Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
February 19, 2013 3:30 P.M. ET
DETROIT, Mich. – Recently your father’s car dealership is starting to look a lot different. With the punishment of last decade’s runaway overcapacity in the North American car market, all of the players in the automotive value chain have had to re-think their relevance: OEMs, suppliers, private equity, infrastructure, and especially dealers. Today, with large numbers of dealerships disappearing, and revenues facing dramatic uncertainty, car dealers have had to manage their survival to re-invent their growth.
Several key transformational trends have changed the look and composition of many American dealerships. We are seeing a metamorphosis not only with the types of new vehicles offered but also in the new ways they are conducting business, their need to reach the Millennial segment, and their revitalized importance to the automakers. Here are some observations…
For 100-plus years owning a car has been the bellwether of reaching adulthood. No longer true, as more Millennials now avoid the tradition of “first car” ownership. This delaying or avoidance of car buying is a major cultural shift and it is common for these shifts to start with young urbanites before becoming mainstream practice. The Baby Boomers love to adopt the latest Millennial trends but it’s rarely the other way around. Consider Facebook, a site that started with college students at Harvard is now a favorite with boomer-generation parents who have embraced this new way of connecting with family and friends. What makes this an even stranger phenomenon is that while Millennials have a voracious appetite for nearly all things retail and technology, they have serious “dis-ownership” motivation in vehicles. A very hard nut to crack for car dealers.
Thinking about the practical purpose of owning a vehicle is much different for the Millennials. New ways of sharing, driven by online social standards, have taken collaboration to new levels. Thanks to the social web, we can share and trade to use a whole slew of things we once had to buy ourselves. According to Fast Company magazine, from cars to solar panels, young people are realizing they can reap the benefits of ownership without the expense and hassle of buying. For many Echo Boomers, not owning a car means they may spend a little extra time on public transportation, but they use that time to read, catch up on work projects, and make driver distraction-free phone calls. And they never waste time seeing a mechanic or visiting a gas station. Thus, it continues to be emotionally and socially challenging for car dealers to attract Millennials into the traditional buying space.
Creative alternatives to car buying keep popping up. More and more options are appearing in traditional consumer segments that offer alternatives to buying from a car dealer. For example, Zipcar, a U.S. membership-based car-sharing company providing automobile reservations to its members, is billable by the hour or day. Zipcar, now owned by Avis-Budget Rentals, charges a one-time application fee, an annual fee, and a reservation charge. Gas, parking, insurance, and maintenance are included in the price of the service. A survey conducted in 2012 revealed that almost 20% of Zipcar members sell their cars after joining, and nearly half reported that the service allowed them to avoid buying a car altogether. Zipcar users say they love the convenience of a shared vehicle both for daily life and travel. All of these are more wedges keeping Echo Boomers away from buying their first car. We may see car dealers, particularly the mega-dealers like AutoNation, Penske and Carmax, trying to participate themselves somehow in this growing car-sharing trend. This trend does, however, create more of a symbiotic closeness between dealer and automaker, particularly as the remaining dealers have greater importance as fewer of them compete for OEM dollars and attention.
Dealerships are beginning to look like Apple stores. Particularly because of the onslaught of in-vehicle electronics, but also because of the desire to duplicate the coolness of the Apple experience, we are seeing more car dealers change the look and feel of their stores. Problem is…who pays for this transformation? Factory-directed facility renovations still aren’t worth what auto dealers pay for them. According to former McKinsey partner Glenn Mercer, “The tomorrow question is: ‘Looking beyond the next two years, am I putting money into a store that turns out to be wrong in the long run?’ We need a cheaper way to alter the brand imaging of the store to reflect consumer needs without having to tear it down and rebuild it,” he said.
So, if they do build it…will buyers (preferably Millennials) come? Even though the outlook for 2013 is good, dealers worry that some manufacturers are pushing them to build from the ground up, and the return on that investment is questionable. They are concerned that expansive new dealership buildings aren’t worth the millions of dollars invested in them and won’t change much in the way of generating new sales. And no guarantee the fickle Millennials will buy anything…
Still, Ford Motor is emphasizing making dealerships compatible with consumers’ specific desires for digital information. Facility investment helps improve “digital experiences,” including use of electronic tablets, said Jim Farley, Executive Vice President and head of Lincoln. “We’re really getting into digital fitness.”
The digital emphasis is timely, the brick and mortar extreme makeover seems cool enough, now let’s just hope it all sells a few new cars.
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