OK, I must admit to being biased as it relates to the retail franchised auto dealership model. I’ve been fortunate to spend almost 46 years in the auto retail industry.
Is it perfect? No, but, in my opinion, and the opinion of many others, the system works in most cases.
We all know the franchised new-car dealership network is big. But just how big it is and what it represents as a percentage to the total U.S. economy really brings the industry into focus.
According to National Automobile Dealers Assn.:
At the end of 2013 there were 17,665 new vehicle franchised dealerships. They employ 1 million personnel. The collective payroll was $53.7 billion. New-vehicle dealerships provide, on average, 12% of total payroll in their respective states.
Will the franchise system, as we know it today, change? Absolutely, but I’m not sure exactly how.
I feel strongly that, given the chance and if they could identify a model that works, manufacturers would quickly abandon the more rural areas.
Dealers in these areas are no longer or rarely visited by manufacturer’s personnel except in extenuating circumstances.
This may open up the system for regional dealerships which would be part of a larger retail group in a more metropolitan area.
The metro dealership would almost become a distributor supplying inventory, parts and service support, personnel training, marketing support and the latest in technology advances to the rural dealerships.
I recommend reading the most recent McKinsey & Company white paper Innovating Automotive Retail. Included in the eye-opening report are interesting statistics such as:
- Almost 90% of customers use dealer or OEM websites in the early steps of their decision making.
- 80% of customers still take test drives during the car-buying process.
- A customer’s visit to dealerships before buying a car is frequently just one today, down from five previously.
- 85% of customers still use the dealer touch points, but one in four is dissatisfied with the dealership experience in the car-buying process.
What has prompted me to post this is my fascination with the ongoing Tesla challenge to the franchise system.
Will it prevail in its challenge to the traditional system? I don’t know, but who would have thought eBay Motors would sell almost 500,000 vehicles on line today?
Twenty years ago, who could have foreseen the revolution Amazon would have on retailing? Is Amazon a potential future competitor in auto retail? You bet, but not until it can figure out how to clear some of the more apparent obstacles.
There is one near-term change I see coming to auto retail, and that is the pricing model.
Today’s customers lack patience. There are just too many models in other industries which customers experience to allow us to continue doing things the same way we’ve always done them.
Today’s sales personnel must become highly educated product specialist and be able to answer, or find the answer to, all customer questions. This adds value to the store visit.
If we have highly knowledgeable professional sales personnel who are fairly compensated and have the real desire to offer the highest level of customer service, our current system will endure, at least in the short-term.
Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com
