HOW WILL THE RECENT PARTNERSHIPS IN THE AUTO INDUSTRY AFFECT DEALERS?
Snow, icy roads, cancelled flights and multiple accidents — just the usual fare for the North American International Auto Show and other auto industry events held in Detroit this January.
Normally I find these events fairly predictable, and it’s hard to tell one year from another. But this year was different.
I got the feeling that I was back in 1999 when all the dotcom newcomers were predicting doom and gloom for auto retailers. With their high valuations and private equity partners, these newcomers were going to change auto retailing forever.
These new players were not household names. They were fueled by speculation and most disappeared during the dotcom bust in 2000.
Although my sense of feeling might be the same, certainly the stature and credibility of the players are not. Instead of a pool of newbies, this time the newcomers carry credible names such as Apple and Google.
The overriding word of the week was “disruption.” Used in virtually every speech and presentation, the word “disruption” described the phenomenon of vehicle development, capability and use.
Electric vehicles, autonomous vehicles and car sharing were all touted as bankable securities for the automotive industry of the future.
The North American Automotive Industry has been on a tear since the global meltdown of 2008 and 2009. Both Canada and the United States reported their best year ever in 2015.
The industry should be on a real high.
Instead it found itself mired in negativity surrounding interest rate hikes, global gasoline prices and China. Industry pundits are calling for a flat 2016 with a possible decline in 2017.
Certainly the global stock markets have been on a downward rollercoaster ride in early 2016. That could derail the strong industry momentum of recent years.
Automakers seem to be expanding their reach to move from secretive, competitive confidential research and development to open book partnerships with colleges, universities and research houses
Presenter after presenter offered alternatives for the future, none of which supported traditional vehicle design and production.
As I listened, observed, discussed and digested all of this convincing information, a few things hit me. Firstly, everyone is serious about disruption.
Who can argue with the goal for vehicle safety set at zero traffic fatalities? Who can argue against eliminating traffic congestion? Who can argue against responsibly using technology
to save lives?
The road to accomplishing this objective comes from lessons learned from self-driving vehicles. Partnerships and cooperation between automakers and governments, which are very real and in place, almost guarantee that significant progress will be made.
Automakers seem to be expanding their reach to move from secretive, competitive confidential research and development to open book partnerships with colleges, universities and research houses.
Sharing of technologies and platforms, at least on the surface, seems to be a real shift in the industry.
There is momentum to these initiatives, and my sense is that we will see real improvement producing nothing but continuous positive outcomes for consumers.
Disruption was also used to describe ridesharing initiatives. This one has more potential implications for car dealers.
With recent GM announcements to acquire Lyft and Sidecar, and Ford’s announcement of FordPass, greater focus has been placed on this potentially disruptive initiative.
But I think ridesharing likely has more short-term implications for traditional forms of ridesharing endeavours such as taxicabs, limousines, buses and other forms of public transit.
But in the long-term, ride sharing, when combined with autonomous driving, could affect ownership rates where access to kilometres becomes more important than vehicle ownership.
Sharing has implications for vehicle durability. In its strictest sense, sharing a vehicle means that each shared vehicle will accumulate kilometres more quickly.
For example, most people drive their vehicle to and from work where the vehicle is working one to two hours a day.
In a sharing world, that same vehicle might be operational 10 to 12 hours per day on average but with three or more sharers. This will increase vehicle usage and potentially accelerate scrappage.
Sharing has implications for the insurance industry. At present passengers do not pay insurance when hailing a cab or riding a bus. In a world where people share a self-driving vehicle, who is the insured party if no one is driving?
Consider a model where vehicles are paid for by kilometres used as opposed to the current purchase price model. What could that mean for a dealership’s new vehicle business?
Uber has certainly upset the taxi industry everywhere it is available. The company has also created a consumer following demanding this sort of service.
For Uber users, consumer behaviour will never be the same as before. Maybe GM and Ford are up to something here.
As I sift through the maze of information on a cold and snowy evening in Detroit, I ask myself the question “ what are the dealership implications?”
Much of the potential disruption discussed seems to be aimed at vehicle design, assembly and public transit, not at vehicle distribution.
However, it would be foolish to think that vehicle distribution will not face its own forms of disruption in the future.
If it is true that consumers will want access to kilometres more than vehicle ownership, then new and used vehicle sales could be negatively affected over time.
Consider a model where vehicles are paid for by kilometres used as opposed to the current purchase price model. What could that mean for a dealership’s new vehicle business?
One thing is for sure: all vehicles will require routine maintenance and servicing.
You could then make an argument that the dealership of the future might have smaller product display showrooms and more service bay capacity. Facilities have a multi-decade planning horizon.
Dealers have to live with facilities for a long time. If there is truly disruption that will affect vehicle distribution, in say the next 15 years, facility projects occurring today should be flexible enough to take this into consideration.
Dealer profit centres could also be affected by disruption in the future. We have been living in a shrinking margin world for many years now. That pressure could continue to a point where little profit is available to be earned by the dealer in a new vehicle transaction.
For all of this to happen, many critical innovations must be developed and become mainstream.
As I drive along Highway 401 to head back home, I am quickly brought back into today’s reality where I am alerted by my 2016 vehicle that its vehicle sensors have failed and to use extra caution.
Make no mistake, change is coming and it’s coming fast but with my sensors not working on a snowy and icy drive, I am relieved that I still am in control of my vehicle.
