Dealers – In the future, will your OEM still be your partner?

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James Carter

James Carter
Industry Columnist

Automobile manufacturers have established dealerships as retail partners to sell their product to the people for that last 100 years.

Dealerships were able to take advantage of local knowledge and connections to sell, service and supply parts for their vehicles. As the dealership model has matured, operations have become more sophisticated. Still, the basic business model has remained remarkably unchanged despite the century of progress and innovation.

Today, OEMs control a very significant portion of what the dealership does and how they do it. More than 90 per cent of parts stock, 100 per cent of new car sales, many of the used cars, the detailed sales process, service compliance, parts ordering, the look of the facilities, supply of many product and services for the business office and who can forget the setting of allocation and targets.

Your friendly district sales manager (a position I held for years), district parts and service manager, customer satisfaction rep, marketing guy, senior management and the overseas expert from head office all come by to make sure you are in compliance and hitting target.

It’s a wonder dealership management can catch a breath sometimes.

Despite these challenges, the arrangement has worked well. Dealers benefit when OEMs build great vehicles backed by solid advertising, and manufacturers benefit when dealers help establish brand strength and develop successful retail footprints in local markets.

However, as we move towards new mobility, the fusion of electric powertrains, autonomous technology, connected vehicles and a changing retail landscape, the world for dealerships will change significantly.

Consumers will also push these changes as they look for a better way to do business due because of unfriendly customer satisfaction processes, particularly on the sales side.

Brave New World
Many manufacturers are exploring new ways to do business. General Motors, Toyota and others have invested in car sharing start-ups while others are looking at technology in the ride hailing and minibus transit routes.

Ford has even invested in a bike share company.

Stirring the pot even more has been the network expansion of Tesla. The OEM owns all its stores and follows a direct-to-customer approach that has infuriated dealers and likely left many OEMs wondering how they could pursue similar opportunities.

On the fixed ops side, one major OEM is rolling out direct-parts shipment from warehouse to customers and new ideas to streamline service process for customers are now being studied.

All these OEM investments in new mobility have the potential to significantly hurt future dealer revenue, sales, margins and gross profits. But no OEM has come out and clarified publically to dealers that they are an essential part of the automotive manufacturer’s business plan going forward.

Nor do I think have OEMs set a clear vision on what the future of automotive retail will look like. Still, dealers are being asked to invest tens of millions of dollars in new facilities without any assurance that their investment will be worthwhile.

This is especially disconcerting considering that the average amortization for a new facility is 15 to 20 years and most analysts are forecasting that the automotive landscape will look vastly different by then compared to what it does today.

Any dealer who has opened a new store within the last five years or will open one shortly, is exposed to significant risk from industry and technology advancement.

OEM Assurance
As OEMs control so much of a dealership’s operations, it is their responsibility to take the lead and clarify with their dealer body the future of retail automotive. I think they need to give dealers assurance that their faith and investment in them is for good reason.

They need to prove their investments in new mobility are complementary, and even a guide for the dealership operations of the future which they will be involved with, and that the coming changes do not leave them in the dark.

It is extremely important for every dealer to approach his OEM and ask how they will be relevant in the future.

The standard: “You’re a dealer, you’ll be fine” answer that I have heard dealer principals being fed is no longer good enough and does not recognize the size and scope of change before us.

Dealers need assurance their OEM will not leave them high and dry and will be a staunch and solid partner moving forward, particularly if there is significant investment involved. Automakers should also help their respective networks better understand how their business will operate in the long term.

Make no mistake, whether OEMs and dealers like it or not, great change is coming soon to automotive, and especially to automotive retail.

Dealers who are not committed to new mobility in the long term have now passed the window of maximum Blue Sky returns as the industry begins to soften.

While a return on sale is still reasonable, if you’re in the business now, essentially you’re committed to the long term and that means a commitment to the business, and it also means an owner needs to know that their OEM is committed to them.

If you haven’t asked your OEM what the future looks like, put it at the top of your to-do list today.

James Carter is a 20-year automotive industry veteran and now serves as principal consultant at Vision Mobility, an automotive and mobility consultancy specializing in autonomous vehicles and future automotive planning; in sales, marketing, branding, product planning, dealer development, sociographic trends and infrastructure planning. He can be reached jcarter@visionmobility.ca