Changes to the auto industry can’t leave retailers behind

Seismic changes to the automotive industry have done little to dilute the vitally important role played by dealers, according to Steve Young, writing in Cox Automotive’s Insight Quarterly.

Stories of consolidation, shifting manufacturer strategies, and the ongoing agency model debate have only underpinned the crucial role dealers continue to play in the sector’s evolution.

ICDP Managing Director Steve Young said: “What these stories highlight is both the opportunities and challenges in automotive retail. A simplistic approach adopted (with expensive external ‘expert’ advice) by some OEM brands and disruptors like Cazoo towards retail has ignored the critical support provided by dealers to keep the wheels turning.”

Young thinks some manufacturers have mistakenly thought the “customer journey” and all buyer needs can be managed by a few “rigidly defined processes”.

“In reality, there are probably more types of customer journey out there than we could ever imagine.”

Digitalisation has brought with it a new need for skills and investment as well as the chance to get better answers about the customer journey from larger volumes of data – Steve insists.

Cox Automotive Insight Director Philip Nothard said: “Despite challenges from manufacturers and online retailers, dealerships remain essential due to their customer-facing role and core functions like aftersales support. The key to success lies in adapting to changing customer needs while proving value to manufacturers.”

Steve Young thinks the dealer is essential to any physical interaction with the car unless technology develops that means “sealed for life” cars that never crash.

He said: “The dealer handles the used car in whatever way the broader system demands. That might be buying it in for resale at risk or acting as a service provider to prepare it for a second or third lease by the manufacturer. Still, again, some elements of inspection, logistics, preparation, and remarketing will always be required as long as the first owner does not keep a car for life.

That interactive role, which is key to the administration, registration, and handover of the car to customers, has become ever more important as vehicles have become more technologically advanced, meaning more customer support is needed. Steve Young thinks the debate about the dealer’s role must consider these elements, especially when the agency model has yet to prove itself as a viable alternative to franchise.

He added: “Nobody believes that you can avoid having retail outlets in some form (including Tesla, Nio and the other direct players), so the debate is not about the need for ‘dealers’ but about the need for a manufacturer to mitigate risk through the wholesale stage, and whether a network of 100-plus dealers operating largely independently of each other can achieve a better outcome in terms of volume and net pricing than through a centrally-directed approach.

“Overall, the need for dealers is key, and the opportunity to get a reliable return on investment is well-proven. That is what drives the giants like Lithia, Penske and Group 1 and brings them to Europe.”

Philip Nothard echoes Steve’s thoughts on the evergreen importance of dealers, noting: “Dealers have a choice in this unfolding landscape, in that they must continually prove to OEMs that they are worth their salt and here to stay. That physical interactive element will always be with us – and will no doubt serve as proof of their importance, no matter the industry developments we are likely to see.”

Read Steve Young’s full article in Cox Automotive’s Insight Quarterly here.