Where Will ‘Orphaned’ Dealership Customers Go?

DETROIT – Where do “orphaned” customers go if a dealership closes, as 1,467 did through November of this year? Sometimes straight to the competition.

“Customers are convenience driven and tend to shop at dealerships near them,” says John Frith, vice president-retail channel solutions for Urban Science, a consulting firm that provides automotive retail services to auto makers.

If a local dealership closes, nearby other-brand stores that remain standing could see their floor traffic increase. It’s a case of customers showing more loyalty to a dealer than an auto maker, Frith says.

He and colleagues outline ways auto makers can work with their surviving dealers to prevent such brand defections and increase so-called throughput – or sales per store – for the remaining stores.

Ways to do that include auto makers providing their retailers with enhanced customer information beyond just the names of a closed dealership’s customers.

Urban Science and other firms garner such enhanced data to create “customer profiles.” Those include demographics, when customers might buy a vehicle based on previous purchase cycles and how much they are likely to spend.

Also available to auto makers for their dealers are lead-scoring systems that gauge which prospects are ready to buy and which aren’t so dealers can handle them accordingly.

The summer spike in dealership closings largely reflects Chrysler reductions.

“It is in an OEMs best interest to arm their dealers with as much customer information as possible,” says Katherine Kress, Urban Science’s vice president-customer marketing solutions management. “If an OEM closes a dealership and doesn’t take other action beyond that, it will likely lose market share.”

Dealership closings in 2009 have been massive, spurred by General Motors Co. and Chrysler Group LLC emerging from bankruptcy with drastic plans to cut their retail networks.

It’s the worst year on record for dealership closings and franchise withdrawals, more than 90% of them involving domestic auto makers, Frith says.

The industry has seen a 7.3% reduction in the dealer count, which now stands at 18,617, according to Urban Science. It won’t necessarily be easy going for the survivors, though.

“While OEM bankruptcies and bad economic times drove the closures, all dealers have to deal with a market that has dropped from several years of (nearly) 17 million in sales to somewhere around 11 million,” Frith says.

Katherine Kress of Urban Science says it’s in auto makers’ best interest to arm surviving dealers with enhanced customer data.

“Auto makers and dealers have to do more with less – reach a greater territory with fewer resources,” he says. “It’s more critical than ever for auto makers and dealers to work together for mutual, profitable growth.”

Auto makers have suffered greater blows than did their dealers in the last few years, says Randy Berlin, Urban Science’s global practice director.

That’s because auto maker’s success centers on new-vehicle sales. “Dealers for the short term can do well without having strong new-car sales,” Berlin says. “They can concentrate on used cars, parts and financing to keep their heads above water.”

Even though they may have made this year’s cut, dealers who built large facilities based on annual industry sales of 17 million units are hurting, he says.

On the other hand, large dealership operations, which tend to be more disciplined and better financed, are better positioned long-term, Berlin says. “It is difficult for a single-owner entity to operate today because of the costs involved.”

Meanwhile, uncertain economic, industry and market conditions have fogged up Frith’s crystal ball.

He foresees a return some day to annual light-vehicle sales at the 17 million-unit level. “But I can’t say when.”

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