Article

Telling The Future

The editor bites on a pitch for an article about the future of auto retailing, a topic he's steered clear of given the emotions it tends to stir.

July 2013, Auto Dealer Today - Feature

by Gregory Arroyo - Also by this author

Earlier this year, a public relations pro called me with a pitch. I won’t reveal the company she reps, but I will tell you that its a firm that specializes in making websites. ThePR person was pushing a story on the dealership of the future.

I told her I was game. The timing was right, given last year’s dustup between dealers and TrueCar — when retailers equated the service to a race to the bottom because of its focus on pricing — and questions raised earlier this year about the way Cars.com collects and remarkets leads. I guess I wanted to see how well the writer could dance around these sensitive topics.

I bring up that pitch because the future dealership was a major discussion point in Phase 2 of the National Automobile Dealers Association (NADA)’s Factory Facility Programs study. In fact, the 60-page report dedicates 24 pages to guessing what dealerships will look like and how they will function. The section opens up with a list of past predictions of our business that didn’t quite come to pass. Tell me if any of these sound familiar:

1. Multibranding: Dealerships would become so powerful that they would force OEMs to allow them to stock and sell multiple brands under one roof.

2. Built-to-Order: The belief was that dealers would custom-order every vehicle rather than carry large inventories.

3. Public Ownership: Public chains would overtake privately owned dealerships.

4. Internet Disintermediation: Online firms would claim customers as their own, reducing dealerships to delivery points.

5. OEM Forward Integration: OEMs would take a controlling ownership stake in dealerships.

This “Dealer of the Future” section also references Apple; specifically, the brand’s retail outlets. I remember back in 2009 when several of our industry’s thought leaders, including OEM execs, were calling on dealers to mirror Apple’s retail model, particularly the way it equips sales associates with mobile tools so they can complete transactions wherever the customer is. That definitely is a novel idea, but what’s interesting, the study points out, is that OEMs aren’t being very Apple-esque in their approach to store branding.

In fact, many of the materials OEMs are recommending under their image programs are costly. That’s not the case with the interiors of Apple stores, which tout flexible designs where no element is difficult to change or move. But according to the report, “OEMs seem to insist on built-in, expensive, literally ‘cast in stone’ brand elements ...”

It’s clear that Glenn Mercer, the industry consultant the NADA hired to study factory image programs, spoke with vAuto’s founder, Dale Pollak — or at least people who share his philosophy on the future of auto retailing. If you’ve heard Pollak speak, you know he believes the biggest threat to dealers is the expensive real estate on which most of their stores are located.

Pollak thinks dealers will be forced to opt for the smaller, boutique-style showrooms Internet shoppers visit when they’re ready to pick up their vehicle. He also believes dealerships will opt for cheaper properties to house their service departments. Driving Pollak’s theory is the pricing transparency brought about by the Internet, which he says will eat away at dealers’ margins to the point where “main street” dealerships will be too costly to operate.

The study even mentions Tesla’s retail approach as a possible model of the future. The study wasn’t commenting on the electric carmaker’s direct-to-consumer approach. It was talking about how the company places showrooms in high-traffic shopping areas and locates its service centers on cheaper real estate that’s closer to where vehicle owners live. And Mercer believes dealers can leverage this “unbundling” even further. In fact, two dealer groups that are trying this model told Mercer the savings created by this approach are “striking.”

I won’t begin to question the thinking of OEMs and their facility image programs. Someone smarter than me crunched the numbers and decided that if dealers build it, customers will come. I’m just not sure there’s a calculation out there that can tell our future, which is why I agree with the study’s call for flexibility when it comes to these programs.

As it turned out, the PR rep who pitched me never did come through with that story. She told me the company needed to do a little more research. I told her I understood. Hey, predicting the future shouldn’t be taken lightly, especially in this business. There’s just way too much invested to get it wrong.

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