Toyotas local importer has completely changed the new car distribution process with dealers now operating on an agency basis

Toyota's local importer has completely changed the new car distribution process with dealers now operating on an agency basis

The new vehicle distribution model is changing for Toyota and its dealer network. Toyota New Zealand will sell new vehicles to customers under an agency structure, with dealers being an agent for the Kiwi importer and distributor. This company blog interviewed CEO Alistair Davis about the changes, what the drive has been behind this shift for the brand in New Zealand, and what the changes mean for its customers.

Alistair, can you explain the key changes that customers can expect?

Well, I think that customers can expect changes that will create a more seamless, transparent and positive buying and vehicle ownership experience. We are taking a more customer-centric approach to car buying and the entire ownership experience. We have initiated a number of changes in our business as a result of what customers have been telling us, and we are endeavouring to eliminate some of the pain points that customers have experienced in the past through the sales and service processes.

What do you mean, pain points?

When a customer sets out to buy a car, there are a number of 'bothers' that they face – hassles in the process of purchasing. When we asked customers what the worst bits were about buying a new car, the most common response was concern about the price negotiation. Customers told us they didn't like to haggle, or even if they felt comfortable with negotiating they were never sure that they got the best deal. But they mentioned a few other 'bothers' as well. Some talked about the pressure to buy a particular car. I read lots of comments about customers visiting a dealership to look at vehicles but hoping the salespeople wouldn't approach them.

Customers also worried about what motivated a salesperson to push a particular car: is this really the best car for me and my needs? Or is there some other motivation? Is there something wrong with it? Or does the salesperson just want another sale to earn commission? The customers worried that if they succumbed to pressure to buy they'd be living with a car they didn't really want for the next five years. Buyers' remorse and no way out. Customers also worried about the cost of servicing – if I buy a new hybrid electric Prius, will it cost me more to service it? So what is the Toyota plan? As we looked at the customer feedback, we realised that we needed to do something about these concerns. While people enjoy having a new vehicle, if they don't enjoy the process of buying one it needs to be addressed. After all, the next biggest investment for most people after buying a house is buying a new vehicle. It should be an enjoyable process.

So we started something we called the 'Drive Happy Project' to try to address the various issues that customers were telling us were pain points. I say 'project' intentionally, because it is an ongoing piece of work by Toyota New Zealand. We are introducing a range of changes in our business now to address the pain points, but as customers raise other issues we'll be trying to address those as well.

So what does the Drive Happy Project include for 2018?

There are a number of key ingredients to the Drive Happy Project. The first and most prominent initiative is that customers will no longer have the pressures of negotiation and haggling with dealers over prices of new vehicles. Instead, the up-front price, referred to as the Toyota Driveaway Price (TDP), will be consistent in Toyota Stores throughout the country.

We are also putting in place a number of initiatives to make the traditional car dealership a less 'hard sell' environment. The next two ingredients build on that move away from the 'hard sell.' We are radically improving our online presence to give customers a much better web experience, where they can build their own cars, select colours, options and accessories and indicate how much they will cost to own. We are also introducing more flexible test-drive options and a greatly increased number of demonstrator vehicles at each store – we are trying to give customers the opportunity to test vehicles on their terms. We are also introducing something called the Toyota Care Service Advantage, which gives the customer certainty about their servicing costs in the first four years of ownership.

And finally, we are giving the customers some money-back options if they make the wrong choice of vehicle. Obviously there is quite a lot more depth than this to the project, but this gives you a quick overview.

Let's talk about each of these. Firstly, tell us more about the change to TDP. Is this a 'one price fits all' approach? How does this translate for the customer?

Let me start by explaining what typically happens now when you buy a new car – from almost all franchises; the process is the same all over the world. a customer checks out a prospective car, probably online or maybe through an article or advert in traditional media. The price that is listed is the Recommended Retail Price (or RRP). Once they go to a dealership they go through a process of talking to a salesperson, taking a test drive and getting their trade-in valued (if they have one), and then finally they get to the price, which is a negotiation. The customer asks for a discount and the  Salesperson negotiates around their trade-in, the finance required, the accessories, any additional vehicles they might require and so on.

In other words the customer does not get a real indication of the price until very late in the process, by which time they have invested so much effort that it becomes a fait accompli; they just buy the car and hope it was a good deal. Often they then get surprised when the dealer adds delivery fees, fuel, registration and so on – the customer gets a bad taste in the mouth; things aren't quite as they seemed. What we are wanting to do is move the pricing information to the front of the buying process. In other words show the customer some respect, and tell them how much the car will cost before they get into the process of evaluating it, taking it for a test drive and so on.

This upfront transparent price will be called the Toyota Driveway Price because it will be an all-in price. It will include the price of the car, all pre-delivery costs, the warrant of fitness, registration, the number plate, a full tank of fuel, (and with a diesel vehicle 1,000km of road user charges), floormats and the peace of mind that a capped-price service charge will apply for four years of regular usage. Plus of course with every new Toyota we include a three-year, or 100,000km warranty (whichever occurs first under normal operating conditions). It is a perfect example of 'what you see is what you get' – and the TDP will be the same at every store throughout New Zealand and online too. It means customers don't have to shop around for the best deal. It is the same price everywhere. What that means is that a customer can save time. They just have to choose the brand they want to buy. We hope it's a Toyota. And if they do make that choice, the process is much improved. Pick the model that suits and the price is already up-front and includes everything.

So what is the difference between RRP and TDP?

The old RRP was often regarded as fictitious – most customers got a discount from the RRP when they purchased a vehicle. We will no longer be advertising an RRP. The only price we will display is the price that customers actually pay – the TDP. When we make the change to this new process, TDP prices will be lower than the existing RRPs, because they will reflect the fact that today almost all cars are sold at prices lower than the RRPs.

Will fleet purchasers pay the same?

No – part of being transparent is being upfront about the fact that a volume purchaser of motor vehicles gets a better price than a customer who just buys one. That is common practice in all businesses. So fleet purchasers will be classified into a series of purchasing tiers (depending on the size of fleet and the number of Toyotas they buy) and each tier will have its own TDP.

So who sets the price?

Traditionally it was the dealer who set the price in the negotiation process, but now, with the haggle eliminated, Toyota New Zealand will determine the TDP. That means that traditional car dealerships are now acting as Toyota New Zealand's agents and thus we will be calling them Toyota Stores in the future. What that also means is that the dealer no longer has a margin to trade with. Toyota New Zealand will pay them a fee to deliver vehicles and provide services to customers. It removes the incentive for dealers to negotiate and moves the focus away from the hard sell to providing a good customer experience. By eliminating a dealer margin, Toyota can offer its vehicles at a lower price.

That's a good segue to talk about the 'hard sell' – you said that eliminating the 'hard sell' was part of the new Drive Happy Project. Can you explain how?

No business wants to be known for its 'hard selling' tactics, but sadly that is the reputation that comes with the traditional car dealership. As a result, car dealers often rank very low in occupational trust surveys. I think for many new car franchises, that perception is an exaggerated image that has been generated by the poor actions of a few bad operators, but that perception exists. I think the issue comes from a couple of suspicions or 'bothers' that plague the customer who is looking at buying a car. The salesperson says to them that this is a good car for their needs, but they worry that maybe it is not – maybe it is a 'lemon' that the salesperson is trying to sell to get it off the dealership's yard. That gets reinforced by the willingness of the salesperson to offer a discount. The other worry in the customer's mind is that the salesperson's motivations are suspect – they know they are being paid some kind of commission, so maybe they are just trying to sell this car to get a commission cheque.

So how are you going to counter that?

We are doing three things. Firstly, we are taking all the new vehicle stock out of the dealerships. We will hold it all at three pools around the country – Auckland, Wellington and Christchurch. That way, no store will be under pressure to sell a car it has had in stock too long. There will be no 'lemons' in a store's stock. A vehicle will only be shipped to a store when it has been ordered by a customer. This has the added benefit of giving customers far more choice of vehicle – they won't be choosing from the 20-30 vehicles on a dealership's yard, but from the several thousand in Toyota's national stock. By removing new vehicle stock from a store, we remove the pressure on a local operator to sell what is 'on the yard' and put power back into the hands of the customer to choose the car that suits them from the wide range of wholesale pool stock. This means the pressure to buy is removed.

Secondly, we are encouraging our stores to shift the staff's remuneration from a commission model to more of a standard fee with recognition of how happy customers are at the end of the process. Sure, a store and a salesperson will still only get paid if they sell cars (that is true of any business – you have to sell something to earn income), but the focus is shifting to rewarding staff for happy customers who return for service and future sales. Obviously each store (all of them are independent, locally owned businesses) makes its own decision about what works best for its staff in its location. But the Commission-only salesperson is a thing of the past. Our staff are rewarded for having happy customers (determined by way of customer surveys), not just for their sales numbers.

And finally, we are putting a considerable focus on training our people to offer hospitality and a great customer experience. Traditionally the car industry has focused its training efforts on 'how to sell', but today the power is with the customer – they will buy when they are ready to buy. So our focus needs to be on making the process as easy, transparent and welcoming as possible.

So let's pick up on this change to the vehicles available at a store. You said that there will be no new vehicles held by Toyota Stores, but they will have more demonstrators to test drive.

That is exactly right. The stores will have no new vehicle inventory available for immediate sale – it will be held in the three pools and vehicles will be shipped to the stores when customers order them. That helps to eliminate the 'hard sell' and means the power transfers to the customer. They get more choices. If the car they have ordered is in those regional pools, we can deliver within a few days depending on location and logistics. Removing new vehicle stock from a store creates space for the business to hold a wide range of demonstrators, covering a wider range of the Toyota vehicles that are available in New Zealand. That means a customer can test drive more options to ensure they make the right choice for their motoring needs.

In addition, we will be developing new ways of facilitating test drives. Traditionally a test drive was a 10-minute drive around the block with the salesperson pointing out features of the car and the customer feeling increasingly obligated to buy a car that they had not really had time to assess for its capability and suitability. We are also looking at extended, overnight and even weekend test drives, where a customer can test a car in their environment on their terms. Flexible, overnight, 24-hour test drives will be available subject to the availability of the vehicle and at the store's discretion. This gives the customer the chance to assess a vehicle without any pressure from store staff present. And using new technology, we are exploring ways that a customer can have a 15-minute try-out (perhaps without a salesperson and perhaps not even from a Toyota Store, given the ability to use car-sharing apps for easy access).

You talked about improving the online experience. What is happening there?

Customers have told us that when they are at the car-buying stage, over 60% begin their searches online, searching brand and dealer sites and using platforms like Trade Me when browsing used-car options. Customers get confused with all the options available, especially when it comes to finding out the price or the finance terms that might be available. In terms of making the decision to buy, few people can move further in their decision-making without involving a dealer.

They involve dealers late in the process, and this is viewed as intimidating and customers feel pressured because of the 'hard sell'. Our website has now been redesigned to enable customers to build their perfect cars online, adding accessories and calculating finance options and viewing warranty information. Once they have done this with Toyota's online car builder they have the ability to share with the consultant at their local authorised Toyota Store. They have designed the car and know the price, and now it is simply a matter of test driving, making a decision and ordering the vehicle.

Does this mean customers can buy cars online?

It's no secret that the internet is playing an ever-increasing role in the buying process, with customers doing the majority of their research online before they even enter a car yard. While we are not selling vehicles online initially, this may evolve if customers indicate that this is what they want.

Tell us about the Toyota Care Service Advantage

To remove customer uncertainty about the future costs of servicing, Toyota is introducing the Toyota Care Service Advantage, which will provide a price guarantee for the future servicing of a motor vehicle for the first four years of regular use, in accordance with our scheduled servicing recommendations. This is based on the assumption of 15,000km travelled per year. Customers will be advised at the beginning of their ownership how much their servicing will cost each time in the next four years. In addition, if a customer is regularly servicing at a Toyota Store under the Toyota Care Service Advantage, at the end of their first three years of ownership we'll extend their warranty to five years.

You mentioned money-back options. Is there a facility for customers to return vehicles if they are not happy?

Every new vehicle bought from a Toyota Store comes with a seven-day money back option. We are endeavouring to provide peace of mind when you make probably the second biggest purchase decision – buying a car! We all know the feeling in your gut – have I bought on a whim? Was I just all caught up with the excitement of buying a shiny new car? Then you arrive home and think maybe the sports coupe is not really going to work for the growing family. Toyota understands how rash decisions can create angst and that gut feeling of remorse, and has now introduced this seven-day money-back option to provide peace of mind. The car will need to be returned with fewer than 500km travelled and in original or as new vehicle condition. Replacement options will be provided. If we have done a good job in understanding the customer's needs and they have taken advantage of the flexible test-drive options, the issue won't arise too often, but we are trying to ensure that the customer can buy with a high degree of confidence in the process.

There have been a lot of changes in the process of buying and owning a new vehicle. What drove these? Would you say the changes are because of industry pressures or in response to customer feedback?

We have listened to what our customers are telling us. We have done a lot of customer research over a period of years and it is mirrored in the research Toyota is doing in many markets around the world. It seems that the traditional way of doing business needs to evolve, just as our customers have.
The past stresses they have felt, be they pressure from sales consultants trying to reach their targets or the thought of having to haggle and negotiate the price, are just some of the 'bothers' that our customers have told us make the buying process uneasy. We thought we would try to eliminate these stresses from the process, and our new business model allows us to change the way we do business to make us more customer focused. But the pressure to provide an ever-better customer experience is not just a car industry issue – it affects all businesses. For example, all retail businesses are wrestling with the impacts of the web on the way they sell products. Already close to 10% of retail transactions in New Zealand are conducted online; in places such as the United States and China the proportion is double that. So we have to respond to the changing customer and business dynamics.

Does this mean the end of the local car retailer?

Not at all. As we discussed earlier, the car dealer gets a bad (and often undeserved) rap. But despite the negative press and stereotypes, local dealerships have significant merit. For the car company, it represents brands within the community, demonstrating cars, sorting any problems and providing parts and service support at a local level. For the community, the car dealership has a significant presence in providing employment and generating business and community activity, and for the customer, the dealership is the local expert, providing advice and supplying service and where necessary repairs. But I think the traditional car dealer is evolving and the old-style car dealership could be a thing of the past. This Drive Happy Project is part of that evolution.

For example, by removing the burden of carrying new vehicles in inventory, Toyota Stores can devote more space to used vehicles, customer parking and, importantly, regular servicing work. With more than 900,000 Toyotas on New Zealand's roads (that is one in every four cars), all Toyota dealers have considerable space pressures as they handle regular service business. The Drive Happy Project will help them to focus on that work as well as provide a great experience for the new-car buyer. That may be a signal of how dealerships will evolve, into service centres, used-car hubs and providing hospitable venues to explore new vehicle purchase options. As an aside, our stores across the country are excited by the opportunity. They have all invested in a new common IT system in order to improve and fine-tune customer communications and ensure that customers get Toyota Care no matter which stores they visit. They are also building covered reception areas for service, so that customers can drop off vehicles in a sheltered environment. They are also in the process of developing collection suites, to help customers understand the benefits of owning a Toyota. Many have also taken the opportunity to upgrade premises. In total they have committed over NZ$40m of development to get us to this point – such is their confidence in the Drive Happy Project and their future with Toyota.

So recap what will happen when a customer wants to buy a car

When a customer decides they are interested in buying a new vehicle they will go online to research their options. If they are considering a Toyota (and we hope they will be), they can go to www.toyota.co.nz and see all the options available. They can customise a car with the online car builder and get an indication of what it will cost them to own. They can get a finance estimate also, with full transparency on the interest rate, payment terms and so on. They can send that information directly to a Toyota Store and request a test drive. When they visit a store there will be far more demonstrators to take for a test drive and more options of how to conduct that drive on their terms. Once they have settled on the car they would like in a non-pressured environment, they will be able to proceed to the purchase stage. The price has already been determined, so all that will remain to do is order the vehicle to their specifications. If the customer needs finance or insurance for their new vehicle, then the Toyota Store has those options available at competitive rates – also available online. On the vehicle's arrival a few days later, the store will arrange a comprehensive introduction in the collection suite. In the unlikely event that it was the wrong decision, there are seven-day money-back options to address any issues.

Finally, recap how the ownership has changed

A customer will also know, from the time they buy their new vehicle, the regular servicing costs they will face for the first four years of ownership. In addition they will get the normal Toyota three-year, or 100,000km warranty (whichever occurs first under normal operating conditions), and if they are servicing the vehicle with the Toyota Store for the first three years, and continue to do so, this warranty will be extended to five years. In any event the Toyota Store will check in with the customer each year to conduct a lifestyle check-up on the vehicle – to make sure that it is going OK and that it continues to be the right car for the customer's needs. All these changes are significant and we believe will help create a more pleasurable purchase and ownership experience for our customers.

See also: Toyota New Zealand completely revamps vehicle retailing