Should the axe be taken to dealer networks – and will it happen?
Last year, when we published the latest edition of the European Car Distribution Handbook (ECDH) I wrote about the slow pace of change in the size of dealer networks over the years since the end of the Global Financial Crisis. Some conversations in the last couple weeks have come back to this subject, not so much about the principle of reducing dealer density, but about the timing and the risks.
Dealers serve three primary purposes for retail customers from the perspective of an OEM – to support the sale of cars to retail customers, primarily new, but also the remarketing of used cars of the brand, to provide aftersales support that drives OEM parts business, and to provide marketing visibility for the brand through their premises and local activities such as pop-ups and community relations. Our view is that without dealers, the ability of manufacturers to deliver the new car sales volume they want, to have a supportive channel through which their used cars can be sold in a way that protects residual values and therefore the ability of the manufacturer to offer competitive financial deals, and a closely aligned repairer network that almost exclusively uses OEM parts would be severely compromised. In a world where buyers are conducting extensive online research before approaching dealers, it is arguable how much effect physical dealerships (and lots of them) have on creating brand awareness and the initial online interest, but the first three arguments are powerful arguments for dealers.
What we think though is far less important than what customers think and want. Many suggest that customers do not need or want dealers, and perhaps that day will come, but there is no indication in our consumer research to suggest that day is coming in this decade. That shows that 77% of new car buyers want to visit a dealer at some point in their buying journey, and that almost 90% still want to have a dealer involved in their next car purchase. Under 30% anticipate that in ten years’ time there will be no need for them to physically visit a car dealership. Even some who had experience of buying a car entirely online would prefer to have a dealership – one focus group participant said “I have bought a car online before, but you can’t beat physically touching the car before buying.” One compared the current manufacturer/dealer partnership to a football team, saying “never change a winning team – I can’t imagine anything better at the moment.”
In the industry, we all know that there is a lot that can be done to make the team perform better, and that we will need to do so if some of the other customer expectations around a seamless journey from online to in-dealer are to be achieved. This will require more investment in digital channels, new retail systems, a single view of the customer accessible to all players in the network, and much improved management of the new vehicle supply chain. We will also need to attract, train and retain the staff who have the skills to work in this very different environment.
That all takes investment and time, and physically large dealerships that are often over-specified in terms of their fit and finish, working to standards that drive in costs that do not add value to the customers, all create barriers to change. When this is multiplied by 100 dealerships when half or two thirds would still meet the customer requirements for drive-time, then the problem increases, diverting investment and operating costs into areas that are less important to customers – and have been for almost fifteen years according to ICDP research dating back to 2008. When you also consider that every one of those locations employs staff who need to adapt their working methods and reskill, then the barriers to change extend from financial to human.
I do not suggest that the process is a simple one – network reductions on spreadsheets are easy, doing so in practice is more complex at human, financial, operational and legal levels. Aftersales coverage needs to be maintained in some form to retain the customer relationship and continue to support the parts business. Customers who have two dealers within 30 minutes of them, may still not be willing to cross the river or take a busy motorway to get to the alternative if their preferred one is terminated. An owner-operator in a small town doing a low volume of sales may look like an easy target on the spreadsheet, but if they are willing to work within a new omni-channel framework so their customers have the same choices as any other, should we worry if those customers continue to shop locally and physically?
ECDH lays out the challenge – of networks that are far larger than are needed to meet customer needs in most markets, for most brands, and whose scale has not been meaningfully addressed in most cases for a decade. It does not lay out the solution, but as an industry, we should recognise that OEMs, most dealers and customer relationships will benefit from taking large amounts of fixed costs out of the traditional networks, and refocusing our efforts on a smaller number of investors and sites, with smaller footprints and a better balance of physical and digital capabilities. Some might describe that as an ‘axing of dealer networks’, but I would argue that it is more of a long overdue ‘keep fit’ regime needed to get back to match-winning form.
More information on ECDH is available here or contact the ICDP project office