ATLANTA — Auto dealers face profit erosion as new competitors rise in the market, such as Tesla, Carvana and ride-hailing and car-sharing services.
But an analysis of industry trends by international consulting firm McKinsey & Co. concluded that franchised retailers may have a natural advantage in pursuing several emerging business opportunities over the next two to five years.
The ventures are outside the traditional new-vehicle retail store model but play to dealers’ strengths and assets, said Inga Maurer, a partner in McKinsey’s Chicago office and a member of the firm’s Automotive & Assembly, Operations and Private Equity practices.
“Dealerships aren’t making any money on new vehicles today,” Maurer told an auto industry audience at a conference hosted by Cox Automotive here in September. “They’re not making much money anymore on used cars, either. For every incremental 1 percent of used-car transactions that go online, $40 million in used-car profits get eroded. And we see a shift to up to 50 percent online sales by 2030 — eroding a lot of the profit that dealers are benefiting from today.
“So there’s a tremendous uncertainty about how we’re going to go forward,” she told the audience.
But McKinsey believes franchised dealers have an advantage in pursuing a number of new business models. Among them:
- Alternative store formats: “People are urging dealers to have a different format to experience a new vehicle,” Maurer said. Those might include off-site test-drive centers or mobile stores in high-traffic urban settings.
Visitors would be able to experience competing models within a product segment or participate in clinics to learn about electric vehicles, for example.
- Mobility-as-service models: Dealers would market subscription services independently of their brick-and-mortar stores.
Or they could work with their lenders to provide customers with personalized vehicle finance solutions such as a pay-as-you-drive program.
Or they could market their ability to arrange combined home and auto insurance packages.
- Ride-hailing service work: The growing fleets of ride-hailing services such as Uber and Lyft will need regular and more frequent servicing, Maurer said. Turning to established dealership service technicians to perform that work would be natural, as opposed to letting drivers arrange the work individually.
- Data monetization: Even though data privacy laws restrict what can be done with vehicle data, new possibilities are emerging for dealers to gather data on fleet use and performance or to provide connectivity services to fleets.
- Inventory-free peer-to-peer used-vehicle trading: Dealers are largely cut out of used-vehicle sales between individuals today. But retailers can provide third-party services for those transactions, creating a marketplace where the vehicles are reconditioned, financed or insured, for example.
Service remains the growth opportunity for dealerships now, Maurer said. “Young people have no desire to service their own cars,” she told the audience. “There’s a big and growing profit pool on the service side.”