Dealers - In the future, will your OEM still be your partner?
James Carter
Strategist, Futurist, Leader, Influencer - Principal Consultant at Vision Mobility
For the last 100 years Automotive Manufacturers have established dealerships as their retail partner to sell their product to the people. Dealerships were able to take advantage of their local knowledge and connections to sell, service and supply parts for their vehicles. As the dealership model has matured, operations have become more sophisticated, but the basic business model has remained remarkably unchanged, despite 100 years of progress and innovation.
Today, OEMs control a very significant portion of what the dealership does and how they do it. More than 90% of parts stock, 100% of new car sales, many of the used cars, the detailed sales process, service compliance, parts ordering, the look of the facilities, supply of many product and services for the business office and who can forget the setting of allocation and targets. Your local friendly District Sales Manager (I was one once), and District Parts and Service Manager, the Customer Satisfaction rep, the Marketing guy, Senior management and the overseas expert from head office all come by to make sure you are in compliance and hitting target. How can dealership management breathe??
Despite these challenges, the arrangement to date has worked out quite satisfactorily as dealers have benefited from OEMs strong brand and product advertising and consumer demand as car ownership is the only way to easily get you where you need to go, which has meant that a dealership has always been in demand as a potential acquisition.
"As we move towards New Mobility, the world for dealerships will change significantly."
However, as we move towards New Mobility, the fusion of Electric powertrains, autonomous technology, connected vehicles and a changing retail landscape; the world for dealerships will change significantly. The changes will also be pushed by consumer side as they look for a better way to do business due to inherently unfriendly customer satisfaction processes, particularly on sales side, described in more detail here.
Many manufacturers are exploring new ways to do business, such as ride sharing and car sharing, ride hailing, mini bus transit routes and Ford has even invested in a bike share company! Tesla owns all its stores and follows a direct to customer approach that has infuriated many dealers, and likely left many OEMs wondering how they could pursue similar opportunities. On the Fixed Ops side, one major OEM is rolling out direct parts shipment from warehouse to customers and new ideas to streamline service process for customers are now being studied.
"No OEM has come out and clarified publically to dealers that they are an essential part of the automotive manufacturer's business plan going forward. "
All these OEM investments in New Mobility have the potential to significantly hurt future dealer revenue, sales, margins and gross profits, but no OEM has come out and clarified publically to dealers that they are an essential part of the automotive manufacturer's business plan going forward. Neither have OEMs set a clear vision on what the future of Automotive Retail will look like, yet dealers are still being asked to invest tens of millions of dollars in New Facilities without any assurance that their investment will be worthwhile. This is especially disconcerting considering that the average amortization for a new facility is 15-20 years, and most analysts are forecasting that the automotive landscape will look vastly different by then compared to what it does today. Thus for any dealer that has opened a new store within the last 5 years, or will open one shortly, is exposed to significant risk from industry and technology advancement.
As OEMs control so much of a dealerships operations, it is their responsibility to take the lead and clarify with their dealer body the future of retail automotive, and give dealers assurance that their faith and investment in them is for good reason. They need to prove that their investments in New Mobility are complementary, and even a guide for the dealership operations of the future which they will be involved with, and that the coming changes do not leave them in the dark.
"The standard "You're a dealer, you'll be fine" answer ..... is no longer good enough."
It is thus extremely important for every dealer to approach their OEM and ask how they will be relevant in the future. The standard "You're a dealer, you'll be fine" answer that I've heard Dealer Principals being fed is no longer good enough and does not recognise the size and scope of change before us. Dealers need an assurance that their OEM will not leave them high and dry, and will be a staunch and solid partner moving forward, particularly if there is significant investment involved, but also to better understand how their business will operate in the long term.
Make no mistake, whether OEMs and dealers like it or not, great change is coming soon to Automotive, and especially to Automotive retail. As I discussed in my article "Own a dealership? Sell it Now!", dealers who are not committed to New Mobility in the long term have now passed the window of maximum Blue Sky returns as the industry begins to soften. While a return on sale is still reasonable, if you're in the business now, essentially you're committed to the long term and that means a commitment to the business, and it also means an owner needs to know that their OEM is committed to them. So, if you haven't asked your OEM what the future looks like, put it at the top of your "To Do" list today.
About the author: James Carter is a 20 year Automotive Industry veteran and now serves as Principal Consultant at Vision Mobility, an Automotive and Mobility Consultancy specializing in Autonomous Vehicles and Future Automotive Planning; in Sales, Marketing, Branding, Product Planning, Dealer Development, Sociographic trends and Infrastructure planning.
Vision Mobility offers education, training, business advice and consultancy services in New Mobility for Dealers, OEMs and companies associated with Automotive Retail.
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7yChange is a chance, we now begin quickly, otherwise it's too late.....
Head of Future Sales: Transforming the automotive sales model on a customer centric way to omnichannel genuine agency sales model.
7yChange ahead...
Business Consultant at ERSKINE NASH ASSOCIATES LIMITED
7yOEM's will own all dealers in the future (a number already do in the UK and Europe). With greater reliability due to less moving parts, reduced service times, firmware upgrades and patches fixing faults over the "air" and with potential reduced RTA's from autonomous driving aids will all hit the bottom line of what was once a lucrative financial stream for private dealers and dealer groups. Manufacturers will want to own the complete car cycle adding in the increase in car sharing models, increase in personnel leases and the average car buying age rising.
Owner/ Managing Director / Strategist/ Business Consultant ANC certified trainer
7yThe long term strategy between OEM and dealers must be discussed, but I think there are a lot of areas of this business with no clear things set yet. The dealers will remain the main afterservice providers, so at least from this point of view they must take into consideration the changes requested for servicing the different types of vehicles which are going to be sold on the market (electric cars, autonomous cars). The autonomous vehicles and the sharing systems are welcomed as the world population grows and there are a lot of problems regarding parking & traffic, but I don't think that will decrease the sales to individuals. They will just come to solve some problems, because in many cities we should expect in the future to a limitation of the number of vehicles on the road...