I’d like to go a little deeper and add some color to my first blog post, The OEM Trap, by explaining exactly how much money it’s costing dealers.
How Much Does It Cost?
If we take Ford and FordDirect as an example, and round a few numbers to make the math easier, let’s say there are 3,000 dealers coerced into The Trap through Ford’s coop programs.
If these dealers spend an average of $1,000 a month for a website, $5,000 a month on AdWords, $1,000 a month on Facebook and $2,000 on service with FordDirect, that works out to $324 million a year.
With a minimum cut of 30% going to FordDirect, that’s $97 million a year.
And since FordDirect is owned by Ford, that’s a nice little chunk of change flowing into Ford’s bank account every year.
Not too shabby.
Devil’s in The Details
But here’s where The Trap really starts to sink its teeth into dealer’s wallets.
Most dealers are going to spend more on marketing than what Ford gives them in coop. And since dealers are not digital marketing experts, and they already have a relationship with these FordDirect vendors, it’s natural that they spend their additional marketing budget with their existing agencies.
Of course all dealers are different, but from the dealers I speak with I think it’s fair to say the average dealer is spending at least $15k on AdWords, $4k on Facebook and $3k on service a month.
That raises Ford’s cut to $248 million!
So basically, Ford gives the dealers money in the form of coop as an incentive for each car they buy, then dictates how that money needs to be spent, gets a nice cut back, and then makes a killing on the additional money dealers spend.
And this doesn’t include any rebates they receive back from Google…
Let’s face it, Ford is a huge multi-billion dollar a year international company, but a quarter of a billion dollars is a quarter of a billion dollars.
So, What’s My Real Cost?
Now, how much does this cost dealers?
If a dealer is using FordDirect agencies, assuming a 30% profit for the agency and 30% profit for FordDirect, they are really only getting $.40 cents of every dollar they spend going to buy them advertising.
But if a dealer is smart and is using an outside agency that they can negotiate a little with, they will have $.80 cents of every dollar they spend going to buy ads.
As you can see, using FordDirect costs dealers twice as much!
And this doesn’t factor in the increased performance that dealers who use reputable outside agencies enjoy.
With very few exceptions, I’ve yet to look at a Ford dealer’s digital performance from their FordDirect agencies where I didn’t find absolutely horrible results.
When you add the increased performance of a real agency to twice the ad buying power, dealers who are relying on FordDirect agencies are really getting killed by The OEM Trap.
So, exactly how much money does Ford, FordDirect and their OEM approved vendors really make off their dealers?
We’ll probably never really know because the vendors don’t provide dealers with true transparency, Google doesn’t like to talk about how much it kicks back in rebates and FordDirect is privately owned by Ford.
What’s more, given the recent leadership changes at FordDirect, the smart money believes Ford will probably take FordDirect in-house in a year or two, thereby lowering its costs and increasing its take.
Now I’ll admit I took some liberties with my numbers to make my illustration easier to understand. But I think they get my point across.
And if any dealer has a problem finding a reputable agency to handle their account for 20% of their spend, get in touch with me, I’ll be glad to help.
Also, it’s not like FordDirect is alone, virtually every OEM has a similar trap.
I’ve also had a number of people ask me to call out specific OEM vendors. But I’m not going to do that because I place the blame for this where it belongs, with the OEMs.
Look, I’ll be totally honest.
If an OEM came to me and said, “Chip, here’s $40 million dollars. We want you to build us an analytical service for our dealers.”
You can be damn sure I would.
And when some of the dealers started to complain because my service was designed for the OEM instead of really for them, I’d never hear them because I’d be too busy partying on my new yacht with all my new OEM vendor friends.
No, I don’t blame the vendors, they’re just doing what their true customer, the OEM, wants them to do.
Sadly, I don’t think the OEMs are going to change.
They’re hooked on the money and not going to give it up without a fight.
The best that dealers can do is limit the damage.
Dealers need to spend the least amount of their coop possible and optimize the programs they’re forced to work with the best they can.
But beyond that, they need to be smart enough to get the most bang for their buck and use outside agencies that will deliver much better performance.
To go even further, dealers who really want to break out and dominate their markets should consider hiring an in-house digital marketing expert.
Do the math.
If a dealer is spending $40,000 a month beyond their coop, a qualified in-house digital marketer will save them the 20% agency fee, or $8,000 a month. For that kind of money, they can afford to have an in-house pro that can not only manage their ad spend but do so much more.
If a dealer has multiple stores, they can have the same individual manage all of them. Now that’s leveraging your investment and hitting on all eight cylinders!
As an added bonus, when dealers are bombarded by snake oil salespeople trying to get into their wallet, they’ll have somebody in-house they can trust that will see through the BS.
Digital marketing is technical, complex and constantly changing. It’s not fair to expect Dealers, GMs, or GSMs to manage it on their own given all the hats they have to wear.
That’s why I started Torque Analytics.
I can help dealerships understand and manage their digital marketing. The old saying is true, if you can measure it, you can manage it.
And that’s exactly what I do.
I can build out and manage a dealership’s analytical and digital marketing infrastructure so that dealers have rock-solid information about what’s working and what’s not.
As always, if you have any questions, call or email me and I’ll be glad to discuss them with you.