The Future of Automotive Retail

I was asked to speak at the AICPA Dealership Conference in Las Vegas last month. 75 minutes in front of this very engaged crowd of ~400 auto dealership CFOs and finance employees.

I took the opportunity to preview my upcoming book titled ‘The Future of Automotive Retail’. The book will be out just before the NADA Conference in March 2022.

I thought I would share a few themes from the presentation this month.?

Chapters Covered in the Book

Changes are Accelerating

It’s really exciting to be part of an industry that is going to see more change in the next 10 years than it’s seen in the past 100. As Paul Walser, Chairman of NADA, said at the conference this past month, “In my 40 years in this industry, I haven’t seen more going on at once.”

For the purpose of this month’s discussion, let me focus on just two of the issues that auto dealerships should be keeping a watchful eye on: Electric Vehicles and Over-The-Air (OTA) updates.?

Thematic Changes Impacting Automotive Retail

Electric Vehicles (EV): Impact on Dealerships

Consulting firm McKinsey believes that more than half of new passenger vehicle sales will be EVs by 2030.

It’s hard to reconcile that figure with where we are currently: In Q2 2021, US electric vehicle sales reached only 3.6% of total vehicle sales.

OEMs May Build Them, But Are Consumers Ready?

The U.S. consumer still has many valid reservations around EV adoption, not the least of which is the relative price vs. internal combustion engine (ICE) vehicles. Even more anxiety-inducing is the combination of limited vehicle range and availability of fast chargers along their route.??

EV Implications on Dealer Profit

From the perspective of the F&I office, the results are mixed. EVs should continue to cost more than their ICE counterparts. OEMs may ask consumers to shop online, which may mean less discounting from MSRP. Both dynamics mean more gross profit on the “front end” of the car deal.

For a dealer’s Service & Parts business, EVs have far fewer moving parts, and much longer service intervals. So, while we may be experiencing frequent recalls with some EV models, service and parts revenue may suffer. One offsetting dynamic is that the added weight and torque of EVs means that tires wear out 40% to 50% faster.??

Over-The-Air (OTA) Updates

Investors are spending billions of dollars on hardware and software that extracts intelligence from vehicle sensors, as well as the ability to push software updates to cars.

Perhaps the most famous OTA update was when Tesla reacted to a negative review from Consumer Reports by pushing a software update within days that dramatically reduced the Model 3’s braking distance.

A recent study showed that of the $20 billion in warranty work done by domestic dealerships per year, approximately $6 billion could immediately disappear with OTA updates.

During their October ‘Investor Day’ presentation, GM CEO Mary Barra boldly forecasted that GM would increase subscription revenue from $2 billion (largely OnStar) to $25 billion by 2030. $6 billion of this will be GM-branded usage-based insurance.?

As OEMs generate more subscription revenue from vehicle owners, a key?question will be if and how this revenue will be shared with dealers.

Wrapping Up

The dealership model has proven to be very resilient over the past 100 years, and innovation across the various departments has enabled financial diversification and insulation from shocks to any single area of the dealership.

If you’d like an advance copy of the book, please let me know at www.futureofautomotiveretail.com

Thank you for your continued support.

Steve Greenfield is CEO and Founder of?Automotive Ventures, LLC, helping entrepreneurs raise money and maximize the value of their companies. He has over 20 years of experience in the automotive technology space. He started his career in 1999 selling software to car dealers, and has overseen more than $1 billion in automotive technology acquisitions.

Note:?This article was?originally published in the?Automotive Ventures November Intel Report.