Own a car dealership? Sell it NOW! How to avoid the upcoming decline in traditional dealership operations.

2015 was a great year for most people in Automotive, with record sales in North America and many other countries around the world. While early indications suggest 2016 will also be another great year, forces on the horizon suggest that the Automotive landscape will change dramatically over the next 10-15 years. It may in fact be that the very peak of Automotive sales, under the traditional business model of Manufacturers making and distributing cars, and dealers selling them to the public; is right now.

Like most dramatic business changes, this brings great opportunity for those who move early and wisely, and great risk for those who rely on the way cars have always been sold and serviced.

THE CHANGING LANDSCAPE

There are 4 major ways in which the Automotive landscape for dealerships will shift dramatically:

1) Autonomous Vehicles and Smart Roads

With the increase in Autonomous Vehicles and smart roads, vehicles will be able to significantly reduce accidents by analysing smart road data and not making 'human' mistakes. As a result, some analysts are forecasting a decrease in road accidents by up to 80%. For dealers, the reduction in accidents results in a closely linked forecast drop in demand for accident parts and repairs. Such a drop in demand will likely force many body shops to close, and put a big hole in parts sales at dealerships.

As autonomous vehicles grow in popularity, alternatively fuelled vehicles, particularly electric vehicles will grow in demand. By design, electric drivetrains are much simpler than an IC engine with a traditional gearbox, and require much less maintenance due to having far fewer moving parts. This will significantly extend vehicle service intervals and delay potential repairs, putting fewer service dollars into dealers pockets.

Vehicles that are autonomous will also be able to drive themselves home after purchase, and drive themselves to be serviced. This means a significant reduction in personal interaction with the customer, and therefore a reduced chance for a personal up sell at the dealership.

2) Car Sharing

Closely linked to Autonomous vehicles will be the rise in car sharing and ride sharing. As most vehicles are in operation less than 5% of the time (ie unused 95% of the time), if cars and rides are shared with vehicles that operate on a continual basis (say 50% of the time), there will be a great reduction in costs associated with personal transportation. This means that a retail purchase of a new vehicle (ie higher margin) will become far less attractive, while much more business will be directed towards low margin fleet deals who operate fleets of Autonomous Vehicles for car sharing.

3) The car as a commodity

As autonomous vehicles grow, more and more people will see their vehicle as less an expression of themselves, and more about how comfortably a person can be taken from point A to B with the widest variety of in car entertainment possible. Current intangibles like driving performance and styling will become less important, as people view their cars as nothing more than a moving household appliance.

As this progresses, on line sales will also increase, which means purchases will be done at arms length from the dealership, and thus the temptation to be talked into an extended warranty, rust proofing or other 'protection' package will be significantly reduced.

This means that dealers will be able to capitalize less on the excitement of a new purchase to sell upgrades as consumers are no longer that excited about their cars and will shop on line, away from the dealership.

4) Customer Satisfaction

Currently most people hate buying cars. In many recent surveys, at least 50% of people do not like the current sales process, and as much as 90% of people hate haggling. Customers want transparency to know they have received a fair deal and a quick sales process that respects their time, both of which is extremely rare today.

It is this distaste of the car buying process that could turbo charge the move away from dealerships. The first is a move away from vehicle purchase, to consumers purchasing transportation by other means, mostly car sharing. The second is that consumers will move away from purchasing vehicles at dealerships to purchasing them on line, or through a sales agent (broker) that offers multiple brands and options.

IMPLICATIONS

For those who own a dealership, the implication is obvious. Revenue opportunities across both Sales and Fixed Operations will begin to significantly decline as Electric Vehicles and Autonomous Vehicles grow in popularity. Most analysts suggest that around 2025 will be the tipping point of the autonomous and electric vehicle revolution, with growth to rise exponentially from there. It is at this timing that a major decline in traditional dealership operations will begin, following a slow decline during the introduction of Autonomous vehicle technology.

BUSINESS TRANSFORMATION

For those who want to remain in the automotive dealership business in the mid to long term, I see 3 ways in which dealers must transform their business model in order to survive.

1) Fleet Ownership of a car sharing business

Smart dealers will begin to investigate owning or managing a car sharing operation, as the new retail will be at the car sharing level, not vehicle purchase. This will allow customers to continue to purchase their transportation needs through the dealership, while the dealer funds the capital investment of the vehicles as well as supporting the upkeep and maintenance. Establishing a car sharing foothold in a local market with a well thought out on demand smartphone app will be critical for success.

LEARNING: CAR SHARING WILL BE THE NEW RETAIL SALE

2) A location specializing in the repair, maintenance, charging and storage of autonomous vehicles

Dealers who are able to up their expertise in the electronics and software repair business for Autonomous Vehicles will be in the box seat to drive revenue growth. A service department will be made up of far fewer mechanics, and more people who work more like a help desk in the IT world, to fix computer and software problems. This could occur with the vehicle that is in front of them, or on a remote basis.

Autonomous vehicles will also need an area to return to during lower transportation demand periods as well as to charge batteries, which will become a source of revenue for non dealer ownership of the vehicles. As electric charging stations do not require the infrastructure of a petrol / gasoline station, a dealership provides a great location for both charging and storage.

LEARNING: FIXED OPERATIONS MUST LEVEL UP SOFTWARE SKILLS

3) Excellence in on line sales

As consumers move away from in store purchase to on line purchase, excellence in on line sales will be critical. Transparency and honesty during the sales will become exceptionally important, as on line reviews will become the main way a consumer picks a dealership. As a vehicle will be able to drive itself to the a customer's house for delivery, on line reviews will replace nearby location as a major purchase driver. Whether the sale is for a traditional retail sale, or to sign up for a car sharing arrangement, the principles remain the same.

LEARNING: A QUICK, TRANSPARENT ON LINE SALES PROCESS WILL BE KEY

MORE IMPLICATIONS FOR DEALERSHIPS

The Good News - As consumers will be much less likely to visit a dealership for purchase or servicing, the need for expensive 'palace' dealerships will be far less needed. This will result in a huge reduction in business overhead for a dealership.

The Bad News - As well as fewer people coming in to the dealership (reduced traffic), dealers will also have to contend with financing more vehicles on their lot for ride sharing purposes.

SUMMARY

To survive as a vehicle dealership over the mid to long term, a dealership must transform their business model and process from the traditional model and embrace the electric and Autonomous vehicle opportunities that present itself. A dealership that is not willing to do that has two choices 1) Sell the dealership now and cash out at the top of the market, OR 2) Watch the business slowly die.   The wise owner will begin investigating those choices now.

About the author: James Carter is a 20 year Automotive Industry veteran and now serves as a consultant in Autonomous Vehicles and Future Automotive Planning; specializing in Sales, Marketing, Product Planning, Dealer Development, Sociographic trends and Infrastructure planning.

Photo Credit: Yu Lin Chan