The longer-term impacts of the pandemic are just starting to manifest. It will be anything but business as usual for automotive retailers.
At lightning speed, COVID-19 completely altered the dealership landscape, forcing franchised new vehicle dealerships to quickly respond. There is no playbook or manual for running a vehicle dealership during and after a pandemic.
At present, we only know that governments pivoted to a full-out health and sSafety initiative that drastically restricted physical distancing and recommended “stay at home” directives for Canadian citizens from coast to coast.
The concept of essential workplaces dictates who can work and which businesses are allowed to operate. These policies have severe short and long-term financial implications.
In Canada, health falls under provincial jurisdiction. Not all provinces are behaving the same way. As such, for dealerships, there is no single source of guidance that covers all dealerships across Canada. Some dealerships remain open, others have closed their new and used vehicle showrooms, others have reduced their service and parts business and others have fully closed their entire operations.
Virtually all dealerships have laid off staff, some only a few employees, but most many. Employees are being hard hit by the layoffs. Some employees are fearful of returning to work given the risk of COVID-19 spread to those vulnerable in their families. Employees will be sporadically called back to work based on skills needed
Customers, with the exception of essential workers, are mostly staying home. Few kilometers are being driven, subjecting vehicles on the road to almost no wear and tear at all.
However, essential workers must keep moving back and forth to work. Lease contracts expiring in 2020 number in the hundreds of thousands. Some consumers are using this time to shop for a new to them vehicle, either new or used. Therefore, there is some sales demand, albeit materially below historical seasonally adjusted new vehicle sales levels.
As a result, excess sales and service capacity currently exists right across the country causing dealerships to each chip away a slice of a much smaller pie.
As devastating as the pandemic is turning out to be, we must remember that this is largely a temporary health and safety situation with unprecedented economic implications. How temporary, is the question of the day.
I believe that the exit from current stay at home directives and restarting non-essential workplaces will be a slow one.
In all likelihood, the return to historical business levels will be through a series of small steps designed to slowly restart the economy. This approach will provide government and health officials adequate time to manage health and safety integrity while providing for the controlled observation of scientific data to minimize the risk of the continued spread of COVID-19. This surveillance and observations could remain for a long time.
Under that assumption, which I believe is a worst case scenario, it is prudent for dealerships to plan and prepare for a slower return than they would like. In this way, dealerships will be better prepared for the longer-term and could balance on a flexible platform to quickly pivot should the return turn out to be shorter than expected.
Experts say it takes 30 days to form new habits. Most Canadians have been at this “stay at home “thing for longer than that. Therefore it’s entirely possible that new long-term habits will form that will have a lasting impact on how we interact with customers going forward.
There is no question that health and safety has vaulted into the forefront of change. Customer safety is being redefined right before our eyes. Customer comfort levels are readjusting as fear takes a higher priority.
CADA has issued a guide: Safely Operating an Automobile Dealership During the COVID-19 Pandemic that does a terrific job covering health and safety recommendations.
Beyond that, what are some of the changes that might affect dealership operations and become part of normal operations in the short and longer-term?
On the retail side of the business we could see:
- Online becomes an increasing part of day to day normal retail operations;
- Showroom layout will be more spread out meaning fewer vehicles will be displayed indoors and work stations will be more strategically located;
- Appointments will become the rule rather than the exception;
- Pick-up and delivery of customer trades and new to them vehicles will become more frequent;
- Video will become a bigger part of dealership communications with customers before, during and after the sale;
- Increased emphasis on selling the units you have in inventory and minimizing dealer trades;
- Less emphasis on attending in-person vehicle auctions and more reliance on virtual vehicle auctions;
- Expanded used vehicle inventory to include older model years to expand used vehicle sales potential;
- Many dealerships will offer money back guarantees rather than test drives;
- Consumer credit could be tight for an extended period and some dealers may want to expand their own vehicle finance operations; and
- In the short-term provincial and federal governments will likely continue to stimulate or incentivise citizens to spend to generate economic activity and create taxable transactions.
On the fixed operations side of the business we could see:
- Loaner vehicles will become more prevalent as customers shy away from shuttle drives and other forms of public transit;
- Customers that do use your shuttle services will demand that shuttle vehicles be visually safe, providing only one transfer at a time, with a protective shield between the front and back seats;
- Increase in vehicle reconditioning as demand increases for older used vehicles;
- Hours of work will shift to facilitate physical distancing taking advantage of under-utilized dealership facility capacity; and
- Pick-up and delivery of customer vehicles will become more popular.
Consumers will not come though this unscathed. In the shorter-term consumers will feel the cash flow pressures from payment deferrals, job loss, reduced work hours, higher prices and higher taxes.
- A new level of health & safety fear will permeate consumers. They will be looking for assurances from dealerships that their concerns are being addressed front and centre;
- Finance programs will be critically important. Consumers are hard hit financially and will have lasting memory of this. Consumers will be looking for finance programs that directly address their concerns and help them rebuild their lives;
- Consumers will continue to embrace online to offline shopping patterns and will favour dealerships that offer this seamlessly;
- Signage will become more important, both directional and instructional and both online and at your dealership; and
- Consumers will seek online video for test drives and vehicle delivery that allow them to go at their own pace and allow them to review over and over to build trust.
Dealerships will also exhibit a change in behaviour when dealing with their brands and the industry.
There will be greater use of video conferencing for regular OEM and Dealer Group meetings. This will limit travel as dealers, managers and staff all grapple with the perceived risks associated with air travel, hotel stays, last mile travel to and from airports and meeting rooms.
With health and safety concerns heightened for an extended period of time, non-travel methods of conveying business messages and team interaction will become more of the norm.
- OEM communications teams and dealer councils will be able to meet more frequently with greater focus. The cost of being away from your store both in real and opportunity costs will be minimized;
- Dealer Groups will increase the number of virtual meetings, being able to offer greater focus with expanded online participation and increasing the ability to deliver consistent messaging;
- Communication with suppliers will also make better use of video conferencing capabilities;
- More training will move to online delivery; and
- Online 20 group meetings will be common.
Life after COVID-19 will not resemble the normal we have been accustomed to.
Many operational protocols and facility health and safety mandates will evolve under the new normal.
Consumer demand will reshape our businesses even more that it has in recent years. The recovery of consumers and business in general and financial terms will have a tremendous impact on what a recovery might look like.
Governments have moved from the back seat to the front seat and are more involved in our day to day lives than ever before. Life after this pandemic will be very different.
