LOS ANGELES — The single biggest risk to the dealership system within the next decade will be the convergence of mobility services with autonomous vehicles. That’s the conclusion of a new research project commissioned by the National Automobile Dealers Association.

The study, “Dealership of Tomorrow,” was conducted by automotive consultant Glenn Mercer, who shared some of the study’s key findings on Tuesday at AutoConference LA. The goal of the project was to look at what the automotive landscape will look like in 2025 to stimulate long-term thinking and planning among dealers.

“If mobility services converge with autonomous vehicles — and in doing so succeed in breaking that age-old bond of ownership between Americans and their cars and trucks — that would change things dramatically,” Mercer said, adding that that scenario is unlikely to happen.

However, the consultant urged dealers to keep tabs on ride-hailing services like Uber and Lyft, noting that their ability to build autonomous fleets and successfully gain mass appeal for that type of service is worth following. 

The study gathered responses from a wide-array of industry professionals, from dealers and consultants to vendors and automakers. And their opinions ranged from “[there will be] no change at all” to “Why would a dealership even exist of Amazon could just deliver a car via drone to your backyard?” However, they all agreed that the industry will change over the next decade. They also agreed that that change won’t be as drastic as some market watchers have predicted, especially when it comes to the franchise model.

“The likelihood of the overthrow of the franchise system remains very low," Mercer said. "There has been a lot of talk about this and a lot of assertions and blog posts about it, but if you actually look at customer satisfaction on transactions, it’s at a historic high.”

Mercer did say the industry could see more vehicle manufacturers testing out the direct-to-consumer model, especially among luxury vehicle makers. However, he estimated that direct-to-consumer sales will still amount to less than 10% of retail volume.

The industry should also see slow but steady growth in electric-vehicle sales, according to the NADA’s study, while penetration of autonomous driving should accelerate over the next 10 years.

Mercer said the market will also see slow but steady dealer consolidation, with the consultant noting that the dealer count should fall from its current level of about 18,000 to 16,500 by 2025. A reconfiguration of store economics is also expected, the consultant said.

“There’s a wide dispersion of opinion here, with some people predicting the apocalypse and saying there will be 5,000 stores left in 10 years,” Mercer said. “We just don’t see how that matches against the dispersion of the American public across the country, where you end up with dealers being an average of 150 miles away from customers.”

He added that the number of actual dealership locations isn’t expected to drop by much, with his research indicating that dealer satellite service outlets are expected to multiply over the next decade.

As for the sales rate, the study found that most industry watchers believe it will begin to slow by 2025. Volume will still be around 17 to 18 million units a year. However, since the population is expected to grow within the next nine years, selling the same amount of vehicles nine years from now will be comparatively less than it is today.

The study also concluded that customer satisfaction will emerge as an even more important metric. Margins are also expected to shrink, with study results showing that most industry watchers expect dealers to move away from negotiated pricing, Mercer said. If that prediction is realized, dealers will need to find new way to drive up volume, he added.

“Life after margin,” Mercer said. “One key to survival is strong growth in service revenue, with fixed absorption rates of 110% or more.”

Originally posted on F&I and Showroom