Amidst so much uncertainty, there are many unanswered questions for dealers, OEMs and consumers
Over the past few months I have been asked, more often that ever before, for my views on what I am seeing in the marketplace.
There is not a conversation with a dealer, OEM representative, banker, industry supplier and even friends and family that does not get around to the evolving world that surrounds us.
From a dealer perspective, I see lots of creativity and excitement as dealers use their entrepreneurial energies to keep pace with brand, consumer and staff expectation.
Unfortunately, I also see a lot of the same old, same old. There is no question that all dealers feel a heightened anxiety these days given all the hype around the massive changes that are touted to be just around the corner.
Some dealers channel this anxiety in a positive way and use it as fuel to ignite their commitment and creativity. Others do not. Then there are dealers in both camps acting quite confused.
The vantage point that I have is from speaking to a number of dealers and general managers on a regular basis. This is partly through my role as an instructor and facilitator in the Automotive Dealership Management program through the Automotive Business School of Canada, and though my client and industry engagements and events.
There are many creative dealers who are responding to the needs of the changing consumer and ongoing demands from the brands they represent.
The Consumer Electronics Show was recently held in Las Vegas. It was dubbed as the world’s largest auto show with companies showing their automotive ingenuity and creativity.
Dealer groups have the resources and deeper pockets to take on additional innovation and in some ways have an advantage over smaller dealers. Dealer groups can afford to experiment with initiatives like home or office delivery, home service, subscription initiatives, used vehicle initiatives, robust Internet initiatives and BDC activities. Some are beginning to carve out online sales and operations as its own department with its own personnel.
Smaller dealers do not have the critical mass and resources to undertake such initiatives in a meaningful and profitable way. That’s not to say the smaller dealers are not being innovative.
Some dealers are being quite successful with online selling and online used vehicle management. Some are enhancing customer relationships through texting directly with their customers, especially service customers keeping them informed of the progress of the repairs.
In so doing they continue to build lasting customer relationships within their communities that smaller dealers are absolutely world famous for. The dealer community, as a whole, is keeping a distant eye on future trends but instinctively keep more of a watchful eye over day-to-day operations.
Automotive manufacturers, on the other hand are having a very difficult time. Having just come back the Detroit auto show, it’s obvious that global automotive manufacturers are struggling with keeping the present moving forward while at the same time laying their bets on the future.
No one wants to be left behind. Automotive manufacturers have a very very difficult task.
As transportation and mobility demands evolve, they must not only maintain their current level of activity, they must also spend significant research, development and capex to build for an uncertain the future.
At the same time, since most of them are publicly traded entities, the markets are being very hard on their stock prices.
Today it’s not enough for an automotive company to make a significant profit. That does not seem to move the stock price. The market is looking for innovation and new technologies that will indicate the direction of the company as it prepares itself for whatever the future happens to hold.
The market is very interested in new initiatives driven by technology even though the regulatory future is quite foggy. This is causing much discussion, in my mind prematurely, about self-driving vehicles. That seems to be the love child of the markets. To gain access to the necessary capital and to reward shareholders, automotive companies must talk that talk even though the world is not prepared to walk that walk.
The Consumer Electronics Show was recently held in Las Vegas. It was dubbed as the world’s largest auto show with companies showing their automotive ingenuity and creativity.
All claimed to be the answer for the future. Many of these companies, I should say most of these companies, are not automotive and are either an engineering or technology play — or a combination of both. Many have raised huge amounts of capital. Investors are looking for potential game changing solutions. Some of those investors are in fact automotive manufacturers.
Many of the cartoons and comic books that some of us enjoyed many years ago are in fact coming true.
Innovators are developing individual flying machines, drone capabilities that seem limitless, and electric semi-autonomous and autonomous driving features.
Some companies are calling vehicle interiors a second living room and are betting that the in-vehicle space will become a social hub in the driverless world.
Robots were everywhere claiming to be able to do just about anything.
There’s no question that a theme at CES is to eliminate the driver. They want to convert what are currently drivers and passengers into active users.
Those companies are projecting very different vehicle interiors and vehicle Internet capabilities taking full advantage of the connected world and showing what they believe is the future of driving.
There is much research, development, and regulatory challenges before the world gets into mass autonomous vehicles.
I acknowledge that in certain geo-fence areas and in certain countries with limited transportation legacy and government support, electric vehicles and semi-autonomous vehicles may quickly give away to fully autonomous vehicles to solve many social problems.
In North America, however, and particularly in Canada, I believe that electric, at some point in the not too distant future, will become viable.
Semi-autonomous features, not limited just to electric vehicles, will continue to find their way into the vehicles being produced into today’s internal combustion engines (ICE) propelled vehicles. The goal of making transportation safer by reducing accidents and eliminating deaths has taken hold and will not go away.
There are tremendous short-term implications for today’s auto dealers. Dealers must continue to provide creative experiences for customers and maintain extremely high levels of satisfaction.
As for the buy-sell world, I see current activity continuing. I do see a significant shift in why and how dealerships are being acquired.
The finance community in recent years has the catalyst basically open their vaults to dealer groups.
Today groups are being very strategic in their acquisition process. Although some transaction values might seem extremely high, in a world of relatively cheap capital and limited top quality opportunities, those acquisitions that are deemed to be strategic will garner above average transaction prices.
This this in itself is nothing new. However, for those transactions which are not deemed to be strategic and are based solely on the likelihood of producing a desirable return on investment, transaction prices will fall. Downward pressure will be exerted on future selling activities for certain brands in certain markets and in certain locations.
For those dealers that are single point, and there’s roughly 1,600 of them in Canada, the decision must be made today to either get bigger or try to weather the storm that’s coming on your own.
Many dealers will choose to sell their stores and realize on the gains of their real estate and perhaps some goodwill. This will drive the acquisition market for the foreseeable future as the long-term winners will be those that possess the capital, resources and brand portfolios to aggressively compete in their local markets in the future.
Dealers must continue to provide creative experiences for customers and maintain extremely high levels of satisfaction.
The world is changing and change affects all of us each and every day. It always has. I don’t buy the argument that the dealership world hasn’t changed in 100 years.
Sure the franchise model has been in place for a long time. Dealers, however, are innovators and as such are continually improving.
The dealerships of today are not the same as the dealerships of yesterday. They are businesses focused on attracting customers in the way customers want to be attracted and handling customers in the way the customers want to be handled.
Certainly there are inconsistencies and not all dealers perform at the same level.
From here on, however, the advantage goes to those who have the resources both capital and human to continually re-invest and innovate, as this industry evolves on the back of transformative innovation.
