On-demand ‘mobility’ services and self-driving cars are gradually converging and the very notion of car ownership is changing. So what are auto dealers doing to prepare for and embrace the changes?

Smart mobility forcing auto dealerships to reinvent themselves

According to a report from the Food and Agriculture Organization (FAO), by 2025, 65% of the world’s population will be living in cities. Add to this the current changes taking place in urban transportation, not least the surge in average traffic load on the roads of the United States, the related problems of parking (30% on average - from 8% to 74% depending on the city - of all urban traffic stems from drivers looking for a parking space), increasing pollution (looking for a parking space generates around 100 tons of carbon dioxide every minute) plus transport costs. The entire mobility ecosystem is therefore being forced to adjust. Nowadays we hear a lot about multimodality, on-demand services, car-pooling and especially the self-driving car as key factors in this evolution, but what impact is the new approach to mobility having on the car-buying process?

This also raises the question of how automobile dealerships – often the forgotten element in mobility scenarios – will be affected. The National Automobile Dealers Association (NADA) 2017 conference in New Orleans in late January provided an opportunity to examine the changes expected in the automobile sector – among both manufacturers and distributors – towards 2025.  At the event, the need for strategic partnerships was much talked about and questions were raised about the relevance of the current car dealership format.

Investment and acquisitions: manufacturers rework their modus operandi

A NADA-commissioned study has forecast that the number of dealerships will plummet between now and 2025, dropping from 18,000 to 16,500 in the United States. Other experts have come up with even gloomier figures – that there will be no more than 5,000 dealerships in existence across the US in ten years’ time, a massive reduction that will signal the demise of an established business model and the end of an era. These predictions are a challenge to car dealers to start changing fast and in fact most of them have already grasped the vital need to take an innovative stance if they wish to avoid seeing their share of the pie shrink. Following the lead of the auto manufacturers – one example being Ford’s acquisition of ride-sharing company Chariot with its on-demand minibuses – we now see collaborative ventures being set up with Californian technology companies, involving commercial partnerships, integration of SaaS and IoT solutions, plus takeovers and stake purchasing.

We have also seen the rise of startups such as Rapid Recon, which was represented at the NADA conference. The Palo Alto-based startup’s software provides dealers with a dashboard to help them calculate and manage second-hand car reconditioning – i.e. cleaning, repairs, etc. – which is usually done manually. Rapid Recon gives the dealer a clear picture of the time and costs incurred so that s/he can manage the entire supply chain to best effect. Boston-based Promoboxx is working along the same lines, helping brands and dealers to align their digital marketing efforts more efficiently, given that brands often find it difficult to cascade information to dealers and share new marketing and publicity campaigns and dealers usually have neither the time nor the resources needed to keep up with the latest promotional efforts. The platform created by Promoboxx enables both parties to communicate better and share information. Last but not least there is Euclid Analytics, a San Francisco-based tech company which helps dealers gather data on visits to the dealership, with a view to boosting customer engagement.

The main reason for the predicted drop in dealerships lies in the increasing competition from online marketplaces. US auto-related small ads platform cars.com, which went online back in 1998, has in recent years been challenged by new entrants in the shape of Carvana and Beepi. In linking up with these new digital players, traditional distributors are hoping to benefit from the strong traction they are achieving, which gives them a double interface – i.e. both bricks-and-mortar and digital – with potential customers.

The showroom of the future

However, it may well be that, with the advent of the self-driving car, even such partnerships will not suffice to save dealership-based sales. The public is now being deluged with announcements from both incumbent carmakers and new entrant manufacturers, preparing the ground for the inevitable arrival on our roads of these futuristic cars. And even if – as Glenn Mercer, an automotive consultant and author of a report entitled the ‘Dealership of Tomorrow’, which was unveiled during the NADA conference, predicts – only 10% of all new vehicles will be fully autonomous by 2025, car ownership is still likely to undergo a radical shift, and sheer driving pleasure and the engine performance of a vehicle will cease to be the dealers’ main sales pitch. This might lead the automobile industry to transition towards a business model resembling tourism: you buy a service, comfort and, most importantly, an experience, rather than a machine.

Meanwhile, bricks-and-mortar sales outlets – today located in places with high footfall, at key urban traffic crossing points or in shopping centres – will gradually morph into semi-digital shop windows where the actual vehicle is no longer the main focus of the marketing message. The link between traditional auto manufacturers and new mobility services based on a ’smart’ urban fabric embedded with sensors and other connected objects, both in the streets and in people’s homes, will potentially constitute the main sales argument and the benefits sold to the customer will include a simple, hassle-free buying – or renting – process and fluid usage.

It is therefore quite likely that the car dealerships of the future may well switch to a business model that focuses increasingly on a showroom-with-personal-service, similar to an Apple Store with its ‘Genius Bar’, which focuses on the range of services on offer, on maintenance and access to a community of partner-providers. We can also well imagine that one day these outlets will become spaces where you can store and upload self-driving and shared systems. A number of different business models can be envisaged.

Manufacturers will also need to take on board the new trends by forging tech partnerships and designing new vehicles that are better suited to future mobility needs, just as cafés have become spaces for on-the-go working.  For instance, larger vehicles may well be designed to take account of the increasingly shared approach to personal transportation.

Goal still some way off

Meanwhile Glenn Mercer reckons that direct sales from the carmaker to the customer, especially in the luxury vehicle segment, could well increase over the next few years, although these would still only account for around 10% of retail car sales in the United States, he predicts. At this point it is also worth pointing out that today only 2% of San Francisco residents surveyed last year use Uber or Lyft services on a daily basis and that 60% have never used a ride-hailing firm! As soon as you get outside the large metropolises and other urban concentrations, these services often prove to be non-existent or the coverage too sparse to provide an efficient way of getting around.

So it would seem that car dealers still have a bit more time to get up to speed on the digital front. And there are two basic lines of action they ought to be following: a)  capitalising on their traditional strong points – brand image and knowledge of their customers; and b) complementing their offering so as to overcome any potential weaknesses.

By Agathe Foussat
Business Analyst