Buying a car has changed quite a bit over the years. In the past, automobile manufacturers would sell their inventory to dealers, who would then sell those cars to consumers — with significant and unseen markups.
However, market changes, transparency, and an increasingly savvy customer base have combined to erase some of those profits for dealers. Many car buyers often research cars beforehand and enter dealerships already knowing how much the dealer paid the manufacturer for the car they want, which makes it harder for dealers to make profits.
Scilicet, based in Peachtree Corners, Georgia, cures what the company’s website cheekily calls “margin compression obsession” by encouraging collaboration between manufacturers, dealers, and salespeople. By bringing these previously isolated parties together on Scilicet’s SaaS platform in real time, dealerships can maximize profits by salvaging deals they may have otherwise missed.
“We discovered about a year ago that changes in the marketplace rendered the dealer disconnected from the customer,” says Scilicet CEO Tom Murphy. “Transparencies led to what’s referred to in the industry as margin compression, because the consumer now discovers the car’s MSRP and starts the negotiation at invoice, because they know what the dealer paid for the car. So, dealers, by and large, lose money on the sale of the vehicle.”
Margin compression has been plaguing the auto industry for years, leading to decreased net profits for auto dealers across the U.S. In fact, according to the National Automotive Dealers Association (NADA), total net market profit share for sales at the average American dealership has dropped from 2.8 percent in 2013 to 2.3 percent as of June 2019.
Making matters worse, manufacturers have tried to stem the bleeding by increasing invoice prices to jumpstart profits, or as Murphy puts it, by “building in profits to save the dealer.” However, Murphy also points out that this has only led to more profit losses and astronomical automobile prices over the past seven to 10 years. In fact, the average price for a new car in 2019 was $36,402, an increase of nearly $5,000 since 2013.
“If you imagine this sales floor where a sales manager is working with a customer, the operator, the guy or organization that owns the store, has insight that the guy at the desk doesn’t have,” says Murphy. “He knows all the money coming into the desk is kept in the dark intentionally, [usually] because they don’t really trust the guys at the sales desk to dole that money out efficiently.
“So, basically what you’ve got is a circumstance where the fellow with the access to the customer doesn’t have the insight [the operator has] and the folks with the insight don’t have access to the customer. Our platform enables a connection there that the guy with the P&L responsibility can make the money available under the circumstances that he would want it to be made available. It gives the operator omnipresence, so that every deal he would do, given his perspective, he has done.”
Beyond quantifying successful sales and missed deals, Scilicet’s platform has led dealers and operators to consider the value of a third category — saved deals. The company does this by not only encouraging transparency and collaboration, but by using its platform to make sure resources are deployed efficiently, automating communications to ensure awareness of missed deals and opportunities to revive those deals, and helping control costs and expenses.
Murphy founded Scilicet in 2018, but the intellectual property behind the company had been around in some form since 1999. Formerly known as AIMAnalytics, the self-styled “20-year-old startup” was initially geared toward manufacturers, although Murphy points out that the platform serves not only the auto industry, but any industry experiencing a channel conflict. However, “we’re going after the auto industry initially because of the sheer scale of it.” Murphy says.
Targeting the car industry seems to have paid off: A test of the company’s proof of concept this past spring produced outsized results. The dealers they tested the platform on had been closing about 33 percent of the deals they negotiated; after a month, that number had jumped to 79 percent.
One dealer in particular made more than $1,600 one day after engaging the system. After retrenching and perfecting the platform, Scilicet had a “soft launch” in mid-December, just began charging for its services in January, and officially launched at the NADA Show in Las Vegas last month.
“We really are truly uncovering improvement opportunities,” says Murphy. In fact, the company claims, missed deals saved by the Scilicet platform accounts for at least 30 percent of the total deals negotiated by the Kia, Volkswagen, and Honda dealerships it works with.
After raising $3 million in a pair of seed rounds, Murphy is looking forward to making Scilicet cash-positive by the third quarter of this year, searching for the ideal strategic industry partner and jumpstarting the company’s growth. “We feel like the market opportunity is so big that we don’t want to wait.”