■ As changes occur in showrooms, proactive dealers can greatly benefit from this transformation!
Steffen Oliver Karl
Managing Director | Driving Automotive Retail Future ■CI ■PR ■Press work ■Media Communication
■ Dealers can not only survive but also thrive by placing the customer at the center and adopting dynamic, innovative working methods.
■ Automotive retail is changing
Dealers operate in a highly disrupted environment, which requires reviewing their operating models. They must identify and unlock operational efficiencies while exploring new functioning methods in a digital, omnichannel landscape. Over the past five years, we have collaborated with dealer groups, individual dealerships, and original equipment manufacturers (OEMs) to analyse the impact of disruptions on automotive retail and the traditional dealer model. This article consolidates our insights on the industry and its expected evolution.
Although we recognise several challenges facing dealers and the traditional automotive retail model, we also see opportunities for dealers to pivot their strategies in one of four ways to succeed in this new reality. These options include focusing on luxury brands in tier-two cities, expanding geographic reach and scope, developing ecosystem platforms, or targeting less disrupted rural markets.
Regardless of which future model dealers choose, it is crucial to start laying the groundwork now, build the necessary capabilities, and seize immediate opportunities.
■ Many car dealers are experiencing rapid retail changes, which are impacting their profits. This has caused dealership sentiment to shift from optimism to pessimism.
Two main factors are constraining dealer profits. First, automakers are increasing incentive pressures due to intensifying price competition, which reduces the profit margins for their dealer networks. Second, third-party digital platforms that allow consumers to research and purchase vehicles online are enhancing price transparency. This makes it easier for consumers to compare products, thereby limiting dealers' ability to maintain vehicle profit margins and influence purchasing decisions.
■ Retailing is rapidly changing for many car dealers, significantly impacting their profit margins. Additionally, recent industry research indicates a shift in dealer sentiment from optimism to pessimism.
Two main factors are contributing to the decline in dealer profits. First, automakers are increasing incentive pressures in response to growing price competition, which in turn squeezes the margins within their dealer networks. Second, the rise of third-party digital channels for vehicle research has increased price transparency. This enables consumers to make easier product comparisons, limiting dealers' ability to maintain margins on vehicles and influence customers’ buying decisions.
■ Moreover, the used-car retail market is also experiencing rapid digitisation, introducing price-competitive business models that simplify consumers' buying and selling process. Compounding these challenges, dealership organisations are dealing with high turnover rates and pressures from consolidation. Consequently, dealer profits have declined, and most stocks are underperforming.
■ Historically, dealerships have relied on revenue from vehicle service work and financing and insurance (F&I) to alleviate profit pressures, leading to growth in these sectors. The contribution of F&I to gross profits for new and used vehicles increased. A stronger focus among dealers on F&I products, such as service contracts, and shrinking vehicle margins drove this rise. Additionally, the profitability from dealership parts and services has been on the rise, with their share of total gross profits increasing to over 50 per cent. Likely, dealerships will soon reach the limits of further growth in these areas, as automakers are applying more pressure on parts and services, and F&I penetration is nearing a saturation point.
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