Pub. 58 2017-2018 Issue 1

32 vehicles) the combination of multiple issues, colliding with strongly-held opinions, based on very scanty data resulted in a complex story. There are few easy answers or “soundbites” in this document. PriorWork Before we dive into the current report, we’ll recap what we thought about the Dealership of Tomorrow back in early 2013, when we completed the Factory Facilities Programs (FFP) report. In that work we focused overwhelmingly on facilities issues, specifically on how factory “image” programs might pay off – or more typi- cally, not pay off – for dealers investing in them. But one section of that effort looked at the dealership of the future, if only briefly. This was because one could hardly evaluate the Return on In- vestment (ROI) of building a new store, if one thought stores in the future would be radically different. (For example, the ROI of opening a new bookstore looked a lot worse after Amazon arrived on the scene, than before.) So we did some research, in- terviewed some people, and came up with some perspectives. It may be helpful to recap the findings here, so readers can see how thinking about the Dealership of Tomorrow has evolved in just the last few years. (The next three sections are excerpted directly from the FFP report of 2013, so if you’re familiar with that work, feel free to skip past them.) The Past One way to forecast the future evolution of dealerships is to just lo1ok at actual historical facts. If we can see how dealerships have changed since 1950, we might be able to extrapolate that change trajectory to 2025. So let’s step back from the future for now, and see how far we have come. We’ll choose as an arbitrary start date for this journey the mid-1950s. How can we characterize the dealership of the 1950s? Well, on the following metrics: • Number: in 1955 there were some 41,000 new-car stores in the USA… • Size: selling about 150 new retail units annually, from an inventory of about 40 days of sales… • Consolidation: under the control of some 35,000+ owners (basically one per store)… • Brands: handling usually one major OEM (e.g. Ford) but filling in with a few secondary brands… • Service: with fixed operations contributing about a third of annual profits… • Location: and the whole thing usually sited on a major downtown street… • Integration: with new, used, parts, service, and F&I typically all on site… • Balance of Power: and with the OEM pretty much in charge of the show. 2 The Present Now we fast-forward to 2015 or so, about half a century later. What has happened to US dealerships? • Number: from 41,000 we have shrunken down to about 18,000 dealerships… • Size: yet with growth in total sales the average store now sells some 650 new units annually; but with the proliferation of models the average days of inventory have risen from 40 to 60… • Consolidation: and there has been significant shrinkage in the ownership base, with the typical dealer principal owning several stores in a local region (but on the other hand the national chains have not swept the board)… • Brands: while dualling has been dramatically reduced, as OEMs move to mostly exclusive-to-one-factory stores… • Service: and fixed operations are contributing even more: about half of annual profits… • Location: while most stores have moved out from downtown to the suburbs…. • Integration: and some dis-integration has occurred, with only 1 in 5 stores now having an on-site bodyshop, and administrative and other functions are moving off-site as well… • Balance of Power: while, thanks to the efforts of dealers, state associations, and NADA, the balance of power between OEMs and dealers has becomemuchmore even (while consumers, thanks to the rise of the internet, are gaining more power relative to both dealers and factories). The Future Taking all this into account, here’s the forecast for the dealership of the future, perhaps in the year 2020 or 2025, which we came up with back in 2013. (The symbol ► indicates wherewe are showing a recom- mendation , rather than a forecast .) Characteristic Past(1955) Present Future(2025) Main Physical Features Number of dealers* 41,000 18,000 about the same Size (annual NVR) 150 650 1,000 Consolidation None Nat’l low, local medium Region mid, local high Showroom/sales Glassed-in storefront Inventory ~40 units Salesmen, brochures Highly brand- customized Inventory ~60 Salespeople, internet ► Flexible “box” Inventory ~40 “Virtual reality” Service 1/3 of profits On-site Generic 1/2 of profits Express service emerges Comfortable lounges Higher share of profits? Satellite, pickup, shuttle, etc. Advanced technology All other functions On-site Body shop (BS) offsite BS, all admin offsite Dominant location Main Street Suburban auto mile Diverse locations Format flexibility High (change the sign) Low (raze and rebuild) ► High (low-cost customization) Life of format Indefinite/long 10-15 years (remodel) ≤ 10 years Other Features Brands From many to one Store one, group several Store one, group many Consolidation None Several national chains Many regional groups Numerous local groups Many single-points National chains – unchanged Reg Function of store Dealer (margin) Retailer (back end money) “Company store?” 3  DEALERSHIP OF TOMORROW — CONTINUED FROM PAGE 31 2 Numerical data are from various Automotive News annual data editions; comments are the author’s. 3 Meaning not a store owned by the OEM, but one owned by the dealer yet controlled in most aspects of operations by the OEM – thus closer to a fast-food franchise than to a fully independent business.