How OEMs need to work with car dealerships to achieve greater results together

In former thought leadership articles and whitepapers, I often explain the importance for OEM to better align with the consumers in China and to support them on their individual customer journeys for purchasing and owning a car. A vital part play automotive dealerships that have a powerful standing in China. OEMs need to carefully examine their needs and create situations where both dealers and OEMs can be more successful.

Covid was not easy for anybody. Dealers in China have also suffered. Some dealerships close, many dealers lost money, few made a profit. Dealerships and investors instead their buying expectations of prospective car owners are changing. While some OEMs accuse dealers to not be innovative enough and resist change, most dealers are in fact open to experiment with new marketing, sales and service models. many dealers have realized that customers’ purchase preferences are shifting online. “Almost all of them (99%) use digital tools to support marketing and sales.

Eighty-one percent of dealers offer digital test drives and appointment booking, 78% allow for digital purchasing and payment, and more than 70% offer direct digital interaction.” “Especially large dealerships (and their OEMs) diving into video chats (42%, e.g. via DouYin) and live streaming of sales events (44%). Fifty-six percent said digitization and online presence are the top priority for investments in the next three to five years. However, there is significant cost involved, and not all dealers can develop the necessary digital capabilities on their own. Therefore, 38% of dealers rely on third-party platforms—despite their general skepticism of platforms—because these third-party offerings are of higher quality (44%) or are cheaper to use (43%) than the tools provided by the OEM.”

“Dealers are urging their OEMs to up their game and provide better online options (40%) as well as improve the overall multi-channel experience (35%). However, with the higher demand for better digital solutions supported by OEMs, it is also imperative for dealers to be open to new solutions and seek close collaboration with OEMs, e.g. in terms of data sharing.”

“Moreover, third-party platforms are disrupting the classic dealer sales journey, propelled by the increasing fragmentation of customer touchpoints and confluence of digital and physical channels. Customers visit AutoHome or Souche.com to research car information and customer opinions, offering an attractive advertisement platform for OEMs and dealers. The likes of JD and Tmall aim to position themselves as the initiators of a vehicle purchase by offering a convenient entry point of sales to consumers shopping for other products on their platform. While desirable for consumers, the increasing loss of control over the customer interface puts pressure on dealers and OEMs alike. As platforms take advantage of the business potential and raise fees, 57% of dealers consider them a major threat to their business.” “Dealers need to develop a mindset that embraces change at the customer interface, also in the physical channel, to win and retain customers in the future.”

?The Direct Sales Model of OEMs (also called agent model)

OEMs need to also adapt their business model. They need to get closer to the customer. OEMs are trying to sell directly to the customers through an agent model. This direct model has been perceived as a threat by some dealers. They fear loss of revenue, loss influence and inability to earn a return on their existing investments.

While direct models will bring change and challenges, many dealers also recognize numerous benefits.

Many dealers have also begun to experiment and implement new business models that cater to customer preferences.

Recommendations

Customers increasingly demand support of their car purchase and user journey seamless across physical and digital channels. (See whitepapers by same author for details). OEMs and dealers together need to map and support all touchpoints of the customer to provide a practical and delightful experience (see whitepaper by same author that discusses current challenges & complaints of customers).

OEMs are well advised to work with dealerships in a transparent, collaborative fashion. Many of us vividly remember the difficulties of a European car manufacturer in 2017, who had to pay four billion Euros in compensation to dealers, after those rejected the direct sales plans of the OEM. Dealership associations and investors are powerful in China. The most suitable approach is to create win-win situations.

Most dealers recognize the benefits of direct sales/ agent model. It is up to the OEM to explain, engage and guide dealers in adopting such models for the benefit of all.

?For more information

Refer to the specific direct sales & agent models proposed by the same author.

?Special thanks

Gratitude to my former colleagues at Accenture in the automotive practice for their data statistics and charts to enrich this article.

?Contact the author of this article

For any question reach out to me personally: [email protected]

About Alex Steinberg

Alex Steinberg has 20+ year program management, business/ technology leadership experience working for automotive OEMs, supplier, captives, financial services top brands in EMEA, APAC and Americas.

Alex has developed strategies & business models, design programs, implemented operating modes, and led key initiatives. He worked across entire automation life cycle end-to-end through all project stages and service offerings: Automation strategy & roadmaps; Operating & Governance models; Robotics Factories & Center of Excellences; Process Analysis, Re-engineering, Design, Pre-selection, Prioritization; Business Case and value propositions; POCs, Pilots, full Process Implementations; Large Scale Automation programs; Change Management & Transformation.

With Accenture, Alex was one of the first to develop and deliver some of the largest automation & digital transformation programs in the industry. Alex has done much international project work, travelled in 90+ countries and conducted business in 7 languages (E, G, S, F, I, C, R). He currently lives and serve Multi-national and Chinese brand companies in Shanghai, China.