Pub. 58 2017-2018 Issue 2

45 WINTER 2017 bundle” that reduces the focus on the one-off sale, and moves it to longer term relationships, across more touchpoints. Neither OEMs nor dealers are well-prepared to handle this transition today • Dealers will lose share (or at least the customer relationship) to online channels in all parts of the business as existing major e-commerce players and new entrants muscle in on car sales, service and F&I, leveraging their broader relationship with the customer across other product categories. Insights for theDealershipof Tomorrow in theUSA If the European experience is any indicator of the future for America (and it may not be): • Expect the general rate of change to remain high: this is a global phenomenon. Change in other retail sectors is happening faster, and consumers will soon demand change to align with their broader experiences of the digital world. Dealers will have to evolve quickly to compete. • Decide now if you want to be a consolidator, or be consolidated: there will be room for large chains, and maybe small rural stores, but dealers in between may want to “go big or go home.” • Don’t panic about company stores: OEM-owned dealers are no threat… other than to themselves. OEMs generally have not proven capable of operating stores better than independent dealers can. • …but indirect control by OEMs probably is. OEMs will continue, mostly through the use of IT (both to reach in to store operations and out to customers), to try to exert more and more control. • If Europe is any predictor, any trend towards true BTO will be modest, as customers choose to “Buy It Now.” This implies that the inventory burden will not be falling soon; we’ll still need a lot of land. • Dealers must put an emphasis on pursuing parts and service work as the total market shrinks: on the one hand other profit sources (e.g. new cars) are eroding, and on the other the independent competition is getting stronger: dealers need to do more than add service bays. • OEMs and dealers should cooperate to win back customers who have migrated to third-party online services, and thus rebuild their value proposition and so their profits. There is no reason dealers cannot reclaim this ground, lost in large part because they were “asleep at the switch.” Who will own the dealerships of 2025? So let’s say that rooftop count gently declines over the next decade. The next question is, who will own these stores? Our interviewees were completely unanimous on this point: we should expect further consolidation of store ownership, even if there is not as much consolidation of stores themselves. There was less agreement as to how much consolidation there would be. Right now NADA data (which is based on analysis of NADA members, who make up the great majority of, but not all of, total dealerships 50 ) shows that the average owner (whether an individual or a company) owns about 2.2 stores. If we just look at NADA figures, and round numbers to avoid giving a sense of false precision, since ownership numbers are difficult to verify, some 12,000 stores are owned by about 2,500 owners, and then there are about 5,000 stores controlled by sole proprietors, for a total of 7,500 owners. And further consolidation would only be continuing a trend: in 2008 the average NADA owner controlled about 1.8 stores (11,000 stores owned by 3,000 multi- store entities, and 7,500 sole proprietors). So not only have we seen the multi-store owners increase their reach (going from about 3.5 to almost 5 stores per chain), but a drop in the sole proprietors (falling from 7,500 to 5,000). 51 For the full article, read it on: http://thenewslinkgroup. com//clients/articles/TADA/ DealershipOfTomorrow2025Report.pdf 50 If there are roughly 17,000 NADA members, there are probably some 18,000 total dealers, and if there are some 7,500 NADA owners, there may be about 8,000 total owners. 51 We’d like to look further back in time, but there are issues with NADA data comparability before 2008. Certainly we do know that if we go back to 1965 or 1970 the number of stores per owner was pretty much about 1.0.

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