Technology to bring ups and downs to dealer networks

• Technology identified as a primary driver of change, re-shaping products, processes, and customer behaviour
• Digitalisation will affect all levels and sections of the automotive industry
• ‘Big data’ can inform better business decision making
• Manufacturers to consolidate dealer networks as customers are willing to travel further
   

The acceleration of digitalisation in the automotive sector is set to bring both challenges and opportunities to dealerships throughout the next few years. That’s the view of Cox Automotive and the ICDP, an international research-based organisation that focuses on automotive distribution.
 
In the latest issue of Cox Automotive’s AutoFocus magazine, Steve Young, managing director of ICDP, discusses the expected impact of technology, which will revolutionise franchised and independent automotive retailers and repairers. He said: “Digitalisation is affecting customer behaviour and dealer processes, which, when combined, will drive the changes that dealers will face in the next few years and beyond. As the saying goes, ‘the rate of change today is the slowest you will ever experience.” 

Changes to products, processes, and customer behaviour

Young reveals that the changes will be even bigger than what the industry has witnessed over the last two years from the impact of the Coronavirus pandemic, vehicle electrification and semiconductor chip shortages. Technology, the primary driver of change, affects products, processes, and customer behaviour. Manufacturers are mandated to produce electrified vehicles by 2030, and dealers, along with repairers, must keep up with new car features. These include advanced driver assistance systems (ADAS), other forms of safety equipment, connectivity, and new product features.

Young added: “The speed of digitalisation is adding to the pressures which fall in the first instance on franchised dealer networks, followed by a knock-on effect on the independent sector as some dealers leave the franchised network, and changes which affect the supply of used cars and competition in the aftermarket. “

This transformation of product technology puts additional pressure on sales processes and staff to explain the implications to prospective buyers. More significantly, on aftersales – as some of the technology changes reduce service and repair work volume. Any required work is more complex, requiring investment in further training and new equipment.

Faster access to parts

An upside of product technology mentioned within AutoFocus is the speed at which aftersales departments and repairers can source the parts they need to carry out repairs. Young added: “B2B business processes are almost universally connected digitally, and even the last bastion of repairers phoning up parts distributors to order urgent parts is beginning to crumble with new tablet-based applications that make it easier for the technician to identify and order a part (and get fitting instructions) without stepping away from the ramp.”

This productivity improvement for repairers, combined with the data learnt from newer connected cars, which reveals how our vehicles are used, driven and when faults occur – can reveal so-called ‘big data’ or data science. Young added: “Big data can inform better decision making by businesses such as highly tailored marketing, improved supply chain planning and the development of more customer-focused products.”

Car buyers still value physical dealerships.

ICDP consumer research shows that while most car buyers use online technology for at least some part of the buyer journey, the majority of car buyers still want to conduct at least some of their purchase journey in a dealership, with only around 5% that want to buy purely online. Through an investment from manufacturers and dealers, they can cater to this increasing demand of flexible channel choices through a so-called omnichannel buying journey. It allows for close integration of online and physical channels, which the customer can switch back and forth in a seamless way.

Contrary to widely held views, ICDP consumer research also reveals that today’s buyers are more likely to travel further than 30 minutes to visit dealers and spend more time visiting more dealers than five years ago. Young believes this to be due to the wealth of information available online across multiple sources, which gives the customer greater confidence in their dealer visit and equips them with the specific questions they need answers to.

Young believes that while the more significant number of buyers willing to travel further to visit dealers will be helpful as dealer networks consolidate numbers in future, aftersales customers might be less inclined, as many still choose convenience as a key deciding factor in the choice of repairer.

Young added: “Manufacturers that were reluctant to cut back networks significantly because they feared losing market share are starting to get the message from our research that cutting typical networks by up to half would only increase average drive times for buyers by a few minutes. This will see a much more significant reduction in sales networks in the coming years.

“However, a reduction in sales points cannot be reflected in the same reduction in the number of service points. We will need more variety in dealer formats, smaller and less highly specified facilities, and more flexibility from the manufacturer, such as multi-brand locations such as those that we are seeing with Stellantis’ restructuring plans and their ‘Stellantis Houses.’ All of this will release cost from dealer networks to reinvest in digital and improve financial returns.”

Philip Nothard, Insight and Strategy Director at Cox Automotive, understands the challenges ahead for the industry and is ready to support dealers in preparation for the significant changes.

Nothard said: “I agree with Steve Young that while there are challenges ahead, there are rewards for those who respond best. While the dealer network has traditionally operated under a franchise agreement, Tesla and other newcomers challenged this with a direct, manufacturer-owned sales model. Now we have agency models where the dealer represents the brand in the market, under the direct control of the manufacturer who owns the stock, taking on the brand-related risk and setting pricing. The omnichannel journey eases because of consistent prices across all channels and dealers. It also shifts the volume and stock risk from the dealer to the manufacturer, acting as a retailer.

“While Mercedes and Stellantis will adopt this route, manufacturers that choose not to will still have to modify their franchise networks to compete in an omnichannel world. This results in less stock push, more centralisation, pooling of inventory and a restructured margin and bonus system that can incentivise the desired behaviours.”
We reveal the answers to these questions and much more in the new issue of AutoFocus.
 

Read more here.