The Future of Auto Dealerships

Top sales manager at dealership showroom.

The retail automotive space is currently amid a rapid transition caused by several factors, namely:

  • Multiple sources of affordable capital
  • Abundant inventories of available new and pre-owned vehicles
  • Generational buying power has shifted to younger consumers with drastically different buying behaviours
  • Rapid innovation in consumer technology
  • The emergence of the Internet of things

The question then remains: “What does the auto dealership industry’s future hold?”

Online Transactions:

With emphasis on digitalisation, the next few decades are anticipated to bring the greater part of transactions online. Transactions will be streamlined and simpler, having sales and financing operations in real-time. Consumers will regulate the entire buying process as they will have a complete database of information pertaining to vehicles, F&I products and financing. A digital platform will support dealerships in establishing transparency as well as accountability.

“Within the framework of its new digital partnership with its dealers, Volkswagen will develop a joint internet platform which will handle the entire purchasing process through to contract conclusion, including financing, payment and even used car trade-ins,” the carmaker said in their announcement to “restructure” its sales model from 2020.

Loyal Customer Following:

It’s expected that dealerships of the future will place less weight on individual sales and rather create a loyal customer following via servicing, maintenance and continuous customer communication. Dealerships will transform into service-based business models where service drive will be the biggest contributor to the bottom line. Furthermore, customer acquisition costs are on the rise, thereby validating manufacturers and their channels to invest in retaining the customers they already have.

Cutting of Distribution and Marketing Costs:

Innovative channels thwart non-value-adding costs. Dealer partnerships may encourage economies of scale in back-office operations and purchasing leverage. Significant savings are possible through ousting inventory; reducing brick-and-mortar and real estate investments as well as improving service delivery.

Preparing for Change

The abovementioned predictions are expected to unfold incrementally over time, some coming to light sooner than others. It’s therefore vital that your dealership has a strategic plan in place to prepare you for this transition.

SWOT Analysis:

Conducting a SWOT analysis will stand your dealership in good stead. By studying the Strengths, Weaknesses, Opportunities and Threats in each area of your dealership, you can determine where your strengths lie, what can be done to improve on weaknesses, capitalise on opportunities that may present themselves and what barriers stand in your way to achieving those improvements.

Go Digital:

Ensure your business has a digital footprint that’s well entrenched in the online world. Important to remember is Generation Y cannot be bothered with phone calls and dealership visits. They require all necessary information instantaneously and online so it’s essential that your website includes all relevant information pertaining to the potential buyer’s purchase, including contact details as well as a wealth of information about your F&I products and financing options. Without this, many potential customers will give their business to another dealer who better fulfils their online demands.

Create Long-term Consumer Relationships:

The digital world has facilitated more efficient and direct two-way contact between manufacturers and their customers. Dealerships must step up to exploit today’s technologies to create lasting relationships with consumers, otherwise more powerful channel intermediaries will dominate their market share.

Restructure your Business Model:

As an example, Volkswagen has announced a “restructure” of its sales model from 2020, where each dealer “will only need to have one full-feature facility in the future” and franchisees “will be able to shape their presentation by agreement with the relevant importer to make their business more effective and customer-oriented, with city showrooms, pop-up stores, service factories, used car centres or scalable full-feature dealerships”.

The automobile industry is changing at an unprecedented rate in terms of new technologies, shifting customer expectations and new market players. If dealers can efficiently balance a combination of qualified sales and service partners, strong and reputable products, loyal customers, an established logistics network as well as reliable online business elements, they will certainly find a solid position in the future marketplace.

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