Despite the current uncertainty, there’s still a wealth of opportunity out there for automotive retailers

07 December 2018

Last month, I was delighted to attend and support the annual Auto Retail Economic Forum in London. During the event, speakers including Ford of Britain chairman Andy Barratt and PwC chief economist John Hawksworth discussed the prospects for the car dealership industry in today’s uncertain environment.

Throughout the presentations and audience debates, a recurrent theme was that when it comes to shifts in consumer sentiment, the auto retail industry is at the leading edge. One result of this is that changes in new car registrations have historically acted as a forward indicator of movements in GDP.

It isn’t hard to see why. Buying a car is most consumers’ second biggest transaction after their house. So it’s logical that they approach it with caution – and base the decision on a long-term assessment of their financial position.

Also, credit often tightens as at the top of the economic cycle, leading people to back off from such big-ticket, credit-financed items. Lingering uncertainty about the future of the UK economy post-Brexit will only serve to exacerbate the resulting pressure on car sales.

Against this background, the headline sales figures for 2018 don’t appear to give much cause for optimism. New car registrations in the UK have been trending downwards. And while used car purchases have held up better, they’re still below the prior year.

What’s more, the dealer industry is facing a blizzard of change. These range from the demonisation of diesel to the explosion of customer data, and from the rise of electric vehicles to the shift towards “Mobility as a Service” (MaaS) through the likes of Uber.

Together, these forces underline the need for dealers to continuously revisit and evolve their go-to-market and operating models. In some quarters, the pervasive change has led to doom and gloom about the industry’s future prospects. My view is that the predictions of the tough times coming from structural trends are being overdone, at least in the short term. These changes will be transformational when they arrive, but will have their main impact after 2020.

Among the changes now underway, the key long-term issues for dealers include:

  • “Demotorisation”, particularly of young people, which puts pressure on car ownership. However, given the continued need for mobility, this demand will increasingly shift to B2B (such as selling vehicles to Uber or a car-sharing provider), or B2C2C (peer-to-peer car-sharing, for example), with the car being part of “MaaS”. The impacts of these shifts will drive dealer volumes and profitability, and they will play out in the medium term.
  • The ongoing change in customer journeys, with the OEM taking larger role. While much of this has already taken place, the knock-on effect on dealers’ margin and compensation models will take longer to arrive.

While change always brings some risks, today’s trends will present many opportunities to those dealers who make the right moves in response. One indication of this was a research finding from Auto Trader presented at the forum, showing that 86% of Generation Z – people aged between 16 and 21 – say they will always want to own their own car.

This appears to fly in the face of received wisdom, which is that the future is all about usage models that don’t involve ownership. While Generation Z’s idea of “owning” a car may well include concepts like shared ownership or leasing, the statistic does suggest that – in common with previous generations – they still perceive possessing a vehicle as a rite of passage that’s part of growing up.

It follows that retail demand for cars is still there, and will be for some time. If you overlay that with the changes that dealers are already making in areas like digitising their businesses, it’s clear that they can tap into this demand by interacting with and engaging the next generation of consumers in the ways they want.

This means using digital to be present in their conversations, including on social media, and combining physical and virtual channels and interactions to make accessing a car as easy and seamless as possible. It also means fine-tuning the sales culture towards engaging a different type of customer: one who is less likely to walk into the showroom and haggle – and more likely to begin the path to purchase on Facebook, and expect an Apple-style “genius bar” to advise them on any problems post-sale.

Amid today’s turbulence, it’s easy to see the challenges ahead. But change in an industry as large and well-established as auto retailing doesn’t happen overnight, and the appeal of car ownership endures across generations. It’s time for dealers to spot the window of opportunity – and target it today, as the next generation start to think about their first purchase.

Find out more about the Auto Retail Economic Forum.

 

Neil Philpott

Neil Philpott | Partner, UK Automotive Retail Leader, Midlands Private Business Leader
Profile | Email | +44 (0)7976 710388

 

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