Previously we have questioned the future of the retail automotive store, noting the increasing move to online showrooms and a growing willingness of customers to shop for vehicles in cyberspace.
With significant changes coming in the automotive industry over the next two decades, have we reached the peak of traditional retail automotive sales? Should you get out now? Or are there ways and means to adapt to the changing times?
First of all, let’s look at how things are set to change.
Autonomous, or self-driving, vehicles are coming – soon – and will mark probably the biggest shift in personal mobility since Henry Ford established his production line.
Hand-in-hand with this advance will be the shift to alternatively fuelled vehicles. Safer cars with less complex electrical engines mean fewer repairs and parts replacements, and less maintenance.
Some experts predict that the shift to autonomous cars will result in an 80 per cent reduction in road accidents. Although this is great news for public safety it means a lot less work for body shops, as well as less repair and parts replacement business for dealerships.
At the same time demand will grow for alternatively fuelled vehicles, particularly electric vehicles. Electric drivetrains are much simpler than an internal combustion engine with a traditional gearbox, requiring 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.
Autonomous vehicles will drive themselves home after purchase and drive themselves to be serviced. This means a significant reduction in personal interaction with the customer, therefore reduced opportunity for a personal up-sell at the dealership.
Car ownership could soon become a thing of the past. Car sharing and ride sharing are set to become the new norm.
Most vehicles are unused 95 per cent of the time, so it makes economic sense to reduce the cost of personal transportation by sharing vehicles that operate continually. The car that takes you to work then takes old Mrs Jones to do her grocery shopping and so on. This will make the retail purchase of a new vehicle (i.e. higher margin) far less attractive.
The shift will be towards low margin fleet deals, selling vehicles to those operating fleets of autonomous vehicles for car sharing.
As autonomous vehicles grow more popular people will begin to see their vehicle less as an expression of themselves. Their focus will shift to how comfortably they can be taken from point A to B with the widest possible variety of in-car entertainment. Current intangibles like driving performance and styling will become less important as people view their cars as nothing more than a mobile household appliance.
Online sales will also increase which means purchases will be done at arm’s length from the dealership, thus the temptation to be talked into an extended warranty, rust proofing or other ‘protection’ package will be significantly reduced.
Dealers will be less able to capitalise on the excitement of a new purchase to sell upgrades because consumers are no longer excited about their cars; they will shop online, away from the dealership.
Customers don’t like the sales process
According to recent surveys at least 50 per cent of car buyers do not like the current sales process, and as much as 90 per cent hate haggling. Customers want transparency in order to know they have received a fair deal through a quick sales process that respects their time.
This distaste of the car buying process could accelerate the move away from dealerships. Consumers could shift from purchasing vehicles at dealerships to purchasing them online or through a broker offering multiple brands and options.
For Dealers, the implications are obvious. Revenue opportunities across both Sales and Fixed Operations will begin to significantly decline as electric 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.
Adapt to survive
If we fail to adapt, we die. Here are some ways you could adjust your business model to ensure your dealership has the best chance of surviving in the autonomous driving world.
Fleet ownership of a car sharing business
Car sharing will be the new retail sale. Smart Dealers will 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.
Repair, maintenance, charging and storage of autonomous vehicles
To thrive in the new paradigm, Dealers will need to increase their expertise in electronics and software repair for autonomous vehicles. Service departments will have fewer mechanics and more IT consultants, operating like a help desk, whether the vehicle is physically in front of them or remote.
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. Electric charging stations do not require the infrastructure of a petrol station, so a dealership provides a great location for both charging and storage.
Excellence in online sales
As consumers move away from in-store to online purchase, excellence in online sales will be critical. Transparency and honesty during the sales process will become exceptionally important, as online reviews will become the main way a consumer picks a dealership. As a vehicle will be able to drive itself to the customer’s house for delivery, online reviews will replace nearby location as a major purchase driver. Whether the sale is traditional retail or to sign up for a car sharing arrangement, the principles remain the same.
The good news
Although this article might seem like a lot of ‘doom and gloom’ there are some positives. With consumers much less likely to visit a dealership for purchase or servicing, the need for large, expensive dealerships on prime real estate will be reduced. This will result in a huge reduction in business overheads.
To survive over the mid to long term, dealerships must transform their business models and process from the traditional model and embrace the electric and autonomous vehicle opportunities. A dealership not willing to do that has two choices: sell the dealership now and cash out at the top of the market, or watch the business slowly die. The wise owner will begin investigating now.