The current franchise dealership model is alive and well and will be strong for years to come, according to Peter Welch, President and CEO of the National Automobile Dealers Association (NADA). Welch took the stage at the 2018 CADA Summit to discuss his association’s perspective on today’s automotive industry, referencing a study commissioned by NADA that looked at the dealership of tomorrow. Read more.
“Traditional dealerships will continue to exist,” he said in his comments.
In an interview, Welch expressed his confidence that dealers have a bright future. “I fervently believe that the franchise system of selling and servicing vehicles is the most cost-effective, and efficient way to mass market vehicles with OEMs that have large market shares,” he said. “Dealers are market makers, they arrange financing, they stock parts, they do service, in new cars, used cars — they have the whole enchilada there — and they are a crucial component of their local economy and their community.”
Welch does foresee continued pressure on margins for dealers, but says technology can be a “friend” to dealers by helping to reduce costs. He also expects to see more reliance on pricing transparency through e-commerce.
In terms of staffing, he sees a transition from traditional sales people to people acting more as product specialists or product advisors.
U.S. dealers also face other hurdles, such as low growth prospects at smaller dealerships and less OEM support (many have not seen a zone manager in years). There are also a number of other issues they will have to adapt to — including the growing impact of the electrification of the vehicle.
EV adoption, however, will be constrained by several factors. In the U.S., Welch says many Americans don’t have a garage or dedicated parking space to charge an electric vehicle. He says EVs don’t always operate well in the cold or mountainous areas, and “with oil prices where they are, why would any consumer want to pay more for a vehicle that provides less convenience to them?”
Welch doesn’t think there will be a lot of EV penetration in the next few years. “We’re not going to be paying inventory expense for vehicles that sit on the lot, it’s that simple,” he says.
Autonomous vehicles, too, may prove to be a challenge, as heavily capitalized Silicon Valley companies are trying to push a new business model onto the auto industry.
As a result, and with so many challenges to work through, Welch says he simply doesn’t think we will see major changes in the next 10 years when it comes to the existing dealership model.
