Pub. 58 2017-2018 Issue 2

28 In Chapter 1 we asserted that cars are still being sold in 2025. The next question is therefore, will they be sold by dealerships, defined as physically existing independently-owned franchises? Let’s break that down into two subordinate questions: will cars be sold in physical stores staffed by humans (perhaps with a large online component, of course, but not purely online), and will these stores be owned by dealers (franchised sales 20 ) or by car companies (direct sales)? Will cars still be sold inphysical locations? Our interviewees (not just dealers but everyone we spoke with) were pretty unanimous about this, that the great majority of cars would be transacted at or by a physical store, even if there was an enormous online component to the processes of shopping, negotiating, configur- ing, selecting, and financing the vehicle. Theremight be at-home delivery, theremight be a test drive conducted elsewhere than at the store, but still the great majority of vehicles would require a physical store. The reasons for this, to use a common phrase, “will always be the same:” • The customer would still want to be able to see, talk to, work with and – if necessary – complain to a person in person, rather than via an app or a call to a customer service rep. Cox research confirmed that about 85% of shoppers want to buy in person, and about 90% would not buy a car without a test drive. 21 (And of course a physi- cal presence is completely unavoidable for servicing the car.) The deal is still too complex, the car too expensive, the variety of colors and features too overwhelming, to leave all this to the internet – for the vast majority of customers. Even for those customers who didn’t need the traditional test drive there was an emerging need for the test “boot” as it were, in which all the advanced electronics features of the car could be reviewed with the customer. Of course, for a sliver of the population, perhaps 5%, who value their personal time in the hundreds of dollars per hour (imagine a start-up CEO or a busy surgeon), a more streamlined “point, click, and drop off” process might be preferred. 22 But it is important to recall that this segment has always existed, and has always been served, either by dealers themselves or by brokers. (Even if those brokers who have moved online have rebranded themselves as tech companies, they remain – at core – brokers. 23 ) • TheOEMs we spoke with also preferred a physical point to exist, in the greatmajority of cases.We can verify that this is the case beyond just the OEMs we sampled, since virtually everywhere around the world OEMs have opted for physical sales points: this is not just an artifact of the American system. (There are minor exceptions, such as European factory-pick-up programs for premium buyers.) Their reasons were the same as the customer’s: e.g. if the customer wants a test drive, or to talk to a person in person, or see the service bays, then the OEM needs to find a way to give these things to them. • The dealer still wants to see the customer: personal interaction can be the deciding factor as to whether to approve the financing, over-allow on the trade, or offer the last $100 off to make the deal. And ironically, it is in part dealers’ adoption of on-line tools and more customer-friendly selling that make it easier for their physical stores to continue to exist. Ten years ago, if the in- store experience was indeed pretty unattractive on average, a customer might see the appeal in an online “disintermediator” 24 such as the original incarnation of CarsDirect. But over time dealers have adopted these firms’ methods and tools, and now can offer customers the best of both worlds: if you want to come into the store, that’s fine, but if you want to enjoy the look and feel of an online application, then the dealer’s website is often up to the challenge, especially if it works with a service (e.g. Roadster or MakeMyDeal) which can bolt directly onto the dealer’s IT. In short, the use of online tools can make the offline store more likely to survive. The popular press may still assume the public wants to avoid dealers, but surveys of the public itself doesn’t reveal this antipathy (especially if one asks younger shoppers, as we show below).  DEALERSHIP OF TOMORROW — CONTINUED ON PAGE 29 Will dealerships still exist? Analogy: The Strange Case of the Disappearing Teller … Who Didn’t. As an example of this surprising phenomenon, whereby more use of technology can actually supplement rather than replace personal interaction and physical facilities, look at the history of ATMs and tellers in the USA. ATMs (automated teller machines) were first marketed as cost-saving devices, by which banks could eliminate human tellers, which they were widely expected to do. In reality what the ATMs didwas free up tellers from low-value tasks such as dispensing cash, so that they could focus on higher-value tasks such as loan servicing. Thus we see no particular decline in teller employment in the USA, even as ATM penetration soared (exhibit 25 ). In a similar way technol- ogy is freeing up dealer personnel from low-value tasks such as filling in forms, so that they can work on more important tasks, such as setting up a swap with another dealer to get a customer a particular car. 20Inthisreportwewilldefaulttocallingindependently-owned dealersfranchises,astheyarenow intheUSA.However,there is another model for independently-owned dealers, known as “agency,” where the dealer does not take ownership of the product, and only acts to sell cars on behalf of the OEM, for a fixed fee. Older readers may recall that Porsche proposed this kind of arrangement in 1984 in the USA, but that it was generally rejected by dealers. Given how low new-car margins are today, and how expensive inventory is, perhaps some deal- ers would like to revisit the concept? It is already effectively in place for most fleet sales. 21 A survey of car shoppers by the Union of Concerned Sci- entists(focusedonalt-fuelvehicles) incidentallyconfirmedthe Cox data: they found about 85% of California buyers would not buy a car without a test drive. (Electric Vehicle Survey Methodology and Assumptions, UCS, May 2016). 22 Opinion remains divided on the long-term popularity of home delivery. It has the benefit of being convenient for the customer,but ithasthedrawbackofpotentially(inadvertently) pressuring the customer. When at the dealership, a frustrated customercanalways justwalkaway.Butwhenthecariscoming off the flatbed in your driveway, and the dealer’s rep is holding outthetabletcomputerforyoutosign,andsomething iswrong (“It didn’t look that shade of green online!”)—the customer can feel cornered. 23 It was fascinating that, when we traveled to Silicon Val- ley to interview dealers who might be considered the most cutting-edge of all, serving as they did the tech sector, even theyunanimouslyexpectedthephysicalstoretocontinue:asone put it, “The algorithm cannot do it all, people are crucial still.” 24 “Disintermediator” is in quotes because these “cut out the dealer” websites actually did no such thing, as they sourced cars from dealers themselves: these firms are again perhaps better called brokers. 25 From “Toil and Technology, “by James Bessen, Finance & Development, March 2015