Things are moving quickly, and dealers need to study it carefully
As we usher our 2018 and roll in a new year, I sit back, and ponder the events and circumstances of today.
I can never remember a time in my career where so many aspects of our businesses are in a state of flux.
As dealers, we like stable, profitable growth. Sure we operate in a cyclical industry, but the long-term trend has been fairly stable.
It’s hard enough to run all the businesses we operate under our dealerships’ operating umbrellas, but when the very foundations that we have relied upon begin to shift, anxiety begins to set in.
Many dealers I speak with are really beginning to question the future. For many, especially older dealers, the discussion always gets around to dealership and related real estate values in the future, and whether those values have peaked and whether it makes sense to take some chips off the table now.
Every dealer states that the business today is a lot tougher than it was even five years ago. On average real estate investment has soared for the average dealer, and with it all the related financing and operating costs on a month in and month out basis. There is genuine fear that the business will get much harder and tougher in the future.
Being on the street, dealers feel the changing tides of the retail consumer faster than OEMs do. Dealers take the retail pulse of their market in real time each and every day. No one has to tell them what their market is up to — they know.
Dealerships are franchises and, as such, must carry the flag of the brands they represent. This is not always easy, especially when the pulse in the showroom and service lanes seems out of sync with the brands’ view of how the markets should be acting and responding to their product offerings.
New vehicle sales targets get larger, new vehicle inventories also get larger and the costs to carry and move that inventory also get larger.
The discussion becomes somewhat strained when the topic turns to OEM direct-to-consumer possibilities. New models like Genesis at Home, Care by Volvo and various luxury brand vehicle subscription offerings make dealers ponder about what their role might be in the future.
Much is being written about the future of auto retailing, the future of driving, the future of mobility, call it what you will. There are literally hundreds, perhaps thousands of enterprises claiming to have a lock on future coordinates of auto retailing.
Much of the “innovation” today surrounds vehicle subscription. To understand the various offerings, one must look at the foundation principles behind the specific offerings.
Much of the “innovation” today surrounds vehicle subscription. To understand the various offerings, one must look at the foundation principles behind the specific offerings.
Many are just offering vehicle leasing under another name. Be it short-term or medium-term, all that seems to be changing is the term. Others talk about the ability to switch in and out of vehicle at will.
In all scenarios, the fact remains that vehicles depreciate, and must be paid for, insured and maintained.
The shorter the term, the higher the depreciation, interest, insurance and planned maintenance. Logic would say a higher price to the consumer. Will consumers flock to paying more for a subscription opportunity than their current cost of vehicle ownership? Some perhaps, but I suspect many will not.
It has been said that leasing is the manufacture of used vehicles. The same can be said for subscription. There is, however, one fundamental difference. Leased vehicle typically have one lessor over the term of the lease, whereas subscription could have dozens.
The vehicles at the end of the subscription life will resemble the rental cars of today and may not be in high demand without significant used vehicle pricing discounts.
Thus subscription vehicles should carry a higher depreciation rate, which, if pricing is done correctly, should result in a higher consumer price.
Probably the most understood subscription model is cell phones. Even with cell phones, the consumer must operate the same cell phone for the entire period of the contract.
But with cell phones, it’s not about the phone itself, it’s about the other revenues that can be generated from the cell phone’s usage.
Time, long distance, streaming services, data usage, to name a few, all provide significantly revenue opportunities that eclipse the sale of the phone itself. Will the same thing happen to vehicles?
The connected vehicle presents the possibility to generate additional revenue streams based on the usage of each vehicle. The data that could be collected, and I suggest will be collected, will have significant value.
Data like your driving patterns, starts and stops, shopping locations, phone usage, infotainment system usage, images, state of vehicle repair etc. all become accessible from a connected vehicle.
The existence of those data points becomes valuable and someone will benefit financially from that information.
It likely will not be the driver. It might not be the vehicle owner. Some of that data could be of value to dealers, but will dealers have to pay to access that data? Who will own the data?
If it is the OEMs, will they include that data free of charge to its franchised dealer network? What if the data does not belong to the auto industry but to 3rd party vendors? What then?
VW in Europe has apparently rewritten the dealer agreement and plans to introduce it in 2020. According to articles that I have read, the dealers will share in new revenue streams enabled by the connected vehicle. These revenue streams seem to be limited only to traditional automobile repairs which previously were done at the dealership and now can be completed wirelessly direct from the manufacturer to the vehicle without the need to visit a dealership.
Although we are early stages in the transformation of mobility, I encourage you to stay alert and listen to your vehicle brand carefully and intently to gain insight into where they are headed. At the same time, I also encourage you to watch what 3rd parties are up to.
