY

+61 2 9221 2099 sydneypartners@pitcher.com.au

BRISBANE

+61 7 3222 8444 partners@pitcherpartners.com.au

PERTH

+61 8 9322 2022 partners@pitcher-wa.com.au

PITCHER.COM.AU

NEWCASTLE

+61 2 4911 2000 newcastle@pitcher.com.au

Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

Get in touch...

John GavljakPartner – Automotive

+61 2 8236 7759john.gavljak@pitcher.com.au

John TaouilManager – Automotive

+61 2 8236 7739john.taouil@pitcher.com.au