Future of Car Dealerships
I've been pretty bored during quarantine and came across an interesting report by KPMG on the future of car dealerships - link is here. With automation in the future and increased usage of car subscriptions, the report and other research suggests that car dealerships may soon be extinct.
Interested to hear what you guys think? Anyone know any car dealership owners? Are they doing well, not to well?
Carvana exists, no? Dealerships opening back up in my home state this week. It’ll be an ugly quarter and climb out, but I’m not as concerned with car dealerships.
Doubt that. People love looking at what they're thinking about buying. Additionally, car dealers of manufacturers were already giving extremely generous terms to people, and I can only imagine these generous terms, also known as incentives, will be even better than what was provided to the consumer before.
As a result of COVID, I expect there to be a continuation of consolidation of smaller and independent car dealerships, and an increase in incentives. I wouldn't be surprised if low rates and cash-flow pressure led to manufacturers offering longer term loans at lower rates.
This is what I’m thinking too. The public dealers keep buying smaller independent dealers, and even in the independent space there is a decent amount of consolidation, I expect that to increase after the pandemic.
What I would do for some pork knuckle with chrzan right now....
I think the culture of walking on to the lot and getting a sales man will fade away, but I don't imagine the dealership model is going away, but more likely appointments will be required. Not full Carvana but maybe more CarMax
A lot of dealerships (not sure of the % but it may be most) make a majority of their profit in the service dept, not selling actual new cars. With cars becoming increasingly digital, and people generally not being programmers, when your car breaks down due to a technical glitch there’s a higher chance you’ll go to the dealership to get it fixed. That in and of itself is one reason dealerships will likely still be around. With further digitalization of car mechanics, the service dept itself is probably going to be more high tech, with them maybe hiring some programmers with basic implementation/troubleshooting skills.
EVs are becoming more popular, so the transition to that is another tailwind (at least for now).
The jury is still out on whether autonomous driving will cause people to buy cars to drive themselves, or to firms that buy cars as fleets to drive people around (Uber’s ultimate goal). Either way, these cars will have to be sold to someone.
Car dealerships will always exist, one way or another. There's no way manufacturers can or will want to afford the cost of the distribution network that 3rd party dealers can offer.
also as comment above has mentioned - servicing, since factory servicing is expensive AF, there will always be a need for 3rd party servicing, maintenance and wtevs since if ur not familiar with autos u might run into a chop shop garage, while going back to fatory would cost you a fortune, ppl need something in the middle i.e. dealers.
not to mention the used car market, there will always be a need for dealers in a giant used car market, some ppl just wanna dump their car for some quick cash
I also disagree with the notion that low-touch sales coverage will become prevalent. Any self-respecting buyer will know to test drive the car before even entertaining the thought of buying - hence the dealer will always need a dude in the passenger seat to ask the prospect : Whaddya think?
also re: automation - we're probably half a century away from it being a reality, the big manufacturers (VAG, fiat-chrysler, BMW, Toyota etc.) aren't even close to developing EV units that can be mass produced...Tsla alone cannot supplant the whole auto market, not to mention how quickly they could run out of cash. Not to mention EV cars currently have next to no resale value since the battery decays rapidly after a certain mileage. car owners will know - a car is no good if u can't sell it used, it's not an ipod ffs...basically, we're still decades away from EV becoming mainstream, much less going driverless, there's a clusterfuck of safety, technical and (most importantly imo) liability issues to sort out
source: fam in the autos business for decades
I've never understood the whole logic behind no one will want to own cars and will instead use on demand ones.
Am I supposed to take an uber 6 hours to go skiing? Would your wife be ok bringing the car seat around with her every day? What's the plan for your golf clubs, are you going to haul those into the office every time you have to get out an play? Running errands, do you now need to bring everything in with you at every stop, or should the driver/automated car just wait?
On demand cars are going to replace taxis/uber in major cities. In SF you can get an Uber within 3-5 minutes already, with cars waiting on demand you could probably get one within that same time frame or even shorter.
For long trips like skiing, you would rent a car and drive yourself most likely since you would need it all weekend.
Golfing - how often does someone that lives and works in DC/SF/NYC/Chicago/Seattle just decide to take off work at 2pm on friday to go golfing? Probably not often.
I think the point isn't that it will replace cars for most people but that it will provide a very cheap form of transportation within major cities that will most likely be so convenient and affordable that it will remove the need for a personal vehicle, replace driver ubers/taxis, and endanger public transportation systems like subways and busses.
Yes they will replace Uber and Taxis, but they are essentially the same thing.
I've rented cars for skiing before and let me tell you, it's pretty tough. Most rental cars companies use base spec cars, ie crap wheels, no 4wd. It's a niche product.
We're not really talking about those cities though (other than Seattle). Those aren't really car-centric markets. We're talking about LA/Dallas/STL/Austin/Houston/Indianapolis/PHX/Miami where people do drive everywhere.
Dealerships largely exist now because government in most states requires them. So they aren't going away unless or until the regulatory environment changes. If you subtracted regulation, they would have been on the ropes years ago.
I used to buy/sell used cars and have good relationships with OEM dealerships, mostly Porsche, BMW and Chevrolet. During my professional career I also worked for two OEMs.
Some customers require help in order to understand, differentiate and spec/order a car. They may not understand what is shown online, in TV ads, or don't even know how to parallel park. Various car models and their distinction are oblivious to them. There is a whole discovery/pre-sale and after-sale experience that comes with a car dealership that is not available through other means. These people will still need dealerships.
A pandemic and 35+MM unemployed citizens lead to far fewer consumers who can easily afford a big ticket item like a new car. This means the 8-12 year window of used cars will have larger volume going forward (there is an age group where the majority of cars require more maintenance/parts/service). This, in conclusion, requires OEM dealers and shops to prop up and service these vehicles.
Owning vs. pay-per-mile model vs. car-sharing models Pandemic aside for a moment, a fully automated car fleet that can be summoned from an app is not available yet. Level 5 automation is far from reality and consumers will not trust their family with a system that is not comparably safe as a modern airliner or fast train.
The majority of cars are purchased by women. You can see how miserable they are in the dealership, going through a 3-4 hour process of filling out paperwork and negotiating price with an obvious scumbag on the other side of the table. I'm not saying the dealership model has to be this way, but for whatever reason it is, and virtually no one would choose to work with a dealer if it weren't mandated by law. Let's be real.
As far as autonomous vehicles go, you don't need Level 5 autonomy for a fleet. You only need L4 for a geofenced fleet to operate properly. That isn't happening in the next 3 years, but I certainly wouldn't be putting up $5 million in 2020 to buy a car dealership.
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