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How automotive can survive the perfect storm

How automotive can survive the perfect storm Matt Kapko

Few would likely jump at the idea of presenting a keynote addressing the potential for growth in the auto industry these days, but Sonic Automotive's VP of retail strategy, Rachel Richards, did just that to kick of iMedia's Driving Interactive in Huntington Beach, Calif.

"You're probably saying, 'Are you kidding me? There's no growth in automotive,'" she began.

Sonic Automotive, which was founded in 1997, earns $8.3 billion in annual revenue at 164 dealer franchises. It is No. 298 among the Fortune 500, and 60 of its dealerships are in Texas and California, Richards said.

The company undertook a strategy shift in 1999 that moved it from a 26 percent mix in luxury dealerships to 46 percent of all locations today. On the domestic front, the bulk of its mix is tied to GM products, which has Sonic quite concerned, considering GM's volatility of late.

Still, Sonic is convinced that its mix of profit-generating divisions will help ride it through the recession.

"We can survive in times of downturn if you focus on the other profit centers," Richards said. "Consumers, advertisers think of dealers as one profit center. We have four diverse profit centers, and those profit centers are new vehicles, used vehicles, finance and insurance, and fixed operations."

Fixed operations comprise 62 percent of the company's gross profit, yet it represents just 17 percent of total revenue. Part of that success comes through because Sonic focuses on brand and geography diversity, inventory management, and centralized expense controls.

"The key is the execution of taking those processes and standardizing them across the business model," Richards said.

There's no denying the fact that the economic climate is impacting every facet of business these days, and the automotive industry is getting hit particularly hard.

"I would say we have some concerns… This is a perfect storm," Richards said. "We have struggled in Sonic with maturing debt. They have it due in the coming weeks. When you're maturing debt when credit markets are closed, you're in trouble."

Making matters worse, consumer retail lending has tightened dramatically as well.

"So, does anyone think there's growth in automotive?" she asked. "Let's talk about the positive perspective. In 2007, the driving population was 241 million. By the end of 2009, it will rise to 246 million. So from our perspective, there's a pent up demand."

Sonic has been especially strong in the used vehicles segment, where sales were up 10 percent in a down industry.

"The used vehicle pie is actually getting larger," Richards said. "We do believe there's growth in automotive because we're not just new vehicles."

The question Sonic and countless others are faced with is how to communicate best with consumers to keep them engaged.

Richards made a strong case for sharing creative material across all businesses involved, for starters.

"A retail message from today's day and age rarely should be about brands," she said. "Every dealership should have a differentiation story. We at Sonic are getting better at that."

She said the retail automotive industry is much better at understanding customers' needs, communicating better with them, and finally, driving traffic to stores.

As such, Richards went out on a proverbial limb and argued against dealerships' use of social media. She told the audience she doesn't see the importance in being in that medium yet.

"When you only have a certain amount of time, dollars, and resources, you have to pick and choose," she said. "Consumer-generated feedback is not an area where customers are shopping."

She added that she believes automotive-relevant shopping sites are a much better use of dealership's resources and investment. Sonic is heavily invested in sites like Cars.com and Auto Trader.

Just because Sonic isn't sold on the importance of social media doesn't mean it's not doubling down on its digital spend. Sonic is reining in about 20 percent of its total spend and allocating all of that to boost what it's already doing today online, Richards said.

Finally, she closed her opening keynote with some general thoughts about where dealerships need to evolve. Sonic strives to make dealerships more transparent to the consumer and continues to believe that every dealership's primary message should be: why buy here, and why buy now.

Matt Kapko is deputy editor at iMedia Connection.

Matt Kapko has been covering mobile since 2006, before it became cool. He is a relentless journalist and consultant that specializes in the converged space of mobile, digital marketing and advertising, entertainment and media. Eye on Media, a...

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Commenter: Steve Wax

2009, April 29

Excellent points from Ms. Richards, excellent coverage of those points. We're not hearing about overall car sales, when you include used cars, being up for certain retailers. And I do think in the long run appropriate use of Social Marketing - not Twitter! - will prove to be highly efficient for dealers.