Glenn Mercer, a well-known researcher who has authored countless reports and studies for NADA, took the stage at the CADA Summit on Wednesday and gave dealers some sound advice: Go back to basics.
Mercer developed what he described as the “movie trailer”: sped-up versions of three presentations he typically delivers that help dealers better grasp the changing landscape and what they most need to focus on.
Mercer is always one of the more popular speakers at the annual event held by the Canadian Automobile Dealers Association (CADA). He presented on three topics:
- Dealership of tomorrow
- Cost of distribution
- Back to basics
Starting with the dealership of the future, Mercer said NADA engaged him in 2016 to explore what the dealership of the future might look like. He joked that for most dealerships, “the dealer of the future is the end of the month.”
That study looked at what he called the Four Horseman of the Car-apocalypse: autonomous vehicles, mobility services, electric vehicles, and connected cars. Mercer went over each of the areas that threatened to disrupt the dealership business, and showed how the hype for each area never matched the reality.
He said in 2012 Google’s co-founder said we’d be riding in robot cars within five years and there would be no need to buy cars. He said Waymo is offering autonomous transport, but they lose about $2,000 per ride right now. “The panic attack has abated,” said Mercer. He cited findings from one analyst that said that none of the predictions that were out in 2017 for AVs have happened.
Mercer then looked at each of the other areas and showed how they hadn’t lived up to what was expected. He said ridehail trips today only amount to 1 per cent of personal car trips, and have had “zero visible impact on private car ownership.”
Mercer also reported on the findings of a recent NADA Study by Oliver Wyman: “Automotive Cost of Distribution” that reinforces the economic value of the dealer franchise model.
He said the report was sparked, in part, by comments from Ford CEO Jim Farley in 2022 where he stated that Ford’s cost of distribution via its dealers was $2,000 more expensive than Tesla’s direct sales channels. Similar numbers were promoted by Wall Street analysts.
He said NADA launched a project in 2023, studying 10 years of data and tens of millions of data points. They looked at the dealer franchise model, the direct to consumer model, and a hybrid model. The data showed that the direct model did have slightly lower distribution costs, but when you added in the value delivered per channel, the dealer franchise model came out on top — although he said the channel costs were all pretty similar.
Mercer then pivoted into providing dealers with advice to try to not overreact to the headlines and the latest threats of disruption, and instead to focus on areas of their business they can control. That includes new and used vehicle sales, F&I, running a tight fixed ops business, and focusing on profitability.
Mercer presented a graph that showed that, over time, the average profitability for U.S. dealers had remained remarkably consistent at just over 2 per cent of sales. It was higher post-pandemic with the inventory shortages driving up prices, but is expected to level out again to more historic norms.
He said it’s not always easy for car dealers, because eventually OEMs behave like OEMs and start to overproduce vehicles. “Factories want to run at 35 second Takt times, producing a Seagull or F-150 every minute,” he said, adding that it’s always been that way since the Ford Model T was produced.
But Mercer said by sticking to doing what they do well, and have always done, they can avoid getting distracted by all the media hype and headlines, and still run profitable dealerships.
TD Auto Finance is the event’s exclusive sponsor.
