THE DEALER OF TOMORROW

The distribution sector of the car industry in Europe is in a period of disruptive change, where many small changes over a decade or so will create a new business model.  This is the result of mature markets, structural changes affecting demand for cars and their related aftersales, changing customer behaviour, and the threats and opportunities created by e-commerce and the digital world.  Pressures will also come from some of the so-called megatrends – alternative fuels, autonomous cars, connectivity, urbanisation and a transition towards some forms of accessing cars on the basis of usage rather than sole ownership but the scale of some these are often exaggerated.  Not all of these affect Turkey, or they will have an impact later than in the more mature markets of Western Europe, but there will still be an influence on dealer networks in Turkey and what the role of a dealer will be.

Changes in customer behaviour and expectations affect most aspects of car sales and aftersales.  However, one area where changes in behaviour is exaggerated is in the extent of the move away from individual access to a dedicated   car – whether that is owned, leased or rented in some form.  Unless this is enforced by legislation, consumers will continue to choose a car that is dedicated to them, viewed as an extension of their home, and permanently available to them.  In developing economies, car ownership is seen by many as a badge of personal progress and achievement, and this is unlikely to change.  We do see a likelihood of a progressive move towards some form of bundled lease, with more services, but probably more flexibility than today.  Progress will vary by country, largely influenced by attitudes to credit.

Customers are spending more time online than in the past for their car purchases (using that term broadly) and to a lesser extent for aftersales needs.  However, few want an entirely online buying journey for a new or used car, and we do not see “online” customers versus traditional shoppers.  Instead there are “engaged” and “unengaged” buyers, with the former doing more of everything – more time online, looking at more resources, visiting more dealers, more often, further away, than those who are unengaged, seeking a shorter, simpler journey to buy a product that they may view as a domestic appliance.  Although our regular consumer research focuses on the EU-5 markets, when we have looked at Turkey we have found similar behaviours, just with slightly more research and more dealer visits.  This may converge with the Western European markets over time.

The demand for different types of customer journey, and the shopping behaviours for other types of product and service, leads us to conclude that the future for car distribution (sales and aftersales) must be omni-channel.  This is the use by customers of a range of different channels in a mix and sequence that will vary from customer to customer, and may vary for the same customer for different types of purchase.  It echoes the changes in many other sectors where consumers are already experiencing a similar transformation.

Networks must change to reflect this, but we see a continuing need for physical outlets who support elements of the sales process and aftersales within an omni-channel framework in which car manufacturers have more direct end-customer contact.  Despite this, we consider it unlikely that car manufacturers will choose to manage the physical network themselves, and therefore see opportunities for existing dealers to continue to provide this role, even if many aspects of what they do and how they are rewarded will change.  In Western Europe this will be accompanied in most markets by significant reductions in the number of dealer investors and the number of primary sales points as the result of the need to get cost out of the dense, inefficient networks that exist there today.  However, in Turkey, sales per main dealer are double those of markets like France, Germany and Italy, so the challenge is slightly different – to adapt the networks to meet the new needs without being tempted to add more sales points in a traditional way as the market grows in the future.

We also see the polarisation of dealers with investor scale being increasingly important to support the complexities of omni-channel networks.  This will include larger market areas, within which the dealer may have a brand centre much like a large flagship dealer site today, managing a network of smaller sales satellites (including new formats that reach prospects when they are still researching options and making brand choices) and service only points.  Aftersales may also make more use of mobile outlets, collection and delivery services and collaboration with independent repairers to maintain geographical coverage.  These larger investors will have the scale to operate digital channels well including business development centres, their own websites and digital marketing.  Dealers will need to develop or acquire a range of new skills and capabilities, with significant implications for staff.

This is likely to result in the consolidation or elimination of most mid-size investors who instead will become acquisition targets or leave the business.  Smaller owner-operators will be able to continue in less urban areas where they have a loyal local customer base, but the market potential is unattractive for a larger group.  To simplify the network management task for the manufacturer, they will most likely operate as agents or sub-dealers on behalf of larger groups.  This provides additional revenue and margin opportunities for the groups, but also more management responsibilities.

There will be a move away from the sale of physical products to the sale of services which includes the provision of a product.  The sales process and ongoing fulfilment will involve both the car manufacturer and dealer in a collaborative effort.  Selling services will improve retention for both sales and aftersales, but also capture more of the lifecycle revenues from every car sold, including insurance and crash repair, and potentially – through third party partnerships – the sale of fuel, particularly electricity through charging networks for electric vehicles.  It will make sense for these services to cover not only the first user of the vehicle, but also the second or third user, for as long as the car is presentable, and the balance of depreciation and operating costs allow cars to be offered at different price points.  This moves the manufacturer and dealer much more into a build and operate or fleet management business model, and would have fundamental implications for the used car and aftersales sectors.

Although car manufacturers will lead these changes, there are actions that can be taken now by dealers, independent aftermarket players and technology and service suppliers to prepare for the forthcoming changes.  Failure to do so may result in better-prepared competitors winning the battle for the future.

More information is available in ICDP’s  “European Dealer of Tomorrow” report which is available for download through the ICDP website www.icdp.net or directly here.  This complements an earlier Brazilian report also available for download here.