FEATURE: AADA CONVENTION & EXPO 2018 WRAP UP: ‘DEALERSHIP OF TOMORROW’ IS TOP-RATED SESSION

Attendees at the 2018 AADA National Dealer Convention & Expo rated ‘The Dealership of Tomorrow’, a special presentation by US researcher Glenn Mercer, as the top session of the event.

With three decades of automotive industry experience the independent analyst was commissioned by NADA in 2015 to undertake the Dealership of Tomorrow project.

The purpose of the project was to stimulate long-term planning among US Dealers. In late 2015, when the project was commissioned, the USA had just completed half a dozen years of steady sales growth, which the industry could not have hoped for back in the depths of the global financial crisis that caused a recession in the USA.

Mr Mercer shared an overview of the findings, providing insights into the developments that will likely alter the vehicle-retailing business over the next decade.

More than two years after the report was released, Mr Mercer noted that its predictions were mainly on track. There are some adjustments to be made: electric vehicles (EVs) are gaining ground more rapidly than expected, to name one. But generally the theme of ‘evolution rather than revolution’ is intact.

“The goal is to stimulate thinking among Dealers because, as you know, this is probably the most complex retail business in the world,” he said.

“You’re dealing with New, Used, Parts, Service, Accessories, F&I, Collision Repair, et cetera, et cetera. And so Dealers tend to have their head down in the trenches such that the future is the end of the month and the far distant future is the end of the quarter.”

The report gave an American view, and Mr Mercer said it was important to remember not all of the findings would apply in Australia.

“Over the next decade the average USA franchised new car Dealer will see many changes to the store, but no significant disruption to the underlying business model,” he said.

“There will be much change but it will be evolution, not revolution. The biggest – if unlikely – threat to the system is if MS (mobility services) and AV (autonomous vehicles) combine, dramatically reducing the need to own a car.

“In any case, Dealers will continue to evolve from entrepreneurial, diverse traders, to OEM-controlled, standardised, retailers.”

OEMs will exert more control and Dealers will move from concentrating on margin optimisation to focusing on sales volume. They will transition away from negotiating prices, factory payments will be the new ‘shop’ to manage and online sales will increase. Inventories will drop from 60 to 50 days.

The service department will become a dominant source of profit and the number of satellite service shops will increase.

“One key to survival is strong growth in service revenue, with fixed absorption rates at 220 per cent or more,” Mr Mercer said.

Mr Mercer advised rural Dealers to diversify their income and seek OEM support.

The study predicted a slight reduction in the number of dealerships and a consolidation of ownership (fewer owners), with sales at a similar level to today and a shift to more expensive vehicles and higher-income customers. Tomorrow’s dealerships will be less profitable, with a greater reliance on the service department for income.

Mr Mercer said that some of the most drastic changes for dealerships have to do with economics. The number of digital stores will rise, resulting in cybersecurity and data management issues, not to mention direct competition for Dealers from manufacturers.

Physical showrooms will still be around but their value and importance will shrink as the digital experience continues to improve.

Service will become a primary profit source, “as drivers may renounce car ownership in favour of ‘eternal rental,” therefore service personnel will matter even more and represent investments rather than expenses.

Mr Mercer predicted that by 2025 almost every new car will be fitted with assisted driving features and half will have at least partial autonomy. The significance of this technology, however, isn’t necessarily in what these vehicles look like or how they perform, but, rather, how they’re sold and how consumers perceive them. The impact on Dealers could well be positive in terms of both sales and service income.

Hand-in-hand with this development will come a more complex and rigorous regulatory environment. Connected cars have the potential for a tighter connection to service lanes due to heavy usage, while EVs will not dominate but must be embraced.

The project cast a wide net to garner input from Dealers (public and private), OEMs, attorneys, vendors, investors and other stakeholders, to assemble a picture of what the dealership of 2025 might look like.

Whether the business is as interesting and entrepreneurial in 2025 as in 2015 or 1995 is doubtful: in some ways NADA’s members are becoming retailers, rather than Dealers, with less control over their destiny than in the past – a situation with which Australian Dealers are familiar. Yet the outlook remains generally upbeat, as long as Dealers keep a sharp eye out for the some of the threats that may develop.

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