If you’ve been reading headlines lately, you might think that the future of retail automotive is grim. Headline-grabbing trends that spell doom and gloom for auto dealerships include autonomous vehicles, ride sharing, electric vehicles, vehicle subscriptions, and new retail models.
But if you look beneath the headlines, you’ll find little reason to worry about these so-called “disruptors.”
First, it’s likely that most will present more opportunities than not. Second, these headline-grabbing disruptors are at least a couple years away from having a significant impact on dealership revenue streams. Third, these disruptors are just a few in a laundry list of trends and technologies that are changing the way auto dealers are doing business.
More pressing are several disruptive trends happening right now that pose a far greater threat to dealerships’ immediate revenue potential.
Our team recently analyzed 26 industry trends across six broad categories. We examined the impact of each trend on the amount of business potential for dealerships and estimated the timing it will take for each trend to have an impact. We then prioritized the trends into a list of immediate challenges and opportunities.
Our analysis reveals that, in the next two to three years, auto dealers should focus their attention on the following areas:
• Razor and razor blade business model: This business model utilizes a pricing and marketing strategy that sells one item at a low cost. Recurring income is generated by locking the consumer into sales from a complementary product or service. Every vehicle needs maintenance and repairs.
• Communication methods: The lack of integrated texting solutions in auto dealerships today is truly astounding. The ability to communicate with customers using their preferred channels is particularly important in service. Missed calls equate to lost opportunities. Failure to deliver status updates result in frustrated customers.
• Technology: Service-lane technology is designed to increase efficiencies and maximize revenue potential in every process, including service scheduling, write-ups, electronic MPIs, customer follow-up, and retention.
• Lifecycle management: Most dealers know how many vehicles they sold last month, but if you ask them how many new customers they acquired last month? Crickets. The decline in front-end gross margins requires attention to all facets of lifecycle ownership, including service marketing and scheduling. Data is collected and used to build a relationship with each customer. Predictive analytics reveal likely needs so that you can make the right offers at the right time.
• CPO sales: As front-end margins have declined, many dealers have turned to F&I to make up for lost revenue. Unfortunately, the same transparency that impacted front-end gross is expected to erode F&I gross in coming years, albeit at higher product penetrations. The best opportunity to increase gross margins is with CPO sales. As interest rates continue to rise, many consumers will be priced out of new vehicles. Used-vehicle sales and financing will be the beneficiary.
I realize these disruptive trends might not be as glamorous as the headline-grabbing disruptors we read about in the headlines. But if you fail to address these trends now, your store might not be around in a few years — when the impact of other “disruptors” is finally realized.
Scot Eisenfelder is the CEO of Affinitiv, a marketing technology company serving a dozen auto manufacturers and more than 5,500 franchise dealers. Email him at [email protected].