I attended the LA Auto Show this year, not to see the bright shiny new models but to listen to a presentation on a topic that I have been very curious about for about 18 months. I feel like I have a pretty good grasp of how the shift to mobility and autonomous cars will impact consumers, ride share companies, suppliers, and OEMs, but when it comes to the dealer, it gets a bit fuzzier for me.
Automotive consultant Glen Mercer conducted a study commissioned by NADA that looked into the topic from multiple angles. The report is based on a variety of data, existing reports, and interviews that attempt to address how dealerships in the future–10 years out–will be impacted by everything from autonomous vehicles to mobility services and electric vehicles.
Glen touched on the key findings in a joint JDPA/NADA conference presentation. The following is a summary of some of the key findings from his presentation and my personal opinions.
Glen took great care to emphasize to the audience that “over the next decade, the average American new car dealer will see many changes to how the store is set up and run, but that there will be no significant disruption to the underlying business model.” He suggested that it will be more of an “evolution” than a “revolution.”
I greatly respect Glen, but could not quite shake the feeling that there may have been influence from NADA (the study sponsor) on how some of the findings were framed—at least for this audience. He reports that “online sales become more common, but not dominant,” that there will be a shift from “margin to volume focus” and “a transition away from negotiated prices,” and that dealers will sell vehicles online without regard to territory. To me that sounds like many new car models become commodities and will be sold as such.
The report anticipates dealers will come to rely on the service department as the main source of profit and that many dealers will create satellite service centers to extend their share, likely to offset the impact of reduced new car sales margins. I fully believe that to be the case.
Glen reported there will be “accelerating penetration of autonomous driving” and that about 50% of the vehicles sold by 2025 will have partial autonomy; and 10% will be capable of driving in this mode. He went on to say that the impact to dealers will be positive on sales, especially if AVs can liberate the elderly or disabled.
I found it curious that he seemed to downplay what he later referenced as “the single biggest risk to dealers over the next 10 years,” stating that “… there is the risk of a dramatic shock to the system if mobility services converge with autonomous vehicles and, in so doing, succeed in breaking the age-old bond of ownership between Americans and their cars and trucks.” “That would change things dramatically.” “Our own estimate is that this is relatively unlikely to happen, but if it did, it would be cataclysmic and has to be flagged,” Mercer reported.
This was a point that was subtly delivered and that is what stuck out to me. I believe it’s a forgone conclusion that mobility services will converge with autonomous vehicles. The tracks are being placed for this now with Toyota’s investment in Uber, VW’s in Gett, GMs in Lyft, Daimler’s in Mytaxi, and BMW’s in DriveNow. All of these OEMs are building autonomous vehicle capabilities. None of this is new news, so the main reason this was deemphasized must be the belief that Americans love their cars and don’t plan to give them up anytime soon.
I think that point needs to be challenged. I don’t think it’s a zero-sum game where people are going to dump their vehicles in mass in favor of autonomous vehicles and mobility services, but I do feel many people—especially urban dwellers—will embrace commuting with some form of mobility service or ride share, which will result in the reduction their personal ownership (i.e., move from 2 to 1 vehicles) and that this needs to be considered more heavily.
As mobility services and alternate ownership models mature and become more widespread, the economics will continue to favor the user. As this happens, the masses will begin to scrutinize the economics of owning multiple vehicles and compare those costs to simply paying for transportation needed on demand, primarily for commuting. Recent JD Power Research* revealed that 31% of millennials are open to ownership alternatives. This will impact the number of vehicles that are sold and, thus, dealers.
Yes, the more affluent will be unaffected. Sports cars will continue to be kept in the garage for sunny days and people will likely adjust the mix of vehicles in their personal fleet (to be used when mobility services don’t make sense or to serve a special purpose, like hauling the soccer team, pulling the boat, or running multiple errands with a toddler).
Given that most of the manufacturers are exploring, investing, or testing mobility services and autonomous vehicles, today I’m not sure how this can be considered “relatively unlikely to happen.”
I believe the “age-old vehicle ownership bond” will remain intact but, like everything else, it will evolve and be driven by a changing environment. There is already evidence that many within the next generation of car buyers value access over ownership.
I applaud NADA for investing in such a study. However, I worry that perpetuating a retail future vision without deeply considering how the vehicle ownership mindset will change may result in an outcome like the recent presidential election, leaving most asking: how did this happen?
*JD Power & Associates 2016 Mobility Pulse Survey