Future Retail – How sustainable are automotive dealerships?

In 2011, I sold my 5th generation car dealership: a painful process that was associated with emotions and financial loss.

10 years later, in a changing environment, I can now look more soberly at this situation at the time and ask myself: Would I want to hand over an automotive dealership to my children today? Would the value of my business at that time be higher or lower today than it was in 2011? And what would the business case for the next 5-10 years look like today? Would I continue to invest boldly in the business? Or put another way, would I in good conscience recommend investing in further growth to our automotive retail clients today?

First, the constraints of the future and the disruption in the automotive environment seem overwhelming:

1. The attractiveness for end customers to own a car is decreasing; parking spaces in city centers are scarce, alternative mobility offers are maturing and becoming competitive (see also our Impulse 03/2021).
2. New competitors are entering the market with new concepts, both in sales and in service.
3. Electrification requires new competencies in sales and after-sales. Car dealers may ask themselves whether the capacities in which a lot of money has been invested over decades will still be needed in the future.
4. The manufacturers are aiming for direct sales of vehicles. Of course, because the customer’s data record is the most valuable thing left to the dealer. What exactly will be the purpose of the dealer in the future, especially in rural areas?

Customer expectations have changed dramatically in recent years: services, products, information, and experiences must be available at all times in all analog and digital channels.

These 5 influencing factors mentioned above would today be referred to in New German as “disruptive”, i.e. in the true sense of the word “destroying the balance”. It can be assumed that without appropriate countermeasures, these developments will have a significantly negative impact on automotive retail profitability. Disturbing an equilibrium can provide an impetus for progress, but it can also destroy what already exists.

How exactly can the entrepreneur in the automotive trade defend himself against the destruction of his life’s work? What creative opportunities are hidden in the current development?

The number of automobile dealers in Germany has declined by almost 4% in the last 10 years (source: Statista, 2021). Businesses have exited the market, others have been “consolidated” through mergers or acquisitions. New vehicle registrations have remained virtually unchanged over the same period at the level of 2.9 million units.

How should automotive retail position itself in the future?

In this market environment, the key success factors for securing the company’s continued existence, but also for sustainably shaping the future development of the dealership, are the following:

1. The linchpin for sustainable corporate success is the uncompromising orientation of all services and processes to the needs of the customer. Process efficiency and effectiveness are crucial in this respect. Relevant performance criteria are process costs and revenue per customer visit.
2. Automotive retailers should utilize all digital channels integrally and manage them effectively in terms of time and quality. In concrete terms, this means that the customer – regardless of whether he is at the dealership or wants to be served via a digital channel – is served immediately and in line with his needs.
3. New business models are required: The existing corporate structures in the form of buildings, machines, personnel and administration must be reviewed for necessity and, if necessary, reduced. Then, however, the prerequisites for growth must be created and new things must be designed by expanding the company’s self-image to include mobility services for all customer groups (individual customers, commercial customers, large customers, special customers). Opportunities can lie in offering subscriptions, car sharing, charging stations, pick-up and drop-off services, and much more.
4. Winners of the transformation get involved in new formats in terms of customer needs: pop-up stores in the city center, competence centers for e-mobility, or the offer of e-bikes or e-scooters can open up new customer groups and prospects. Digital sales channels must become a matter of course, not only for vehicle sales, but also for the spare parts and accessories business and, of course, for service acceptance and order expansion.

Merging with other dealers can pool forces when it comes to making important investments and asserting themselves on the market. Here, too, it is important to overcome old paradigms and break new ground, for example when it comes to building an innovative service factory for commercial vehicles.

The distribution of automobiles and mobility will always be subject to high volatility and, taking into account the high investment requirements in the course of the transformation of the business model, the entrepreneurial risk must also be considered very high. Nevertheless, business owners can believe in the future of the following generations with a clear conscience and invest in the design of their business: In the future, customers will still want to know and use their local partner, but in a differently than we know from the past.

The path of the future in automotive retail does not lead to a dead-end, but opens up perspectives!