The automotive industry has undergone rapid transformation in recent years, driven by the top-down and consumer-driven shift to electric vehicles (EVs) and the closer customer relationships that original equipment manufacturers (OEMs) aim to foster.
As a declining sector (sunset industry) from the 1970s, this change, coupled with persistent supply chain disruptions and the cessation of domestic manufacturing of new vehicles, has created several challenges that automotive dealers need to address in the coming years. Addressing these challenges will help automotive dealers maintain independence and a competitive edge in the industry’s “sunrise,” where leaner business models and better customer relationships will be central to success.
How to compete in the changing landscape
Dealerships have successfully demonstrated their adaptability to ensure their existence and remain competitive. From pivoting to selling more new cars when the internet become a used car sales tool to selling finance, insurance and servicing, each adjustment has been made while operating within the confines of the existing framework. Unfortunately, each pivot also moved dealerships toward greater dependency on the OEMs, making their survival increasingly linked to the requirements of the OEMs.
Moving ahead, dealerships need to make sure of a few key things:
- that they are still relevant amid changing market structures
- that the OEM is prepared to work with your dealership in the long term
- whether to lead the change for follow as structural changes mature
- grow a strong internal marketing and sales database and system.
Automotive dealers must be agile in FY24 and beyond
There are a myriad of changes ahead for car dealerships in 2024 and beyond. These changes are driven by increasing demand for EVs and operational progress, such as digitisation and business structure improvements to reduce overheads and increase profitability. Below is a summary of the top ten challenges facing automotive dealers and how to address them effectively.
|The challenge||The solution|
|Electronic vehicles||The current process of manufacturing and selling EVs heavily reduces profit margins for dealerships. Internal combustion engine (ICE) and EV sales volumes must be kept at a 3:1 ratio to maintain profitability. You should also align with financiers, electricity providers and subscription providers now, as these will be critical ancillary services as EV uptake accelerates.|
|Moving from franchise to agency model||If the agency model becomes mandatory in some form, stay nimble. Carefully look at the requirements, find creative ways to make it work for your business and make the necessary changes.|
|Maintaining supply in a constrained market||Dealerships need to stock cars and market them to customers. Increasing reliance on OEMs in recent years has made it challenging to maintain constant stock levels. The used car market in Australia is 3.5 to 4 million cars per annum compared to one million new cars. Focusing on the used car market share will be essential to reduce reliance on OEMs and address supply chain risk.|
|Keep facilities current and profitable||Generating profits in the coming years will require higher volumes within a smaller square footage. Is there the capacity to make the site mixed-use or work with OEMs to offer rental opportunities? It’s about looking at different ways to generate revenue from the space.|
|Brand building||The agency model is focused on building an OEM’s brand, not your brand. If you want to maintain a strong presence in the industry, focus on building your brand, growing your customer base and addressing supply chain risks.|
|Customer ownership||The OEMs want to get closer to customers, threatening the current dealership and agency models. Continue making car sales and ownership easy and invest in the customer journey to ensure loyalty.|
|Having a high-performing and profitable team||Paying more money to a smaller but highly talented workforce will be the key, as the front end needs to be highly profitable. To that end, traditional administration roles (accounting, deal processing, registrations) will need to be digitised or outsourced as there will not be the resources to support these roles.|
|Structuring win-win partnerships||Assuming EV vehicle uptake accelerates, dealerships could be operating at 50% of pre-COVID profits. Controlling the ICE to EV ratio will be critical to maintaining profit and market share. Under the agency model, car sales become a pure retail play. This means the lowest cost, highest profile retailers stand the best chance of survival. Collaborating with established retailers, rather than dealers, can be beneficial, as your expertise may align with their needs and create mutual opportunities.|
|Transitioning from sunset to sunrise||The transition is going to be hard. However, those that make it through to the sunrise will benefit greatly. Dealers need to start asking themselves two difficult questions:
Strategic change and maintaining market share are key in the years ahead
Big changes are coming are happening in the automotive industry. These changes will transform how dealerships operate and their position in the industry. Consider the key challenges above and how you can act now to understand how your business can compete in the future. And while these changes are happening, remember the key reason customers return to dealerships: because you make it easier to buy, sell, finance, and service their vehicles. Focus on the core business, reduce supply chain risks and make changes so your business is leaner and more profitable, and you will be sailing into the sunrise, not the sunset.