What pandemic-learned experience tells us about our customers and future business.
The past 18 months have been a true learning experience. As the world pivoted towards digital transformation, auto retailing had no option but to follow.
Up until then, traditional auto retailing, as we all know, had been largely bricks- and mortar-based, with a little digital thrown in here and there for good measure.
Not only did auto retail need to pivot on a dime, but so did regulators, financial institutions, and insurance providers, to name a few.
Still today, rules and regulations vary from province to province, and unfortunately there is no uniform set of rules across the country.
In most areas of Canada, consumers have shown they are ready and eager to adapt to new ways of transacting. For virtually every retail experience that consumers want, today there is an online option that exists.
The improvement of FinTech capability is driving a lot of this change. The banking industry, and even government organizations like the CRA for example, are moving to and pushing for more and more online adoption.
As our business becomes more digital, and in many ways more complicated, occurring simultaneously and somewhat as an afterthought is a facilities revolution.
Consumers at every turn are being asked to transact online. This creates not only an opportunity to do things differently—it also somewhat unexpectedly creates a monster called cyber fraud.
Online transactions or even basic information flows are becoming more cumbersome, as cyber security features like double password sign-on and text-based access code protocols and other cyber safety initiatives become the norm. These personal security steps are adding time and frustration to normal online activities in the name of protecting our personal and business identities and assets.
As our business becomes more digital, and in many ways more complicated, occurring simultaneously and somewhat as an afterthought is a facilities revolution. Brand facility and image programs have always been a sore point in the relationship between dealers and their brand.
Brands went through a period, and some still are, where their facility image was their key competitive advantage in the marketplace. This led to a situation where over the past 15 to 20 years, dealers spent millions of dollars to comply with brand demands.
Naturally some dealers overbuilt, wanting to be the biggest in their brand within their city or town. Nonetheless, facilities have been a major long-term investment required to maintain the right to represent the brand in local markets.
There was a period of time where dealership showrooms were expanding. However, with the move towards digital, the need for large showrooms seems counter intuitive.
What is needed to attract customers into our facilities is a different experience, a genuine shift in what we do inside, in combination with what we do outside our facilities.
Dealerships, as we know, are facility silo allocations for new, used, parts, service, and in some cases body shops. The new and used facilities also house the vehicle finance and insurance business, as well as any in-house financing and business development centre activities that some individual dealers partake in.
A few dealers have elaborate rotating photo booths to support used vehicle online sales activities, while a few others have museums and the like.
Virtually all dealerships store winter/summer tires, and most dealerships have varying degrees of coffee shops or restaurants. Also, many dealerships rent off site vehicle storage space in situations where they are not located on large parcels of land. And all of this points to a significant long-term investment to maintain the status as a franchise automobile dealer.
The problem is that it’s largely inside the business.
Digital is changing the way we do business and interact with our brands, the vehicles we sell, our customers, and prospects. Omni-channel is now the operating model for dealerships initiated by consumers.
Change in vehicle propulsion is also changing dealerships. With many brands introducing electrified vehicles alongside traditionally powered vehicles, one would think that pressure would be placed on current dealership footprints to accommodate larger inventories. I do not believe this is necessarily true.
Pressure will come to modify facilities to accommodate electrified vehicles. These vehicles are different and will require facility elements not currently present. The obvious one is charging stations, but to support that initiative, most dealerships will require modification of their overall electrical capacity. In addition, service departments may require different hoists, safety protocols, and technician training and equipment.
Beyond the added capabilities of our facilities, the bigger issue becomes: what type of vehicle will sell in local markets? Will you be able to control the vehicles you order or will you be required to fulfill minimum EV stocking levels?
In all likelihood, EV sales will not be incremental sales to the industry, but rather substitute sales, as your local car park shifts in vehicle propulsion but not in vehicles on the road beyond organic growth. It will take time for this specific vehicle demand to become predictable from an inventory ordering standpoint.
At present we have new inventory shortages driven by supply challenges. I believe the supply challenges are driven by increased sub-component demand, as both traditional vehicles and new EVs require a greater number of parts and the global industry shifts gears, and component supply is challenged to keep pace. This could go on for quite some time— think key fob shortages, for example.
Automotive companies have become technology companies, as vehicles become smarter and smarter to keep up the pace with all the other smart things used by computers (TVs, refrigerators, washing machines, furnaces, thermostats, lighting controls, smart phones, consumer electronics, and so on).
The pandemic caused companies in many industries to adjust orders downward, and producers to cut back production. At the same time, unexpectedly, demand increased quickly, in some cases well beyond pre-pandemic demand.
I think we all agree that dealerships are here to stay. However, dealerships of the future will provide customers and prospects with very different experiences. The definition of car dealership will expand to include all online capabilities, as well as concierge, at home, at office, and over the wire communications and services.
I contend it’s already happened. As a consumer, I view the Internet as an expansion of the physical offering. It’s one and the same in my mind.
So, if 40 per cent of your customers only deal with you online or via concierge, then do you need 40 per cent less retail space? If the answer is yes, then what do you do with the overcapacity of your facility?
What about the trend towards pop-up stores? Certain brands use pop-up stores to promote the brand in new areas without the need to contract for retail space on a long-term basis. What does this mean for the dealer facility in that market area?
All things point to smaller facilities, pop-ups and satellite locations—getting closer to the customer so they can experience your products and services, not necessarily visit your dealership.
We have a lot of work to do to adapt to new retailing trends, and to keep our customers captured within the quality of the experiences we provide them.
I think we all agree that dealerships are here to stay. However, dealerships of the future will provide customers and prospects with very different experiences.
Again, brands will not all proceed in the same direction or at the same pace. It’s up to us as dealers to capture the attention and imagination of our customers by giving them unique and genuine experiences, appropriate to the market we serve, and in full alignment with their auto retail shopping preferences.
The full customer retail experience will involve online, in vehicles and in dealership activities designed to capture the imagination and support of your local consumers.