Since the pandemic, selling cars has been one of the most transformed businesses. US-based dealers, who have reduced payrolls and streamlined once again, are seeing record profits. The best of them, the entrepreneurial animals who have embraced the changes in the market, are here to stay.
While the vehicle shortage has forced customers to wait weeks, months or even longer to drive off the lot with a new car, dealers have gained some advantages. In 2020, US dealers’ profits rose by nearly 50% on average, despite sales volume dropping by 15%. These trends are continuing in 2021, fuelled by a vehicle shortage due to a shortage of computer chips needed to make new cars, other supply chain issues, and changing consumer habits.
Dealers aren’t going away; their value to the production and distribution chain is too important
These increased profits come as more consumers are buying cars online or at least doing much of their research online, meaning fewer visits to dealers, or shorter visits to dealers. While dealers scrambled to shift more sales resources to online and virtual models at the beginning of the pandemic, by now they have embraced this sales method, and have been able to cut down on personnel, which has lowered operational costs. Dealers are also making more money than ever because of the high demand and short supply of available vehicles for sale. There’s also much less bargaining going on, which means sales take less time, and dealers are able to sell nearly all their vehicles for the MSRP, if not more.
With fewer cars in stock, dealers may also be able to cut costs further by downsizing their property. Although we have yet to see this happen on a large scale, it is another potential efficiency-driver for dealers.
While these changes are profound, and dealers have benefitted, there’s no guarantee things will continue exactly as they are in the future; OEMs still have considerable power in their relationships with dealers, and may exercise that power in order to get at some of the new profits dealers are earning to offset their own economic woes. Automakers are also carefully studying Tesla’s direct sales strategy, and although such sales are outright banned or limited in many states, manufacturers are hoping that will change in the coming years—at least for certain segments of the market, like electric cars.
This all adds up to a changing role for the dealer. In the past, dealers were the main gateway for vehicle purchases—either as sources of information about models, features and prices, or as the agency to deliver the actual vehicle. But today, consumers can find out nearly everything they need to know about a vehicle on-line—and in states that pass legislation repealing franchise requirements, some consumers are likely to be able to buy vehicles without having to use a dealership at all.
Since the pandemic, selling cars has been one of the most transformed businesses
But dealers aren’t going away; their value to the production and distribution chain is too important. Buying a car is a major investment, and consumers need to be sure that someone will stand behind their purchase and warranty. As many consumers have also figured out, their local dealer has a highly competent staff for tasks like transfer titles and registering with the DMV.
In the future, dealers are more likely to be seen as facilitators, the people consumers go to when they have problems, and on whom they rely to help them as go-betweens with repair shops and manufacturers. To fulfill this enhanced role as consumer advocates and do it efficiently, dealers will also need to embrace new tools, including advanced technologies like artificial intelligence to keep track of a vehicle’s health, alerting drivers of potential problems, assisting with preventive maintenance, and more. This will be especially important in used car sales, which are often more lucrative than new car sales, but also take more time.
If there’s one thing dealers proved during the pandemic, it’s that they are resilient—and adaptable. Dealers can expect more challenges but with the right technology tools and mindset, they will be able to adapt to those changes as well, and continue to thrive.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Jim O’Brien is General Manager, Americas, RAVIN.AI
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