Evolving Experience: Local Auto Dealers Prevail Despite Consumer ShiftsAug 01, 2022 11:51AM ● By Scott Stewart
Photo by Bill Sitzmann
Omahans have been buying cars from H&H Group since 1930.
A lot has changed since then, and a lot appears to be in flux in the auto dealership industry, but that doesn’t worry Jeff Hinchcliff.
“The dealership world has its brightest years ahead of it,” said Hinchcliff, president of H&H Group.
The last couple years, though, have been anything but bright. While many industries suffered amid the pandemic, vehicle sales have faced a shortage brought about by a lack of computer chips that brought production lines to a halt. At times, it has been difficult to even find vehicles to buy, with some new cars selling above sticker prices and some used cars commanding more than their
Many more cars must be custom-ordered, and customers are left waiting for deliveries.
Carey Hamilton, president of Beardmore Chevrolet, said her dealerships will have transports pull up with 10 vehicles on it, and, of those, eight have already been sold. Supply-chain disruptions and transportation woes felt by other businesses are still present for auto dealerships, too.
And now, as the chip crunch eases, inflation is poised to corrode some of the pent-up demand.
“No matter what business you’re in, the last two years have been extremely challenging,” Hamilton said. “But I think automobile dealers are
Beyond the pressures associated with getting keys into the hands of consumers, which can leave customers frustrated, Tesla and other electric vehicle startups are bypassing dealerships altogether by selling vehicles directly to consumers.
The startups are building upon the success of companies like Carvana, which for years has sold used cars online. Carvana even advertises its towering vehicle “vending machines”—the nearest of which is located in Kansas City, Missouri.
The COVID-19 pandemic has accelerated customers’ comfort levels with making big-ticket purchases online, exacerbating the traditional model of having customers visit a showroom or sales lot to find their next ride. Most customers have at least done their homework.
“It’s not like the olden days when people would come in not really knowing about the vehicles,” Hamilton said. “It’s much simpler for the
Hinchcliff said those same trends can be helpful for dealers willing to invest in keeping up, which H&H has done by adopting a paperless sales and service system, funding a technology department, and fostering tech-savvy employees throughout the organization.
“Technology is really changing, obviously, customer expectations, but it’s also changing what businesses can do and still be a viable business and still have better customer experiences,” Hinchcliff said.
Customer experience is increasingly critical in an environment where dealers face competition from online and direct sales, particularly for
For decades, dealerships have relied upon franchise agreements with manufacturers, who sell the cars to dealerships, who then, in turn, sell them to consumers. Under those deals, they can’t sell directly to customers—unlike, say, Apple, which will sell iPhones at its own retail stores or website, through a carrier, or through third-party stores like Best Buy.
In the nascent years of the automobile era, vehicle manufacturers needed a lot of infrastructure. Paved roads and highways were necessary, along with gas stations and service centers, before their customers would be able to get much use out of that shiny new car or truck.
On the sales side, the industry initially used a mix of dealerships and direct sales to get vehicles into the hands of consumers. Over time, a network of independent small businesses developed to handle the sales and service of vehicles.
“The franchise system was developed so that the consumers would have a place for sales and service of the vehicles that was within their community,” said Loy Todd, president and general counsel of the Nebraska New Car & Truck Dealers Association.
Manufacturers originally had considerable leverage over dealerships. In the 1950s, they began to compete directly with dealerships, and states began to adopt laws that protected the investments of the local dealers against Ford, General Motors, and Chrysler, which dominated the industry.
Todd said GM announced plans to open one store in Nebraska, located in Omaha, threatening to upturn the industry across the Cornhusker state.
“It was going to simply be that, if you wanted to buy a Cadillac, a Chevy or whatever, you can come to Omaha,” he said. “So, the Legislature passed a law that said manufacturers could not have a retail store.”
The franchise dealer model has been good for consumers, Hamilton said, because dealerships don’t just sell cars, they also provide service departments that perform warranty works and recall repairs. She questions what might happen if that no longer is the norm.
“We’re really concerned about if the Chinese or the Indian markets, those manufacturers come in and do direct sales. Who is going to warrant their vehicles? Who is going to stand behind them?” Hamilton said. “What if something really goes wrong with one of those vehicles and they pull out of the market?”
There’s also the matter of incentives, Todd said. Warranty work is an expense for manufacturers, but it’s a profit center for dealerships.
“They want to take care of your car,” Todd said. “They want to do the work. They train the employees to do that, whereas a manufacturer, as much as they can avoid the expense of actually doing warranty work and taking care of a customer, it’s to
Hinchcliff said the franchise business model has survived for over 100 years because it works well for both sides, with dealers carrying manufacturers through tough years and reaping benefits during good years.
“We’re not concerned about the future of the car business,” Hinchcliff said.
Going forward, though, Hinchcliff expects the line between manufacturers and dealers is going to blur. For an in-demand vehicle, a customer might start out on chevrolet.com and be passed along to a dealer to finish the sale and complete delivery of the vehicle.
“They’re going to be a lot more like partners when it comes to selling new cars,” Hinchcliff said.
That’s already the case with some vehicles, like the Kia Telluride, which Hinchcliff said is “one of the hottest cars that’s been made in decades” and is still on a yearlong waitlist after being introduced more than three years ago.
“It’s quality over quantity, and the previous model was all about quantity,” Hinchcliff said. “Manufacturers—because they’re going to be restricted—are just going to have to figure out how to be really good at what they do.”
For other vehicles, Hinchcliff predicts customers will see fewer on the lot but still have plenty of options—perhaps 100 Silverados, instead of the 400 that were for sale before COVID.
At Beardmore, Hamilton expects to see more cars on the lot once the supply chain improves, including an eventual return to abundant options for customers walking the lot. But she agrees that quality is what’s driving new car sales.
“They’re really building vehicles that the consumer wants,” Hamilton said. “They’re very attractive cars. The technological advances are so great.”
If new cars are essentially selling themselves, dealers need to emphasize different strategies to ensure customers keep coming to them and not
“How we take care of customers has always been a competitive advantage of ours,” Hinchcliff said. “If having a huge inventory is no longer a competitive advantage, which it won’t be, then customers are often going to choose who to do business with off of other things, such as experience.”
Hamilton said Beardmore’s marketing doesn’t generally emphasize the deal of the day—“although we’re extremely price competitive,” she’s quick to add—but focuses on the dealership’s brand.
“It’s more who we are, what we stand for, the things that we do in the community,” Hamilton said. “One thing my father always taught me is these are the people that support you, so you must be out there supporting the same community.”
The Beardmore name can be found throughout sponsorship lists in the Bellevue community, as well as the nearby Offutt Air Force Base, whether it’s the food pantry, school arts programs, the performing arts, or community celebrations.
“We opened up a dog park, the Freedom Dog Park, on our property in Bellevue,” Hamilton said. “It’s fenced, it has lights, it has benches—it is a very popular place to go. Really, it’s a bunch of little things that we hope cumulatively make a difference.”
Hinchcliff said H&H has diversified its business by adding Harley-Davidson motorcycles to its lineup, entering into the car wash market, and opening its show-stopping ONYX Automotive dealership, which brings together luxury brands BMW, Jaguar, Land Rover, and MINI under one roof.
The lower-volume luxury vehicle business operates a bit differently, in part because those franchise agreements have different terms, Hinchcliff said. Servicing the vehicles is slower and more complicated, which also feeds into the need for a different approach.
“Omaha deserved something that was fun and different and elevated, that wasn’t just, ‘Oh, by the way, we also sell BMWs,’” Hinchcliff said. “So, if you go to the store, it feels different. It looks different. It operates differently.”
The ONYX Automotive dealership offers a destination retail experience before and after a sale, instead of emphasizing speed and the ease of conducting a transaction—which might be valued more by a customer at another H&H dealership.
“In the Harley business, which we’re in, it’s very event-focused, and it’s about having fun,” Hinchcliff said. “We’re taking a lot of the things that we’ve learned in the Harley business [to ONYX], in terms of having it being a place where people want to be a part of.”
Experience is really the core of the business at every dealership, and it should be tailored to the customer’s needs. Hinchcliff said customers have high expectations no matter the price point of the vehicle they’re purchasing, and customer service matters up and down the business.
“A customer buying a $50,000 Kia, which we sell every day, does not have any different expectations than a customer buying a $100,000 Land Rover,” Hinchcliff said. “They’re the same human being who has the same needs and desires. They all have high expectations, as they should.”
The old cliche of what it’s like to buy a car—the harassment and hand-wringing that had made car shopping among adulthood’s most onerous chores—doesn’t hold up as much anymore.
“I love the change,” Hamilton said.
It used to be that customers would show up at the dealership defensive, because the sales staff would know more about pricing, and vehicles, and financing rates. But with the abundance of research material online, Hamilton said that’s largely not the case.
“It’s a far more congenial relationship, and it’s just better all-around now,” Hamilton said. “We hated it, and customers really hated what they call haggling, and you don’t have that anymore, which is pleasant.”
Todd said the experience at Nebraska auto dealerships is quite different from what it might be in the popular imagination.
“They want a customer for life,” Todd said. “These dealers go out of their way to take care of
Ultimately, when offered a choice between buying a car online and in-person, most still choose to see the car for themselves, Hinchcliff said.
“They want to touch and see, to feel the car,” Hinchcliff said. “They want to talk through things and understand things.”
That bodes well for the future of automobile dealerships, even if they won’t look the same and there will be fewer of them than there once were. In the tug-of-war between the old business model and newer approaches, something in the middle is the most likely outcome.
“People are like, ‘OK, well there’s the old model and the new model, one’s going to have to die and one’s going to live,’” Hinchcliff said. “The reality is that both are going to exist. We’re just going to have to take the best of both sides and make it work.”
This article originally appeared in the August/September 2022 issue of B2B Magazine. To receive the magazine, click here to subscribe.