Driving Toward a Digital World

The largest expenditure most of us make after housing is our cars, which makes the new-car market in Westchester a robust, significant part of the local economy. About 41,000 new cars were registered to Westchester owners in 2016, according to industry data source R.L. Polk. At an average price of about $36,000 per unit, new-car sales represent nearly $1.5 billion dollars in the county. When you add in retail sales of used cars, aftermarket service, and revenue from financing and insurance, Westchester’s new-car dealers make a major mark
on our economy — well over $3 billion annually, according to US Census data.

It’s been a happy few years for auto dealers, with sales climbing steadily from 2010 to 2016.  New-car retailing is one of the most cyclical of businesses, however, so expectations for the immediate future are moderate. Drivers keep a new vehicle about six years, according to R.L. Polk, so buyers from 2011 — a smaller group than those who bought in later years — should be shopping for replacements in 2017. Improved health in the overall economy will boost those figures somewhat, but Pepe Auto Group Chief Operating Officer Joe Pepe predicts, “Sales should still continue to grow but probably not at the same rate.”

Sales are one thing; profits are another, of course. According to the National Automobile Dealers Association, new-car sales account for about 30 percent of dealer profits, a figure that includes financing and insurance, especially extended warranties, which are particularly profitable. Used cars add another 26 percent to the dealer’s bottom line, but the largest contributor are the service and parts departments, which account for 44 percent of gross profits.  

All of these profit centers are affected by various forces, not the least of which is the digital revolution. “The Internet has dramatically changed our business,” Pepe says. While that’s true for just about every business sector in America, few have been affected as deeply as automotive retailing: Nearly every facet of this bulwark of our economy has been touched by the Web, from marketing to service to customer loyalty. 

The most obvious way the business has been altered by the Internet is the buying process. Before the advent of the Web, consumers learned about their new-car choices in the dealer showroom and spent hours, if not days, trekking back and forth from one dealer to the next. Now, according to Pepe, “Over 90 percent of car research is done online. The consumer is more knowledgeable than ever before, having done a lot of Internet research before coming in or even contacting a dealer.”

The depth of information available to the consumer today includes everything from performance reports on specific models to the value of their used-car trade-in — as well as comparative pricing on the model they want to buy. “They come in [to dealerships] a lot more prepared,” says Chris Paranzino, general manager of White Plains Honda, “and you would think it makes the process quicker, but it actually doesn’t. When they get here, they still sit and negotiate with you.” He adds, “Westchester residents are savvy and educated, and they tend to shop around. The income levels are greater, but they’re more demanding, too.”

Customers can’t quite buy a car online yet, although the prospect looms on the horizon. Costco members can choose a new car online and then be directed to a participating dealer to make the final decision, using prearranged Costco member prices.  

And then there’s Amazon, which isn’t in the car business in the US (yet) but is in Italy. Fiat Chrysler recently announced plans to sell three models online in that country through the ubiquitous Web retailer.

Ken Hicks, general manager of Acura of Westchester, agrees that online shopping has made an impact, but he doesn’t think it will go much further: “Customers still need to come into the dealership to see the car and drive it. They talk about buying cars online, but the consumer is not ready for that. It’s too expensive an item not to touch and feel before you buy.”

Pepe — whose family’s dealerships include Mercedes–Benz of White Plains, Mercedes-Benz of New Rochelle, Pepe Cadillac, Pepe Infiniti, and Porsche of Larchmont — doesn’t dread the paradigm shift. “We believe digital retailing will change the way we sell vehicles,” he says. “The complete online buying experience means stopping in the dealership just to pick up their vehicle. It has already begun with research and may soon follow with virtual test drives.” Virtual-reality technology exists now, of course — all that’s needed for a virtual test drive is digital content.

Not every facet of the Internet is negative for the brick-and-mortar dealers. Pepe says the group embraces the Web’s ability to tighten customer relationships. “The Internet has allowed us to have communication with our customers at their convenience. We can now interact with them on a constant basis, not just during the sales process,” he says. “We are here for our customers after the delivery of their vehicles just as much as before. Digital marketing and social media keeps all resources at our customer’s fingertips, educating them more than ever and allowing us to be more transparent.”

Any tool that cements the relationship with a customer who visits the dealer’s showroom only every few years is welcome. In fact, the biggest single issue facing dealers today is loyalty, according to Pepe. “Establishing loyalty to a dealership, aside from loyalty to the manufacturer, is always a challenge,” he says. “Fortunately, loyalty is huge with our customer base. Many of our customers have been with us for years, in both sales and service.”

Hicks agrees. “The Westchester customer has higher demands and expects better treatment,” he says. “If you’re not treating them correctly and giving them good service, they’re not going to come to you. Everybody has a good product these days, so you have to make sure you have good relationships to maintain your customer base.” A myriad of personal touches makes the difference, he adds. “We offer loaner cars, give a discount on every service, and customers deal with their own personal service advisors and salespeople. They work like a team to provide a concierge experience.”

Car dealers are also using digital tools to improve communication with customers. Live chat and text messaging, for example, streamline the online experience for both sales and service for many dealerships. Pepe has established a call center with more than 40 customer-care representatives, to reduce wait time on phones.  

One factor in Westchester’s auto market that helps increase the frequency of customer interaction is that a big portion of the county’s new vehicles are actually leased, not purchased. “Seventy-five percent of our customers [choose to] lease, usually for 3 years/36,000,” says Paranzino, while Pepe reports his family’s dealerships lease 85 percent of the cars they move. In both cases, the rates are much higher than the national new-car lease rate of 31 percent, according to credit-reporting service Experian.

The future is fast approaching auto retailing in other ways, too. “The first wave of semiautonomous vehicles already arrived at our dealerships,” Pepe says. “Our Mercedes-Benz lineup features the S-Class and E-Class, both equipped with incredible semiautonomous safety features. These vehicles can anticipate and avoid collisions, drive in traffic, and park themselves.” 

While technology may change the way we buy, service, and drive our cars, it certainly won’t do away with them in Westchester. As Paranzino points out: “Everyone is always going to need a car, so it will always be a good business.” 

Freelancer writer Dave Donelson is a frequent contributor to 914INC.