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DealerDrop

DealerDrop aimed to capitalise on the “We’ll-Come-to-You” VIP Trend

How I tried to modernise car dealers with a VIP chauffeur service

DATE

2014

COMPANY

DealerDrop

INDUSTRY

Logistics

Introduction

The aim of DealerDrop was to offer a chauffeur service for dealership customers. The firm wanted to be a part of a growing trend among luxury car brands and their dealers: providing customers with assorted VIP transportation. Dropping off loaner cars, taking vehicles in for servicing and bringing test-drive vehicles to shoppers, so they didn’t need to go to the dealership.

Saved dealers money

Saved dealerships advertising dollars. Due to the fact a car that is sitting still in storage, is actually losing money.

Increased enquiries

Increased number of enquiries for each dealership. By around 150%. Some smaller dealers even started going from no enquiries, to 12 a day. It was very good to hear.

Demand was satisfactory

 Ended up carrying out 40-60 transactions a week. Average of £39 per transaction.

Improved dealer marketing

Got dealers to change their adverts so they had a unique selling point, through deliveries etc. Increased conversion rates of dealerships to the same level I was getting. Around 8/10 customers would buy after seeing a car.

Situation

When I saw the rise of deliveries being carried out on behalf of dealerships in the United States, I decided to trial this concept over here in the United Kingdom.

I developed an ordering and live tracking software to manage everything.

After implementing this system in my own car sales to see how it would work and to prove how much it would improve the conversion rates of my sales. I decided to help other dealerships and do exactly the same thing.

I set out to close contracts with several local dealerships and then carry out deliveries for them. Either delivering test drives, delivering their customers, or taking vehicles to the customers door after a sale was completed. Or even completing the sale and paperwork ourselves after the car had been delivered and the customer tried it out.

Situation other facts

When trying to buy a car myself and after messing around with car sales for a bit, I couldn’t understand why customers had to make their own way to see a sales vehicle.

Surely if you’re buying a vehicle, isn’t it easier if the car comes to you. The same goes for when you need a car repaired. If the vehicle is broken, why should you take it to a garage for a repair or service yourself. And if you do, you’re without a vehicle.

Research told me I wasn’t the only one who thought that. A little company in the United States called Tred came about, offering a chauffeur service. They would also help close the sale. Then RedCap popped up out of nowhere a bit later. The premise was that dealers requiring people to do business on their terms can make customers irritated at the dealership, who are then going to beat up the dealer on price and look for every discount.

Offer great service, buyers worry less about price.
Sounds simple right?

Higher cost for dealers, but happier customers.
VIP programs have costs associated with them, but more money comes in because there’s more business. So it benefits dealers and customers.

Before I jump into anything I sought expert advice from the UK’s most successful people in the industry. So I knew I would have a business these customers would want.

I started by taking advice from two high fliers.

Kerry Finnon, Joint Chief Executive
Greenhous Group, £1 Billion+ Revenue

John O’ Hanlon Chief Executive
Ridgeway Group, £750M Revenue

Challenges

Both people said the same thing. That there was potential and I should give it a go. They gave me ideas on raising money. What dealers actually want and the costs involved.

To get large dealers involved needed manpower.
These prestigious dealers rely on their reputation to acquire business. That can easily be lost. They also sell a lot. They wouldn’t dive in head-first with an unproven business. With barely any staff.

Fair pricing.
Some dealers want their own sales people to be the ones who close the sale. Which would eliminate the commission pricing structure.

Fees per delivery.
To make real money, I’d need more than a nominal fee per transaction. Tough balancing act.

Hindrances

– Designing the software and finding great developers would be a challenge

– Actually getting the attention of dealerships so they would talk to you was a challenge.

– Getting a dealership to trust you to begin with was a hindrance.

– Proving to the dealership that you had some reason to back up your claims and that you knew you could improve their sales would be a challenge.

– Being able to deal with the amount of deliveries that would come in and have the manpower would be a challenge.

– Convincing the insurance companies to work with a new concept would be a challenge.

– Making sure our vehicles were reliable would be a challenge

– Charging enough money where we were making a good profit but the dealerships were happy would be a challenge. The pricing structure was an interesting problem to solve.

Actions – other facts

– Came up with a unique pricing structure offering. Allowed dealers to pay a fixed fee per delivery. Or a smaller, or no fee. And we took a commission for each car sale.

– With the help of Car Dealer Magazine, designed a survey which reached 3000+ UK dealerships, to gain more industry insights.

– Met/interviewed Top 100 UK Car Dealer CEOs.

– Re-contacted dealers after setting up business. To get a sale done and signups before we officially launched. Some local dealers were serious so paid us the money first, as a deposit. They didn’t have enough staff to cope with their demand at the time.

– Created a DealerDrop tracking software to help dealers. And manage all orders, kept people updated.

– Made 1000 cold calls.

– Advertised using social media. Focusing on Linkedin to get attention of business owners.

– Wore smart clothing, to do justice to each dealership.

– Made dealers improve the speed of their workflow.

Actions

– Built a team of developers from China and created the fully functioning software I had envisaged.

In order to get the software up and running I tried to see how much a developer in the United Kingdom wanted. A company who had some computers in an office. They quoted £50,000. There was no way this was going to happen.

So I decided to reach out to my Chinese contacts. There are many excellent workers out there in the computer and automotive sectors overseas who don’t earn what they are worth.

After speaking to many of the top freelancers out there. I managed to build a handful of people who would work together to bring my vision of the software to light.

It just so happens that they already had worked on something similar for someone else in another country. So the whole process was far quicker and easier than I ever thought it would be. I convinced them to work with me because I did two things. One I referred them to one of my major software contacts in the United States, a multi-million dollar company. They eventually got some work from this company.

Secondly I did a revenue share deal. So instead of paying up front, I made them part of my team. This would build trust with potential dealership clients, as having a world class team is better than having nothing. The developers would also reap the rewards of each transaction. We would all succeed or fail together. The developers could also add this to their track record, creating an industry leading piece of technology, never seen before by others in the car sales sector.

– I made a list of every single car dealership within 30 miles. I researched their revenues per year. Types of cars they sold. Their reputation with customers. Was their information readily available online? I also got ahold of the names of every single director for every dealership.

– Created a website and a video to showcase the concept and how it works in the real world. Added in statistics from my own car sales company. The effect on sales before the software was implemented and afterwards. Also I acquired testimonials from real end-customers. Car purchasers to show everyone their thoughts on the experience.

– Approached all the decision makers of every dealership. Wanted to get their thoughts on the concept and if they could ever see something like this working in their business.
Those that said yes it looks interesting. I continued discussions with a view to start implementing it in their business.

– I closed a deal to start shipping out cars for one of the smallest dealerships first. So we could work out the teething problems and so we weren’t overwhelmed. The number of cars per week was limited but manageable.

– We worked out how many cars we could manage per week. Asked how many cars the others would sell / require delivery of per week. Took an educated guess and then did deals with another 4 dealerships so that we would be close to our maximum capacity.

– We were sometimes a bit late due to traffic or lack of people close enough to cope, so I decided to hire more concierge/drivers to help out, on a zero hours contract. I had a list of 8 people who I could call up and send them on their way to a dealership.

– I then decided to focus more on a larger dealership and not have lots of small ones. We had built up the concept and it was working. But the distances between dealerships meant the profit margin was smaller. Focusing on 1 or 2 larger sales places would make everything quicker and easier.

– Got rid of existing smaller branches and closed deals with 2 larger places instead. We were helping out with about 40 – 60 cars a week.

– Insurance companies wanted someone to be in the passenger seat if a customer was going to drive a car. However our business model meant that a customer should have full control and get to know the vehicle on their own so they are more comfortable. It makes sense. Managed to convince a smaller insurance middle-man to change their ways. Purely because I discovered a multi-million dollar place in the states were delivering vehicles in this way, I showed the insurance company my vision and they agreed to help us get there.

We could not risk the dealerships having their own insurance or enough of it.

– There were different ways to price up jobs. We could charge per delivery. Or only charge a percentage on each sale. One way was consistent, the other had greater rewards but would only work if the dealerships were a sound business too and their customers were happy.

I spoke to the former Founder of Tred, in America. He said I should do both. Charge a small fee to cover costs and make a profit, so you’re not running around for free. Then once a sale comes in, you get a percentage too.

I tried this tactic. But ultimately it varied between dealerships. But the premise remained the same, we had to get deals done where we would be making money.

The best deal was where we would charge £49 for a delivery, but then also get £100-£300 for closing a sale. It all depended on the value of each vehicle, how many miles we travelled, if we handled the paperwork and money transactions.

– I made sure we purchased new vehicles so there was less chance of them breaking down.

I made sure each of our vehicles were checked every 6 weeks, by undergoing a full vehicle inspection. Much in the same way HGV’s do. Getting to a dealership on time was paramount.

The zero hours contract people also had to have a reliable car. If they broke down, then we ask them to check their car over more. Or we check their car over and charge them if it needs any work carrying out. However, I made sure I had enough people on the list so that if anyone had any problems, I would just call someone else up instead and let the dealership know what was going on.

– I focussed on working with dealerships who would have newer vehicles. Customers who buy newer vehicles tend to have more money. They aren’t penny pinchers and don’t moan as much. They would appreciate the delivery aspects and time saving services we provided to them. It isn’t great turning up at someone’s door with a rubbish old banger worth £700. But a nearly new £70,000 car is a different prospect. You feel like you have more power.

Those buying cheap cars do everything they can to save money and get one over on you.

Results

Transformed the way dealerships sold cars. Got them to change their adverts to promote my brand and so they had a unique selling point over their competition. Through deliveries etc.

– Increased conversion rates of dealerships to the same level I was getting. Around 8/10 customers would buy after seeing a car.

– Increased number of enquiries for each dealership. By around 150%. Some smaller dealers even started going from no enquiries, to 12 a day. It was very good to hear.

– Saved dealerships advertising dollars. As they were getting more bang for their buck in terms of outgoings vs actual sales. Even taking into account the increased expenditure using DealerDrop. Due to a car that is sitting still in storage, is actually losing money.

– Ended up carrying out 40-60 transactions a week. Average of £39 per transaction. = £1560.

– About 30% of transactions would let us generate the extra income from the revenue share deals we did. Whereby a dealership pays us if we complete the sale. Around 15 cars a week came under this entitlement.

Average of £200 per car sale.

£200×15 = £3000 a week.

Total £4,560 a week average revenue.

Something Memorable

I found out David was right. Solera later acquired RedCap. Lyft now handles all deliveries.

Don’t bother wasting time doing deliveries for dealers. I’m exiting the space. Looking to sell my software to a manufacturer, for £25M. Margins not big enough for deliveries with own staff.

David Zwick
CEO, RedCap Automotive

Evaluation

DealerDrop was a good little experiment but I soon found out that there would be too many hurdles to take it to the next level. To the level I want something to reach in order to fulfill my dreams and ambitions. Through many phone conversations, emails and extensive research, I uncovered a lot of extremely useful information.

Once DealerDrop was ticking along I reached out to someone I saw in the United States, running a company called RedCap.

RedCap

RedCap Automotive back then had created a similar piece of software as myself and they had drivers running here, there and everywhere (wearing redcaps and a formal uniform). Their software was more geared towards managing the dealership sales, service and management. Delivery was a side feature it had. So in essence you could say it was far better, but more complicated and harder to use.

The guy from RedCap Automotive told me, in the same frame as the guy from Tred that the delivery game in terms of moving cars and people around, using your own staff was foolhardy. Mr RedCap said there wasn’t enough profit in it. You would have to charge dealers too much money than what they would be willing to pay, in order to make money from this pure delivery service.

He also said he found that some Dealers would try to implement their own staff to cut costs. But overall he said to reach millions you would need to do too many sales. And the profit margins on vehicles for Dealers aren’t big enough to make it worth their while.

Mr RedCap having invested millions into his software was looking for a different exit instead. He said he was trying to sell the software to a car manufacturer instead and was currently in talks with Peugeot for $25 million.

I thanked him for his advice and quickly stopped moving down this road. The RedCap guy was struggling to find a buyer and he was far ahead of what I had achieved. He was also exiting the business because he could see the software was the only thing of value he had.

A few years later, I recently discovered that RedCap found the buyer they always wanted. A little company called Solera bought them.

Solera

Solera acquires RedCap to augment Solera’s Digital Garage® platform and further address the 54 transactions in the automotive lifecycle

Solera has an estimated annual revenue of $1.3 billion dollars.

They have acquired around 18 other companies in total related to the same industries, in and around automotive.

Solera acquired RedCap to augment Solera’s Digital Garage platform and further address the 54 transactions in the automotive lifecycle. They say:

“From test drives delivered to the customer’s door, to pick-up and delivery of service vehicles, and on-demand ride sharing, RedCap is fundamentally changing the way dealerships manage customer logistics. The platform extends digitized customer experiences to automotive buying and servicing, while providing dealers with easy-to-integrate technology to scale out-of-store-logistics, as well as increase service revenue and customer satisfaction scores while reducing loaner car cycle times.”

I also noticed that RedCap has partnered with Lyft, a ride-sharing / taxi service in the United States.

Lyft

Lyft has an estimated annual revenue of $2.1 billion dollars.

Lyft covers over 350 cities and has over 1.4 million drivers serving 23 million different passengers.

It is a great partnership David has achieved here with Lyft. As it would allow Dealerships and service garages easy access to a country wide network of drivers. Dealers would also have the software behind it too.

RedCap would have all the power in the world to charge Dealers a subscription for use of the software and then also charge dealers a per journey cost for each Lyft trip. It would be cost effective for lyft drivers because they have so many on the road already. They can send their nearest vehicle, thus reducing waiting times and expenses.

As you can see, in order for anyone to bring a delivery company to the dealership network with this scale. You would effectively have to compete with every single taxi, recovery and transportation company in the United Kingdom. You would have to create your own Uber. Even Uber does not operate in all areas. Only sticking to the major cities due to population densities etc.

Lyft drivers would be carrying out their regular jobs and every so often, they would come and carry out a RedCap job. So it makes sense

Whereas with your own drivers. You need to have enough work to pay them for the entire day. Or at least give them enough consistent work they will answer your call and drop whatever they were doing.

There are many easier, quicker and lower hanging fruits I can tackle than taking on this operation.

I may in the future speak to Mr RedCap to see what his vision is for the United Kingdom. However Solera are not stupid. They have the board and management to do whatever they want throughout Europe and the States. They may already have plans to expand upon their U.S operations.

Overall DealerDrop was fun. I made a few pennies and learnt how to close deals with big commercial clients and some small one’s too.

I learnt how to build a team and get something actually made, out of the door quickly. This software was “good enough” to start bringing money in. We then eventually improved it a little bit. So I know how to manage time and be efficient with resources and money.

I can bring the software with me to use in the car sales for my own benefit if I want to. Still no one really implements this in car sales from what I have seen. They may carry out deliveries however they do not update the customer in the correct way, instead using old school phone-calls.

In the future I will make sure that the market I am going in to is a proven winning formula, so good that a monkey could make it work. There is no need to try to create a wheel. I will instead acquire proven businesses with a track record.

I will then improve upon them with marketing and a few other instincts and insights I have.

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