Is there even a new normal in the dealership world or is the business just in constant evolution?

Often when I speak with folks from auto retail, I often get the question “when do you think things will be back to normal?”

My answer to this seemingly simple question is not simple at all. If you are waiting for 2016 or 2017 to return, then you are going to wait an awfully long time.

If you are referring to an environment of constant change like we have had for the past 20+ years, then I’d say we are already there. Often, I find that folks are referring to new vehicle inventory levels and related new vehicle unit sales.

Other times folks are referring to new vehicle gross profit pools, to which I answer gross profit levels on new vehicles are very high and most dealerships are recording record department profitability. Other than sales volume, things are not all that bad. So why wait for the return of something that may never come?

Since I am writing this in October and the race to the World Series is in full swing, let’s go around the horn and touch all the bases to examine this return to normal concept. Think back to the Abbott and Costello bit. We will have customers at first, brands at second, employees at third and the economy at home.

Firstly, are your customers behaving the same way they used to? I would suggest that customer behaviour has changed significantly over the past few years in ways we would not have thought possible five years ago.

Shopping patterns for both the variable and fixed sectors of our businesses have shifted. Working with our customers has been both rewarding and challenging. It has been great to sell at list or above, but extremely challenging to deliver on customer expectations. As dealers we have lost much control because of inventory availability uncertainty.

Secondly, are brands behaving the same way they used to? Again, I would suggest that brand behaviour has changed. Brands have taught themselves many things they would have not thought possible five years ago.

Brands chasing vehicle margins to maximize corporate profitability have altered vehicle production and thus delivery schedules. Direct to consumer has led to hurried brand internal process changes and therefore, changes in a brand’s relationship with its dealers.

Brands are also in many ways being forced to electrify their product offerings to meet government mandates and are looking at new ways to bring that product to market to compete with newcomer single focused electric vehicle competition.

Thirdly, are dealership employees behaving the same way they used to?  Our employees survived pandemic stay at home orders only to come out with higher expectations for work from home options, many driven by childcare challenges, and in the process changing what they expect from their employers. Higher cost of living has fueled increasing wage and salary demands. On a broader scale, labour unrest is currently the norm.

Finally, is the economy behaving the same? How long will current economic conditions last? If inflation falls back to two per cent does that mean that prices will return to pre-pandemic levels, or does it mean that current prices are only increasing two per cent on a base of post-pandemic prices.

In general, post-pandemic prices are already conservatively 15 per cent to 20 per cent higher than pre-pandemic prices. The government’s target is to limit annual price increases to two per cent not reduce prices. On top of that the “R” word is being used more often and certain sectors are beginning to slack off. All this leads to headwinds in the near-term.

Thus far, I have only highlighted a few considerations. Normal has so many subcomponents to it that it is virtually impossible to return to normal.

More importantly however is the return to normal in the emotional connection we feel with customers, our staff, and our brands. This can only happen if we accept the reality that we are building a new normal on the fly.

This can only happen if we make sound business decisions using the factors under our control. This can only happen if we make the necessary changes in the way we operate our dealerships to keep pace with our local business environment.

It’s how we adjust and reset that will help us be winners in the longer run.  In reality, we must learn to partner with our brands, our customers, and our employees. The perfection of this partnership will help us build the emotional strength to be successful.

Part of building this new normal on the fly has to do with the impact of digitalization as the catalyst for change. I believe change is not solely about digitalization and digitalization is not the sole blame regarding change.

From my perspective it’s about how we choose to implement digitalization in our dealerships. Digitalization is simply a set of tools. It’s how we each accept and choose to use these tools that sets us apart. Most are not there yet and naturally digitalization is an easy target.

Automotive retail is still and likely always be a people business, run by people for people. It’s how we use the tools we chose to employ to help us along our journey that supports our emotional connection with our customers, our brands, and our employees. The business has evolved well beyond tracking how many. It’s evolved to be more of a focus solely about the how.

So, looking ahead to 2024 and back to the original question “when do I think things will be back to normal?” The answer is never!

In 2024 we will continue our collective efforts at building a new normal on the fly each and every step along our collective journey forward.

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Now is the time to make your plans for next year, especially with so much uncertainty.

In many ways I find that the beginning of fall is the perfect time to start planning for next year.   

By the time January rolls around, plans for 2024 should be in execution mode, where you realize your planned strategies and tactics. If you only start planning in January, that puts you in a position to play catch-up with your competition.   

It’s true that January and February are traditionally the slowest sales months of the year, however, many of us use this time to attend industry events and various brand meetings that take us away from our stores. As a result, in many aspects, quality planning takes a back seat.

Cautious optimism is surrounding 2024. We hope there will be a recovery, but we are not sure.

Depending on who you listen to, either the Canadian economy is headed for recession, or it might not be.

Also, some very interesting historical norms might not happen this time. For instance, the relationship between employment and recession.

Normally in a recession the unemployment rate increases as businesses adjust their labour costs to cope with the uncertainty. At this point however, it appears that employment might increase.

The pandemic effect on workers is likely at play here as many pre-pandemic workers have altered their behaviour and have sought other options.

An example for auto dealers is technicians. It seems like every dealership in Canada is looking for technicians. Various provincial strategies have been put into place to address this shortage.

Another example has to do with the decisions auto dealers made as the pandemic surfaced. Many auto dealers permanently changed or eliminated internal roles. The pandemic provided the time to reflect and gain visibility into all processes. As a result many auto dealers have already redeployed their human resources to eliminate spend creep that had slowly developed.  As business slowly returns, many dealerships have created additional capacity through new and improved processes. More individuals working differently will be required — not less.

The pandemic provided the time to reflect and gain visibility into all processes. As a result many auto dealers have already redeployed their human resources to eliminate spend creep that had slowly developed. As business slowly returns, many dealerships have created additional capacity through new and improved processes.

Planning is still very complicated and is not easy. Certain brands have had little change while others are amid significant change. Those auto dealers that own and operate more than one store may very well find themselves with several different strategies needed to comply with brand demands. Managing your individual retail brand across all vehicle brands will need to have a consistent external go-to-market message however the operating back end might be very different. This could complicate the movement of your team members between stores as you attempt to deploy the right skills into the right place.

At the moment brands are looking to have a closer relationship with customers and some are adopting strategies to insert themselves between the customer and dealer. For some brands this upsets the traditional apple cart and injects confusion.    

I have learned over the years that where there is confusion there is opportunity. Your 2024 plan should have strategies to mitigate the confusion and turn this into an opportunity for your dealership. To successfully affect the opportunity might require you to become more aligned with your brand(s) than you have been in the past. It will likely also require you to be extremely flexible and nimble as OEM plans evolve and customer reaction varies.

According to DesRosiers Automotive Consultants, the pandemic has created a backlog of more than 1.1 million new vehicle sales. Although this bodes well for future new vehicle sales, it has the opposite effect on used vehicles and fixed operations. The backlog means that there will be a lag with fewer used vehicles available and a similar lag in customers in your service bays.  Depending on how long it takes to fill the backlog, there could be a few years of continued used vehicle shortages and slower traffic through your service bays.

We are all going to have to exhibit discipline regarding new vehicle inventory levels. Although we often do not have control over this in our current push vehicle production systems, we must be diligent in ordering.

Supply shortages have been good in that it allowed reasonable gross margins to be earned with little to no inventory carrying costs. We grew up as dealers, however, always wanting large inventories. I wonder if the pandemic has created a permanent shift in consumer purchasing patterns in that ordering is now more acceptable than it has been traditionally.

Not too long ago, customers bought what we sold them, however, I wonder if we might have turned a corner where the customer now buys what they want and are willing to wait for it. If this is true, inventory levels will not need to be large. 

One historical fact has been that many vehicles were produced that customers did not intrinsically want. Today, to some extent this is happening with certain brands, in that brands are producing the models and options that maximize the brand’s profitability at the expense of customer and dealer wants. Also, some brands are attaching the purchase of extra options or branded items as a prerequisite to order and secure a vehicle.

As the industry moves forward with more clearly defined channels there will be many brand experiments, much like throwing spaghetti against the wall to see what sticks. There will be a broad spectrum of approaches. We are far from certainty and far from being able to plan our longer-term futures accurately and completely.

We are in the early innings of industry transformation. Our customers are influenced by the way they purchase all items. What they experience with other goods and services is what they will likely want to experience with auto retail. Our brands on the other hand are influenced by financial projections predicting what adopting technology can produce.

As dealers we are the most important part of the continuum. We are the glue that connects all the dots. Our success will be influenced by both customers and brands over the long-term.

In the meantime, 2024 is right around the corner and we will need to manufacture short-term wins to remain in the race towards longer-term success.

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Operating a dealership these days isn’t for the faint of heart. Are you still in the game?

At this point in 2023, we find ourselves in a very crazy world.

Dealers have many outside influences to consider as they attempt to navigate the rest of 2023 and beyond. Here are a few thoughts:

Over these past few months, we have witnessed a dramatic increase in apparent climate related issues around the world. Severe hurricanes, large scale forest fires, unbearable heat across Europe and severe flooding are all front and centre on the nightly news. Air quality globally, including Canada has been affected as jet streams spread the impact of large-scale forest fires across far off lands.   

Specific to Canada, firefighters from places like Korea, Australia, the U.S., and other places around the world are pitching in to try and control the situation. It’s a herculean task. As if there was not enough, flooding has caused incredible damage and dislocated residents and businesses. Eastern Canada has endured a hurricane, forest fires and severe flooding in recent months and other parts of Canada are battling constant forest fires.How will governments react to do their part to curb climate change. Is this even possible?

The labour unrest at the Port of Vancouver has delayed the process of economic recovery and is now a component of inflationary pressure as the supply and demand imbalance continues to drive up prices. 

All this is happening as automakers at home and abroad look at alternative vehicle distribution models.

The Bank of Canada is continuing its battle with inflation by continuing to increase interest rates which in itself causes inflationary pressures.   

Then there are still some supply disruption issues but thankfully these seem to be less and less every day.

We are all becoming aware of the risk of battery technology on safety. We are learning more every day.   

The large shipping vessel headed to Japan from Germany, at the time of writing this article was floating off Belgium. Crew had to be evacuated and the ship was left to float on its own. The fire destroyed more than 2,850 vehicles of which 498 were reportedly electric vehicles. Early speculation is that EV batteries were to blame.    

Apparently, CO₂ is very effective in putting out fires on ICE vehicles but reported is totally ineffective with EV fires. It is reported that over 100,000 litres of water are needed per car to extinguish an EV vehicle fire. However, according to reports this risks sinking the ship. After reading this in GoAutoNews from Australia I could not stop thinking about the implication of a battery fire at a local dealership.   

All this is happening as automakers at home and abroad look at alternative vehicle distribution models. Much has been said about the agency model. Most brands I have looked at seem to be cherry picking elements of pure agency and are attempting to inject these elements into their existing franchises. 

Whether dealers continue to sell new vehicles as they always have or whether they earn a fixed commission or margin paid by their brand remains to be seen. Will dealers own new vehicle inventory for resale, or will they or customers draw directly from an OEM owned pool? Will there be two streams of vehicles, one electrified and the other internal combustion or will electrified vehicles seamlessly fit into the current mix of car, CUV, truck, SUV etc. framework?

Many dealers I have spoken to are concerned about their future considering the long list of uncertainties. Has the fun gone out of the car business? With less and less ability to manage their stores their way, dealers I speak to are concerned that their future will be increasingly dictated by their brand.   

To that end, most if not all dealerships have customer orders waiting for delivery and have been carefully and painstakingly nurturing their customers as they wait month after month to take delivery of their chosen vehicles. 

The problem today, however, seems to be that manufacturers are not delivering what the customers want. In the good old days, customers largely bought what the dealer had in stock or could secure via dealer trade. Possibly because of COVID, customers could be shifting their buying patterns and could be developing a desire to buy what they want instead of simply accepting what is available. Only time will tell.

Again, only time will tell whether customers are changing how they pay to access transportation. 

In recent months, it was reported that the number of vehicles financed by leases has decreased. Leasing has been an important backbone of vehicle finance for a few decades now. We all know that leasing has been an important component of a dealer acquiring high quality used vehicles and a very important part of long-term customer retention. 

Will car sharing and ride sharing finally live up to expectation and take market share? Will working from home change how customers access transportation? Will they drive fewer kilometers, retain their vehicles longer or sign up for a subscription that allows them to change vehicles on a regular basis? 

I suspect it will be a combination of all the above with the only question remaining is market share. The cost of transportation has increased in recent years to the point where some families are spending more of their annual household budget on transportation than housing. 

According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from?

According to the CADA, 92.4 per cent of all Canadian dealers own between one and five stores each. Will up and coming second and third generation dealers be able to produce the lifestyle that their dealer parents have enjoyed? Do they possess the capabilities to operate multiple dealerships of multiple brands with multiple mutually exclusive brand processes, investment requirements and contractual arrangements? 

Finally, dealership buy/sell transactions continue to take place. You cannot look at an auto retail-based publication without seeing significant ads by dealership brokers.   

According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from? How long will values hold?

There seems to be an element of fear of missing out that is driving the buy/sell market these days. If your children are not yet ready to take over and may or may not want to or more importantly be approved as a successor and future dealer, how long do you wait in these changing times? Is it time to hedge your bets?

Everyone looks at dealers with envy. They are the pillars in most communities, providing financial and human capital support for the greater good.    

Very few of the general populous, however, truly understand the complexities of being a dealer in 2023. As the world and the business gets more complex with its far-reaching implication, successfully operating as a dealer in the crazy world is not for the faint of heart and not without significant risk.

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Words for the wise as dealers navigate the murky waters ahead.

As I was driving to a meeting this morning and listening to Squawk Box on CNBC, they were discussing the current state of the economy and what could lie ahead.

This show has been a favourite of mine for a very long time. It covers all aspects of the economy and investing, in detail examining all sides of the issues. One of their guests this morning was asked about when things would return to normal? His answer was simple.

He quickly said there is no such thing as normal. He has personally adopted the saying “Stay alive until Twenty Twenty-Five.” Based on experience, he believes that once the economy hits bottom the recovery is usually unsteady until broad momentum is created. He sees that happening in 2025. Until then the waters will be choppy, and the ride will be bumpy.

Right now, the war on inflation is being fought by rising interest rates. In its simplistic reasoning, this is supposed to reduce consumer demand and thus inflation.

The Bank of Canada believes that interest rate increases may curb or at least alter consumer spending, and if that strategy is successful, inflation will start to come under control.

I believe that it will take many months of steady inflationary declines for the Bank of Canada to begin their slow downward movement in interest rates. This might happen over 2024. Until then rates will likely continue to rise.

We are living in very uncertain times. Not all things are bad, and some sectors of the economy are doing OK.

Rebuilding might not take a herculean effort for some, but it will for others.It could seem more like a renovation as opposed to a rebuilding.   

Those of us with some experience know it is often cheaper and quicker to rebuild than renovate. Starting with a clean sheet of paper eliminates many unknowns lurking under the surface in renovations.

In any event, for the economy, renovation is the chosen strategy.

Consensus is that things will continue to be slow before they get better. The recovery will be uneven, two steps forward and one step back before stability and thus predictability will be possible.

This discussion parallels our current situation in auto retail. The supply and demand relationships are shifting. Just as we can see supply pressures easing, demand is now under pressure.

Higher interest rates are whipping up vehicle affordability headwinds. This is causing customers to downsize their vehicles just to keep their monthly payment somewhat comparable to what they are accustomed to.

The fact that most customers need a vehicle to facilitate employment means that they still need a vehicle. For those interested in continuing to own or lease their daily ride, they can either keep the current vehicle longer and hope to win the repair bill lottery, they can purchase or lease a used vehicle hoping to win the longevity lottery, or they can downsize their vehicle to better manage their monthly costs with greater certainty.

Others may turn to public transit or ride sharing but in my experience these folks also own or lease a vehicle, so other than possibly a reduction in net operating costs, they do not mess with the new or used vehicle market dynamic in a material way.

At the moment, for most brands dealer inventories are still low. Dealers are selling everything they can get their hands on, and many dealers have robust waiting lists. The coming months however will hopefully be better but still likely far from stable and predictable. Lots of wishful thinking and cautious optimism but still much uncertainty.   

The stay alive until twenty-five saying really resonated with me. After all, many factors out of our control need to come together to get us out of this quagmire. Like runners at the starting line, there will be many false starts, reloading, restarts and unfortunately disqualifications.

Adding to the automotive uncertainty is the road to electrification, brand product cadence uncertainty, product realignment, competitive repositioning, and the overall impact of new vehicle manufacturing entrants and their impact on residual market share.    

As new entrants earn consumer support, traditional brands are on the losing end.  Unless the total market grows significantly, sales volumes of some mainstay brands will continue to erode. Total market share always adds to 100 per cent. All brands competitively chip away their share as they carve their way into that market share.

The more players, the harder it is to maintain market share  per cent. Not too long ago the Canadian new vehicle market topped 2 million new units. Today the market has shrunk to around 80 per cent of that peak. That’s a lot of new vehicle sales not realized.

Some believe this has created a pent-up demand and as such, like the Field of Dreams, if you build it, they will come. Others believe the market dynamics have changed. At this point no one knows.

Vehicle brand owners are walking a tightrope. Just like the Flying Wallendas, vehicle brand owners operate largely without a safety net.   

With the winds of market change blowing strong, brands are challenged to stay upright on the industry tightrope. They are engaged in a daily battle as they decide and plan their way forward. These decisions directly impact franchise auto dealers.

Uncertainty is the order of the day for dealers as brands attempt to maintain their footing, hanging on with only their toes and balancing with the use of a flexible pole to lower the centre of gravity and manage torque to avoid rotating and falling. Dealers collectively hold the safety net just in case. In the past, dealers have been called to rescue and as such have been an integral part of the brand positioning.   

Many believe these times are different. The consumer fascination with online ordering advanced rapidly during the pandemic period. Will this consumer fascination directly translate to online new vehicle sales?

Some brands seem to be banking on this and are retooling their direct-to-consumer initiatives. This affects their go to market strategy. For some, the business relationship with their dealers is not clear, in fact it’s downright foggy.

As the economy bumps and grinds its way to health, consumers rebuild the confidence they once had and vehicle brand owners develop some clarity on their future direction, franchise dealers today are left with more questions than answers.   

Keep the ship afloat and act responsibly to preserve what you have grown. Seek opportunities that make sense for your business without risking the mothership.Keep one eye on costs. Keep the other
eye on your brand’s development and align as much as is practical that makes sense in your market.

Staying alive until twenty twenty-five seems to me to be wise words to follow.

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Optimists and pessimists have a lot to consider in the days ahead

As we peek around the corner to get a glimpse of what could possibly lie ahead, I think of the saying “is that light at the end of the tunnel or a freight train?”

With the ups and downs of the past few years and uncertainties currently blanketing the Canadian economy and automotive in particular, no one would blame anyone if they were a little gun shy.

Your individual outlook largely depends on whether you are short-term or long-term focused and if you are a glass half empty or glass half full person.

Those who are short-term focused and also glass half empty are having sleepless nights. As I have written recently, the short-term crystal ball is cloudy.      

Much has been written about price inflation, wage inflation, interest rates, labour shortage, work from home and the looming recession. It’s true, these are all causing headaches these days.    

For those who are short-term focused but glass half full, they see the supply chain issues easing, inventories begin to flow back to their stores, customers picking up their ordered vehicles, service bays full of cars, and life is looking pretty good.

They see the inflation and interest rate issue as beginning to resolve and they think 2023 will turn out to be a good year and 2024 even better.

Then there are those who are long-term focused and also glass half empty. They see lots of roadblocks ahead and insurmountable obstacles. Every bit of seemingly bad news reinforces their thinking. Planning for the long-term might involve selling their stores and retiring altogether. They have lost the ability to smile and see the good.

Then finally there are those who are long-term focused and glass half full. They see nothing but blue skies. When dark clouds do come around, as they regularly do, they put on their rubber boots, grab an umbrella, and go for a walk. They know the dark clouds will once again be replaced by blue skies and there is no use in sweating the small stuff. They are big picture people looking for opportunities.

We all know people in each of the four categories above. You are probably thinking of some now.

In short, the glass half empty folks will continue to be challenged and the glass half full folks will soldier on in search of brighter days.

From my vantage point there are many reasons to be optimistic. Perhaps it’s my 40+ years of living through the ups and downs of normal life. Life is not always sunny but it also not always cloudy either.

The sun always comes out every day, if you fly high enough. Rainy days can be some of the best days in life. What is the saying “variety is the spice of life.” Face it, you are not going to get everything right but in the end, you have to admit that you win more than you lose.

We work in a dynamic industry that many outsiders do not understand. It is darn hard to fight the battle day in and day out. Those who are successful are also lucky. They create their own luck, because their attitude pulls them through to the other side.

My mom always told me that the harder she worked the luckier she got. Sometimes you fall and skin your knees. Rather than lying there is self-pity, some of us pick ourselves up, brush ourselves off and vow not to do that again.   

We figure out how to do things differently the next time. We also share those embarrassing but valuable experiences with our team, many of whom need to skin their own knees to truly understand and become believers, listeners, leaders, and teachers themselves.  It’s not complicated if you have the right outlook on life.

So, whether it’s the light at the end of the tunnel or a freight train is largely up to you and how you look at things. So what if it’s a freight train? What are you going to do about it?  It’s not always light at the end of that tunnel. You need to learn to deal with the freight trains. That’s reality.

Over 40 years in business has taught me that life is easy when the sun shines but it’s fun when it rains and you make the sun come out. When it’s always sunny you develop the bad habit of spilling more than you pour. When it’s raining you wish you had poured more accurately and saved some for later.

Dealers and other friends often ask me what I think of electric vehicles. I tell my friends  I think they are great and for the industry folks I say it will ensure we have work to do for years to come.

Imagine the next 20 years with both ICE and EVs in our showrooms, service bays and used vehicle lots. That could be the perfect storm. It might look like dark clouds or even a freight train now but believe me, it is the light at the end of the tunnel where, by the way, the sun is shining brightly.

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There’s a lot of change in the air and dealers are thinking their way through it

As we sit here in the first quarter of 2023, having lived through two tough years of uncertainty, what can we expect in the coming year? 

This is not an easy question to answer since our macro business environment in general, and the automotive retail environment, of particular interest to us, are on shaky ground.

Geopolitical instability is the macro headline. Russia and Ukraine do not seem close to resolving their significant differences. The fallout from their actions is being felt right around the world.

Add to that the rumblings of China invading Taiwan along with North Korea’s long-range missiles and nuclear programs and challenges to NATO and you get a volatile environment which could erupt at any time. Here in North America, after years of pursuing globalization, focus seems to have returned to domestic production.

On the Canadian front, higher interest rates will be here longer than expected as central banks attempt to tackle inflation. Price inflation is being felt across all sectors of the economy.

This is putting pressure on our business expenses and cost of capital expenditures.  More importantly, it affects vehicle affordability as consumers contend with across-the-board higher costs. On the other end of the inflation spectrum, wage inflation is putting pressure on employer P&L’s and thus adding fuel to inflation. Higher wages mean higher prices, higher prices increase inflation. It’s a vicious circle.

Macro issues aside, we are beginning to work our way out of the pandemic from a day-to-day health restrictions standpoint. Although COVID-19 is still circulating, there is a laissez faire attitude that has developed among Canadians.

In most industries, absentee employees are more common today than before and dealerships are no exception forcing businesses to make staffing modifications daily.

My discussions with dealers these days centres around decision-making. To say there is anxiety and confusion about the future would be accurate. The cerebral challenge is both short-term versus long-term. There is pressure to preserve or increase today’s market share balanced with long-term investment and commitment. As a group, in my opinion, dealers are more concerned about determining the long-term and less so about managing through the short-term.

Dealers are being asked to make capital investments on many fronts to prepare for the proposed changes impacting vehicle fleets and brand specific competition.

New and used internal combustion engine powered vehicles will still be in our showrooms and on our roads for a long time. This will provide us with ongoing variable and fixed operations revenues for years to come.Simultaneously, alongside our ICE vehicles will be electrified vehicles.

A whole new model line-up with all the configurations will eventually create consumer demand and many new business opportunities. This creates a whole new customer electrification enlightenment strategy in our stores.

Dealers will need to lead retail customers through a new journey, taking more time with them and assisting them with understanding and demystifying electrification misinformation.

On the back end of our business, our technicians will be retrained as we ask them to work with heightened electrical health and safety elements. In many cases, our current facilities will need modification to meet heightened vehicle and electrical requirements.

On the surface, the future is an exciting one with many new possibilities and opportunities as consumers and dealers embrace the new world of electrification while continuing to live in harmony with ICE vehicles. It should attract new people to our staffing ranks where working with modern vehicles in dealerships will be seen as a great career opportunity.

Many of the concerns expressed to me deal with transition and future roles. This is because the transition is not clear. This is where brands differences become reality. As I wrote in Driving the road ahead, a view into the future of Canadian automobile retailing a few years back, all brands will not go forward in the same direction at the same time and some brands might not change at all.

Product will soon flow to our lots allowing us to deliver on our customer order banks and possibly build a small inventory of new vehicles on hand by the end of 2023. The inventory availability for most brands should soon be at reasonable levels.

Many dealers had robust 2021 and 2022 financial results. In addition to expense control and rationalization, short supply helped keep margins high and as importantly began to train the customer to order vehicles.

Customers were eager to make appointments with sales personnel and reserve a vehicle for future delivery. Hopefully, delivery times will be shorter in the future. Dealers, however, cannot lose sight of the efficiency this process produced.

Of concern to dealers is the fact that some brands want a bigger part of the retail side of the business. The important role of the dealer cannot be minimized in most customer journeys. Sure, we all shop online at one time or another.

The pandemic introduced many people to alternative shopping possibilities. When stores were closed to instore shopping there was little alternative. Online was the only option.

Looking ahead, online will certainly remain as a tool for research and for some it will be their only source of retail transactions. The vast majority, however, will use more than one channel, both online and offline depending on what they are looking to buy and where they are. For vehicles many consumers opt for an online / offline approach. It’s part of omnichannel retailing.

To date both dealers and their brands independently engage in some degree of online retailing. Some brands are looking to play a bigger role in the customer journey than they have in the past. This is made possible by rapid advances in fintech and data management capabilities.

But as we know, auto retail is not simple, and vehicles are expensive. Consumers do not want to make mistakes and many consumers look for assistance from local dealerships to help them make the right decision.

It’s not the same situation as shipping back your online orders if you are not happy with what was delivered to you. So, each individual consumer will decide at the end of the day what percentage of online/offline works for them.

This leads me to believe that a closer partnership between brand owners and their dealers is the right way to go. However, there is no one size fits all solution.

It will require a paradigm shift for some brands and dealer networks. Nonetheless, dealers and brands are both after the same result, a solid return on investment, repeat customers and enterprise value creation. Working together does not mean one side gets the upper hand over the other.

Working together means that dealers and brands are both successful, jointly meeting customer needs and wants along a flexible journey.

So where do we go from here? Don’t sweat the macro issues, they are out of your control.

As our businesses begin to return to a new normal, in the short-term we cannot lose sight of the positive shifts in our dealership operations discovered during the pandemic.  Don’t go back to the old ways but embrace new realities.

As for the longer-term, remain part of the conversation and develop a closer relationship with your brand. Understand where they are headed. At the end of the day, you are both on the same team, seeking the same outcomes.

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I can’t help but look at our current business situation and describe it with a sports metaphor. 

At the time of writing, it’s Super Bowl weekend in a few days, the NHL all-star game has just finished and the NBA all-star game is not far off, I am filled with sports analogies. Using football lingo, auto retail is stuck in the backfield and is up against an all-out blitz. We are not ready to go down on one knee just yet, but we are scrambling like hell to stay standing.

The blitz is made up of inflation, high interest rates, consumer debt payments, lower consumer disposable income, intermittent vehicle and parts supply disruptions and new retail business models, to name a few. 

It’s coming at us from every direction. All we can do is be like a pinball in a pinball machine, and bounce off whatever gets in our way and keep running. The problem is, we are running from side to side, not down the field where we are supposed to be headed. In other words, we don’t seem to be making any yardage.

Sure, for the most part, profits are higher than ever, but we all know that is not sustainable. How long will it be before sins of the past rear their ugly heads and exert downward pressure on our profitability? 

Granted, the pandemic exposed many sins from the past, and gave us time to come up with many new game plans. We are leaner and meaner from an operations standpoint, and with any luck we will stay that way. There are headwinds, however, that we need to pay attention to. 

Our people are our most valuable assets. With the cost pressures they face in their daily lives, I expect wage pressure to interfere with our progress downfield. We need to retain our good people and we need to train new hires in the way we want things handled in our stores. Our managers and staff need to be engaged for us to take full advantage of our business model, which, at the end of the day, is measured by repeat business and employee retention.

I also anticipate we will be subjected to more and more inventory as factories come back online and product produced must be moved. Our deeply ingrained tendency is to fill our lots full to overflowing, then lease additional vehicle storage space, only to watch our days in inventory and along with it, inventory carrying costs, soar. 

We will be tempted to over-pay for used vehicle trades to move that inventory, quickly abandoning the discipline we temporarily developed during the pandemic. Many of the gains we made were on the backs of low inventory levels and high consumer demand. Those days, I fear, are over.

So how do we get out of the auto retail backfield?

The vehicles that we will stock will be technological masterpieces. No longer just transportation, we will be delivering experiences, at the time of sale and throughout the lifetime of vehicle ownership. 

Our customers will depend on us more and more, since the vehicles we sell them are complicated and will need regular attention. Many of our vehicle issues will not be mechanical, but rather electronic, and as such we will be competing with our brands for the revenue that over-the-air updates will provide. Some will be covered under warranty, but others will not. We must be prepared for this.

We will need to continue to embrace being ambassadors for electrified vehicles. Not only will we be asked to stock unproven models, but we will also be doing this in an environment of limited charging capacity. 

We will need to train the customer on how to take care of these vehicles. Government mandates will drive the industry and the consumer towards electrified vehicles. That means that the staff we train must be fully engaged to pass on the knowledge that our customers will need to be fully satisfied. Much of this will be done on our nickel as dealers. Do this we must, to have the opportunity to earn their loyalty and trust. 

We must continue to have a keen eye on used vehicles, parts, and service. New vehicles come in at the top of the customer funnel, however, it’s these adjacent and complementary businesses that provide the profit margins we need to thrive. I strongly suspect that we will be developing and introducing new adjacent businesses in the coming years, based largely on electrified vehicles, but also on aging ICE vehicles.

I can see a time where dealerships have mobile charging services, much like today’s customer shuttles to complement their charge-at-home installation services. Electrified vehicles will be able to act as power generators for non-vehicle applications. 

This will create a whole new revenue opportunity for dealer services. Also, as ICE vehicles age over the coming decade, ownership patterns will change and new services to support older ICE vehicle models will emerge. Body shop and vehicle reconditioning services will become demanded by vehicle owners and not just at time of purchase but to extend their ownership cycle. 

At the other end of the spectrum, many dealers are calling it a day. After tremendously successful careers, lack of ownership succession and a ready supply of acquirers exists who are ready and willing to pay fair price for stores and related real estate. Where some dealers see headwinds, other dealers see nothing but opportunities. Dealers, by and large, are great entrepreneurs and optimists, but some do run out of steam, and still others become ready to move onto other challenges and opportunities in a second career. 

Getting out of the backfield is a challenge for all of us, and is not easy in an environment where you do not completely control your outcome. We all put our own spin on how to do that. There is no one right way. 

Rather, I suggest there are many successful ways; depending on personalities, experiences, insights, and expectations. One thing is for sure, however. This is, and will continue to be, an exciting, fascinating, and rewarding industry for those that continue and choose to embrace it.

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We may have to be prepared for some short-term pain before long-term gains

To say that the past few years have been the catalyst to a ”new normal” would be an understatement. So many different world events since 2018, and especially since 2020, merged to create an enormous melting pot of sorts. Our industry went to places it had never been before. From the reaction of largely unrelated and unthought of ingredients, we are somehow supposed to create a new future. 

At the retail level, the retail car business rapidly became a sellers-market. From a dealers’ perspective, vehicle shortages created a perfect storm as vehicles transacted at or above MSRP, generating grosses per unit not seen for half a century, if ever. 

For some dealers, vehicle selling prices combined with lower human resource requirements combined to rekindle new-found love for the business. Profits soared to unprecedented heights. For other dealers it was a sign that it was perhaps time to cash in and move on.   

As inflation soared to levels unseen by many dealers, and as interest rates rapidly escalated, interest itself became a real expense in our P&L once again. Our costs increased exponentially without the opportunity for any further productivity gains. Those had all come at the beginning of the pandemic. 

Consumers began to walk, some backing out of conditional sales agreements and others walking away from the market due the negative impact on household cash flow. 

The combination of high new and used selling costs and much higher monthly carrying costs began to take hold to reduce vehicle demand. Homeowners with variable rate mortgages quickly changed to fixed ones. 

For those that did not react fast enough, they still today sit on the sidelines waiting to see how long the financial pressures will continue and are banking that their vehicles will last through the looming recession. 

Everything was more expensive. At the same time, the concept of working changed for many employees and business owners. 

Working from home has taken Canadian business by storm. Not only was it deemed healthier, but it also served to counterbalance increasing household budgets by allowing our customers and employees to adopt new tactics aimed at changing historical spending patterns. What used to be a monthly expense, soon turned into monthly savings. Commuting costs, childcare, deferred vacations, and other monthly savings added momentum to the work-from-home migration.

All of that was a lot to swallow in a short period of time, and I sense the turmoil is not yet finished. With 2022 now behind us, what can we expect in the year ahead?  

My hope is that as an industry we have learned from these times. My fear is that we will quickly revert to the old ways.    

Do we need huge amounts of inventory rusting on our lots? Do OEMs need to keep production plants at full capacity to churn out units that many consumers do not immediately want? Can we better match supply with demand to take advantage of the new financial equilibrium we have just lived through? 

As far as I can determine, it was not only dealers that saw profits soar. OEMs did as well. 

Automotive retail, and retail in general, live by market share. OEMs and dealers have chased market share for decades. Will this continue, or will we all focus on profitable growth rather than unit growth at all costs? 

As dealers, increasing market share has the short-term impact of a higher F&I profit pool and a long-term impact of increasing high-margin fixed operations. That’s not all bad, provided we do not give it all away on the front end. 

Hopefully we have learned that if we have the product consumers want, be it new or used, we don’t have to give it away to preserve the fixed operations profits. I believe that many of us have learned a better way to keep our customers happy and satisfied while making the kind of profits our business risks and investments deserve. 

That brings me to the move to electric. I believe this initiative is largely driven by government policy rather than consumer demand. Sure, many of us are concerned about climate change and the environment we are leaving for future generations. I firmly believe that alternative vehicles do have a place in our product portfolios. I also understand that OEMs need a minimum of vehicle activity to make sense of production costs. 

But for the foreseeable future, without government financial support, many consumers will stay away from the perceived high cost of acquisition. This creates uncertainty in the minds of some dealers, who are being asked to up their investment in a “Field of Dreams” approach. 

This also creates geographic differences in a dealer’s retail approach and inventory management. Not all markets function the same. Not all markets will have the infrastructure to support vehicle electrification. 

Serious challenges exist in multi-urban residential dwellings, for instance. In some cases, whole buildings need to be retrofitted at enormous cost, with not all owners or tenants willing or able to absorb increased acquisition costs. 

The concept that every home becomes a charging station sounds great, but a seriously high percentage of buildings cannot easily be converted. History may prove that these were just growing pains to get to where we need to get to as a society.  

My sense is that this will take at least a decade to take hold. In the meantime, who blinks first, the consumer, the dealer, the OEM, or the government? Someone is going to be left holding the bag while the rest play catch-up or don’t change at all. 

Looking ahead is not easy. The playbooks will need to be rewritten and cooperation, partnership and common sense will be required. A solid business plan where all parties share in the growth, founded upon reality and solid business principles is needed. 

Not everyone will be successful, and not everyone will progress in the same direction at the same pace. Eventually, far down the road, things might be different. Perhaps a little short-term pain by all will produce long-term gain by all. 

That might be pie in the sky or the true path to the future. One thing for sure, it likely takes more time than originally thought. Like I said, looking ahead is not easy.

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Getting out on the front lines now and again makes you a better boss and businessperson

As dealers, we are decision makers. We are called upon daily to make split-second decisions. The management team we have built most often calls upon us to validate their decisions, assuming they choose to involve us at all. We are busy people, dealing with big picture issues. We manage brand relationships, we deal with outside sources, and most often, we interact mostly with our management team.

Many of us trust implicitly until that trust is broken. After all, we pay managers big bucks to do their job and we do not want to interfere or undermine their initiative. We coach our managers and trust that our managers do the same with their reports, and so on, all the way down the line to the lowest level of employee.

Recently, I have run into several situations where dealers feel they have been betrayed by their managers. The information that flowed up channels was not entirely accurate, and as it turns out, the managers’ interpretation was suspect. 

On the other hand, I have seen situations where dealers spend a large proportion of their time going to the source. Some dealers dig into the trenches of their dealership to learn first-hand what all employees think. They observe performance, meet with customers, and meet with employees at all levels. These dealers are in a better position to assess the information being given them by their managers, and can be part of the conversation, due to their first-hand impressions.

I am not talking about micromanaging. And don’t think that I favour undermining your managers’ authority, because I do not. I am talking about being aware of what happens in your dealership(s) based on first-hand observations. 

Ask yourself, when was the last time you spent a whole shift in the service department, working as one of the team members? When was the last time you spent a day working in the parts department?

Ask yourself, when was the last time you spent a whole shift in the service department, working as one of the team members? When was the last time you spent a day working in the parts department? How about the sales floor or the used vehicle department?  When was the last time you sat in your reception area listening to verbal interactions between your staff and the dealership’s customers? 

Sure, many of you walk around every morning on your way to your office, touching base with most employees, talking about the family, their latest trip, kids’ activities etc. This too, is important, but not a substitute to working alongside them. When was the last time you had a meaningful business conversation with your employees and asked for their opinion? When was the last time you spoke to a customer at random to find out how they view your store’s performance?

All too often we rely on third-party, external surveys to inform us of what our customers and employees think about us. Our brands rely heavily on this information to assess our performance as dealers; however, this information should not be new to us. We should already know. We each should have first-hand information that we have gathered on our own. This information is more spontaneous, timely and actionable.There is little value to finding out survey results months after the fact. Our actions and responses need to be timely.

Going to the source, the place where it all happens, is vitally important. I’d like to suggest that many of your managers don’t take the time to understand what happens at the source, however for most of you, those same managers are your sole source on information upon which you base your decisions. You, as the leader within your dealership, need to take the action to ensure you are getting the right and relevant information, in a timely manner, upon which to validate decisions.

By taking this approach you are actually supporting your managers, not undermining them. At the same time, you are indirectly improving the managers,’ and thus your dealership’s, performance. You are also building credibility and trust with your frontline team members. At the end of the day, it’s who you talk to that matters.

I would also like to take a moment to comment briefly on 2023. With increasing inflation and higher interest rates coming in the weeks and months ahead, our dealerships, our employees, and our customers will be feeling the pinch.

The consensus is that we are entering a recessionary period that is predicted to have a huge impact on everyone. Employee and consumer stress will be high. If there is a good side of this, many who participated in the great resignation this past little while, will be returning to work. Also, employers in general are starting to recruit recently retired baby boomers, enticing them with creative work arrangements.   

The conversations you have in the coming weeks and months surrounding the recession will be critical. Everyone gets information from external sources like Google, blogs, Instagram, mainstream media etc. This information will shape the perceptions of your people. They will bring those perceptions to work with them.

It is then important that you control the narrative within your dealership.This will ensure your employees, and through them your customers, understand your view and the position of your dealership. This type of conversation will help increase comfort levels and trust. 

The recession will affect all businesses in a similar, but at the same time unique, manner. Take this opportunity to dialogue with your people. It’s a wonderful opportunity to build trust and loyalty and control the stress created by outside influences. Again, who you talk to, and how frequently, will determine how your dealership moves forward.

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Uncertain OEM marketing trends, coupled with the economic forecast, have many dealers feeling uneasy about the future

Each fall, as the summer winds down; sunlight hours get shorter and shorter, kids head back to school, and everyone seems to get back to business.  

At this time of year, dealers also look to their brands for guidance on what the next 12 to 24 months could bring from both a product, and go-to-market strategy perspectives. 

OEM brand intro shows, dealer association meetings and industry conferences are rolled out and tons of information is usually exchanged, with both informed, and biased, opinions expressed.  The end of summer means the start of a new year, much more so than New Year’s Day.  

This fall, however, is not your typical fall. The fall of 2022 is seeing the return to many face-to-face events as industry observers yearn for vibrant networking opportunities. 

With concern for COVID seemingly falling by the wayside (even though it is still circulating broadly), economic concerns have stepped in to occupy our thought processes. 

For the past 30 months the Canadian government has propped up many Canadian household and Canadian businesses, but those days are now over. What is left in the aftermath, is a country deeply embedded in nasty inflation, divided in its philosophies, searching for a way out of our current economic situation before the next slate of federal and provincial elections is upon us.  One problem is that inflation is not just a Canadian problem, it’s a global problem. Domestic solutions, without global alignment, will not be very effective.

This time around, inflation has a different feel. It’s not solely wage driven and not solely driven by profit taking. I believe the biggest cause for inflation is simply general supply issues. Supply disruption has caused massive shifts in product pricing at both wholesale and retail levels. Specifically for automotive, add vehicle electrification, higher interest rates and inconsistent new vehicle and replacement parts supply to the mix. Reduced new vehicle sales levels of the past 30 months also creates a trickle-down effect upon adjacent dealership business such as used vehicles, parts, vehicle maintenance and repair and F&I to be felt over the next few years. 

There is a delayed impact on adjacent businesses.These businesses will not fully recover until sometime after new vehicle sales levels as a whole return to pre-pandemic norms and units in operation increase.

I believe this inflation monster will only be fully tamed once the supply side of the economy in general has been healed. Until then, inconsistency and unpredictability will continue.

The Bank of Canada has adopted a policy of increasing interest rates with the goal of taming inflation. It’s really the only bullet in their gun. Designed more to protect the value of the Canadian dollar, increasing interest rates increase the cost of living for consumers. It also adds to the cost of doing business, and in a circular way, adds to higher prices. Also from a household standpoint, higher interest costs add to higher wage demands and again higher prices. 

From a vehicle dealership and consumer perspective, higher interest rates translate into more expensive vehicle prices, assuming increased costs are passed on in the form of consumer price increases. 

Since most vehicles are financed by loan or lease, higher interest rates will cause the consumer to re-evaluate their overall cost of spending on transportation. This could keep vehicle sales levels suppressed in the short-term and might also alter the mix of new and used vehicle sales. 

When interest was not a factor, the consumer stretched for the most expensive vehicle they could afford. Roll forward to a higher interest rate environment, and consumers might very well only be able to afford lesser equipped vehicles, and might be forced to downsize. This is not dissimilar to the current housing market, where many homeowners are also stretched, now only to be challenged by higher monthly mortgage costs.

Trying to figure out all the combinations and permutations has many dealers quickly moving up the anxiety curve.

We are also entering an era of increasing OEM involvement in the retail side of the business, led by better access to consumers through increased online focus and capability. 

At the same time, there is a very real shift away from ICE vehicles towards electric vehicles. Although this transition will be slow, while many climate conscious consumers have a propensity to buy electric, electric vehicle ownership is still very expensive, causing many to wait a few years until prices come down and charging infrastructure is better built out. 

In the meantime, dealers can position themselves as trusted advisors to their customers by proactively educating their customers of the differences between ICE and EV.

OEMs are, or will be, demanding increased investment in facilities infrastructure without a solid business case for that initial investment. It’s a chicken and egg situation. Do dealers invest now and wait for sales to come, or do they wait for the sales to come before they invest?  Many dealers are looking to cash in. However, with the stock markets, real estate values and other investment options in utter turmoil, other dealers are deciding to stick to the devil they know.

After a decade of increasing dealership profits, highlighted by exceptional performance during the pandemic, currently most dealers are not feeling certain and comfortable about their future. 

Most, if not all of the elements affecting dealers are out of dealers’ control. It’s enough dealing with the economic aftermath of the pandemic, let alone all the uncertain changes in how new vehicles will be retailed and customers engaged.  

Disruption to the status quo seems likely for most brands as OEMs redesign their go-to-market strategies. Dealers from coast to coast are beginning to feel the pressure and have that uneasy feeling in their stomachs. The heightened anxiety comes from having to make significant decisions in a perceived short period of time. 

Depending on your brand and where your stores are located, these decisions might be required sooner than later. All this uncertainty is making many dealers feel uneasy, causing many to sleep with one eye open, guaranteeing they do not wake up rested. Heightened anxiety will do that to dealers until they understand and decide on a clear path forward. 

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I recently have had many discussions surrounding the fact that there seem to be more jobs than workers to fill them. Virtually every dealer I speak with is looking for people and can’t find them. Many years ago, there was a book called Boom, Bust and Echo, written by David Foot and Daniel Stoffman, that described the conclusions that can be drawn and predictions that could be made based on the study of human populations. It focused on baby boomers and their historical and possible future impact on Canadian society.  

As we all currently observe the workforce shortages plaguing Canada and the USA, one cannot help but wonder why this has happened.  Coined by Anthony Klotz, a management professor at Texas A&M University’s School of Business, the “Great Resignation” is a phenomenon made popular by Covid 19 where a higher-than-normal number of employees voluntarily left their jobs. Many believe this has created the labour shortages we are currently experiencing. One must ask the question though, how are these people managing to live without an income?

Another phenomenon is called the “Great Realignment”, where employees, looking for greater job security, are willing to retrain for what they perceive as better jobs. The reality is that the pandemic left several segments of workers without work, and for other segments, highlighted the vulnerable nature of their employment. This created a situation where employees, in many industries, reassessed their work options with the hopes of improving their wages, job security and their lives.

Businesses, on the other hand, furloughed a large percentage of the workforce, as business quickly dried up.  Businesses of all shapes and sizes turned to digital solutions, causing many employees to see the writing on the wall. Businesses also were able to operate with fewer employees successfully and profitably, taking advantage of business efficiencies that came to light during the pandemic-led downturn. Many employers asked themselves “Why did we need all these employees?  What did they do?” The retail, service and manufacturing industries were hard hit as a result.  Many furloughed employees took the opportunity to reassess their future and many still today have not returned to their former jobs.

Back to baby boomers.  During the pandemic, many chose to retire from their former employment.  This is permanent, and has created a need for replacement employees. Part of the problem is that the size of the baby boom generation is so large that the Gen X (and to some extent Gen Y) cohorts are simply not large or experienced enough to fill all the job openings. This creates a waterfall effect when older employees retire, they are replaced by younger workers.  The younger workers move up the ranks leaving behind their old jobs.  This partially explains why there are more jobs than workers to fill them.   

The “Realignment” is taking place as employers have realigned their businesses, many of them taking advantage of digital opportunities.  Many employees, on the other hand, are retraining to improve their skills with the goal of realigning with better job security and prospects. In a lot of cases, employers are providing the training to attract employees.  

Another phenomenon is called the “Great Realignment”, where employees, looking for greater job security, are willing to retrain for what they perceive as better jobs.

Wages inflation has just started.  As employees experience higher prices for virtually everything they purchase, wage increase demands are increasing. Many businesses have been recording record profits causing employees to seek higher pay increases. This is the next step in our current inflationary environment.  As central banks increase interest rates to curb demand and ultimately inflation, this adds to the pressure employees are feeling. We are now headed for a wage rate realignment. 

Auto dealerships were designated as essential in the early days of the pandemic. Many dealerships furloughed employees and quickly adopted a more digital approach to their businesses.  With the subsequent supply chain disruptions, many dealerships have also permanently reduced their head count since the business has changed and the need for certain classifications of employees shifted. 

We all know that automotive retail is under pressure to keep up with consumer demands, OEM expectations and government environmental regulation. The dependence on digital retailing solutions and the evolution to electrification have dealers caught in a spin-cycle of change.  Looking into the future, dealerships will have fewer employees. Many of those employees may very well work remotely and be providing services that have not yet been thought of. The emphasis on physical space will change as OEM business practices and terms of trade change closer align with general use of digital capabilities by consumers. 

Consumers will dictate what retail practices they will support. Businesses will need to alter how they do business based on how the customer wants to transact. In many ways this has been slowly happening naturally for about 10 years, but the pace escalated during the pandemic and is now somewhat out of control. The fact that digital capabilities excite the OEMs is one thing, but the fact that digital capabilities excite the consumer is quite another.  The latter point will create pressure at the retailer level for years to come.

I believe we have entered a time where employee productivity is under a microscope. Sure, we always calculated employee productivity and believed we had our eye on the ball, but the pandemic showed us that those former metrics also helped hide employment and process inefficiencies.  We are entering a time where we need to do more with less.  The current economic environment is challenging for us as businesses, but the real impact is being felt by our employees and customers. With a declining labour force availability, we need to be creative.  

Our current situation was quite predictable given the fact that today’s situation was seven decades in the making. The pandemic served to escalate the employment situation but did not create it. 

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Dealers are making money but this isn’t the time for standing still

Amidst all the chaos in the world today, quite surprisingly, the atmosphere at most Canadian car dealers is one of calm.  

Despite the prolonged and continuing supply chain disruptions, Canadian car dealers are taking a measured approach which has remarkably and quite fortunately spread to most of their customers. Staff also seem calm, as do dealer principals.  

The order books are full, so too are the service bays. Business is clipping right along with strong financial performance propped up by exceptional customer loyalty. The question that no one has the answer to is “how long will this last?”

Of greater concern is the behind-the-scenes battle for data. Direct access to customers and their data throughout history have been the domain of car dealers. Customer data has been the lifeblood of dealerships. However, two significant catalysts are making big waves in the quest to monetize on future data capture. First, the move to online direct to consumer sales by some brands. Secondly, data from the connected car.

We all read and hear about various brand decisions to go direct to consumer. Some brands are beginning to say they will not sell certain vehicles through authorized dealerships but rather are seeking new business arrangements.  

New brands are emerging to facilitate this shift. On the surface, there are two wild cards at play here. Firstly, will the vehicle customer, en masse, shift their buying preference to online? 

The implied assumption is that if an OEM provides that choice, all potential consumers will avail themselves solely of that option. Secondly, all vehicles, regardless of propulsion, will require local brand representation to service customers throughout the driving life of their vehicles.

Once the new vehicle purchase transaction is completed, no matter how, the OEM has always had the ability to create customer data at the time of vehicle warranty registration. 

Leaving the potential evolving business relationship to another article, the attraction to OEMs is only made possible by comprehensive data capture. 

They can certainly access and manage the data from connected vehicles, since it would be quite conceivable that this function will be built in at the vehicle assembly stage. The mass consumer movement to online automotive retail is another matter altogether.  Customers seem to enjoy the online-offline nature of omni-channel. They like the control and being able to shift back and forth as they desire during their purchase journey. 

Once the new vehicle purchase transaction is completed, no matter how, the OEM has always had the ability to create customer data at the time of vehicle warranty registration. 

Keeping that data population current has historically been the challenge since customers and vehicles have the propensity to move around. Therefore, logic would say that OEMs need to have access to service customer, vehicle performance and driver behaviour data to be able to fully monitor the situation. This is not an easy task.

So, what could be ahead? 

For decades, the Dealer Management System “DMS” has been the cornerstone of dealership data capture. Some OEMs have in the past mandated that all their authorized dealerships use the same DMS to simplify the data exchange between dealerships and OEMs. 

In recent years, for a variety of reasons, some OEMs have expanded their list of authorized DMS providers, choosing to focus on the process of data exchange rather than the DMS itself. In this way, dealerships then had the choice to choose one of the OEM’s authorized DMS providers that best fit their organization. The advent of dealership consolidation also made single-source DMS by OEMs very difficult and costly for consolidators. 

Moving forward with the importance and possible monetization of start-to-finish data capture, OEMs have no real option other than to get into the DMS game and exert some control over the retail side of the business. This will not be met with open arms by authorized dealerships, unless a mutually beneficial and cooperative approach is adopted. 

Consolidators, in many ways, are already doing this at the retail level, however accessing the data from connected cars becomes a new challenge.  

“Customer-centric” has been a term used to describe organizations that put the customer at the centre of what they do, and the only focus of procedures and processes is aimed at providing exceptional customer experience. 

The pandemic created a new customer, and as a result, dealerships led the entire industry by responding quickly. The resulting supply chain issues then seemed to come out of nowhere to present new challenges to all vehicle brands. When combined with the change in economic indicators like inflation and interest rates, the business of moving forward will be challenging. Add in the climate change initiatives led by vehicle electrification and government mandates, and the future will be extremely challenging.  Many balls are in the air for traditional vehicle distribution that must somehow all join forces to create the opportunities of the future.

Although dealers seem calm on the outside, many dealers are not so calm on the inside. I believe this is behind the surge in dealership M&A activity. With the uncertainties of the future, some dealers have been heading towards the sidelines to capitalize on the rewards for their years of hard work. No one can blame them for looking after their families. Fortunately, there are still many buyers that believe in a strong future, and see these current times as full of attractive opportunities. 

Automotive retail has always been exciting, and once it gets into your blood, you are hooked forever.  

I believe the future of retailing will be as exciting as it has been in the past. Although there are currently many moving parts and pieces, these will be ironed out over time to create the next generation of auto retailing.  

Dealers are true entrepreneurs and have always adapted. Customers need their vehicles; this will not change. So, is today the calm before the storm? I don’t think so. I think today is the calm before future opportunities arrive.

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