AUTO RETAILING IS NOT AN EXCEPTION…TO EXTINCTION:
Exactly a year ago during Thanksgiving and then in December 2016, our newsletters reflected everything that was on the November 6 2017 issue of the Automotive News. You can follow the links below to verify. Don’t want to brag about and say “I told you so” But Starting with Bob Lutz, former GM executive; Michael Jackson, CEO of Auto Nation; Scott Corwin, managing director of Deloitte Consulting and many more all talk about the same thing almost verbatim to our prior comments. The world of mobility and transportation will have little or no room for the auto retail model as we know it today. It will be replaced by large fleet operators as primary value capture with surrounding platforms for production, technology innovators and service businesses to fulfill all of the consumer’s transportation needs.
There is an elephant in the room and all affected parties either tend to ignore or deny it. Manufacturers are trying to stay in the game by working both sides of the spectrum with uncertainty of the future, disruptors are pressing full force and have no interest in preserving any of the existing business models and retailers are thinking it will never happen while the current generation voices echo their desire and opinion regarding the choice of self driving.
In the above context we have several facts to consider and do it objectively, without emotion and by commonsense.
1- Evolution requires significant change. Those businesses which remain complacent to change become extinct as the dinosaurs did.
2- Auto retailing that has been around for about 120 years have changed minimally in process and concept. “Four Square” sales system was introduced as a tool in early ‘60s and currently utilized by most of the retailers in one shape or form.
3- Most retailers today still do not work with a dynamic and comprehensive business plan and or use a forecasting tool consistently. They also spend very little time, if any looking at their balance sheet every month and mostly believe that the profits that are reflected on their statements are supposed to be accurate.
4- Overall, only 1% of the consumers are still fully satisfied with their vehicle purchase experience. Keep in mind that generation “Y” values this experience 10 times greater than that of the product itself.
5- Those who might be disturbed by the idea of self driving might one day be outlawed all together are not thinking that the generations that will be effected by this change will have no past experience of self driving to compare. A child who is 10 years old today may never even need a driver’s license when they reach 17.
6- In the last 20 years a lot disappeared from the business world that were once considered giant sectors, how many phone booths do you see, what is the ratio of land lines to that of cell phones, how many travel agencies are in business today, what happened to Eastman Kodak, once a photography and film giant, and its extension of film developing and printing, do you see any video rental outlets, what happened to Blockbuster? Why do you people think that auto retailing is an exception to all of these examples of evolution of the last twenty years?
7- The current power and the size of any segment of industry does not drive and dictate evolution and how the future generation of businesses are going to form, keep in mind that nobody cares how much the current automotive retail industry is worth, how many people they employ, what the size of allied industries are. It also does not matter what kind of tax revenue will be lost, what DMV fees will disappear and who will be affected with all of this.
None of this drives the evolution of mobility and prevents it from going where it needs to go, no one will stop it. Here is the reason why;
1- As of 2017 and for the past 3 or 4 years, this industry delivered over 17MM vehicles per year but only scrapped 11.5MM per year. As of the end of 2016 there are 253MM vehicles on the road in the US and keeps increasing at a rate of 1.5% per year.
2- Average privately owned vehicle is parked over 19 hours a day and taking up space either in a garage or a parking lot.
3- Global warming is increasing at an alarming rate and internal combustion engines and fossil fuel is contributing to it.
4- Time wasted during commute has reached a point of crisis.
5- Traffic related deaths and injuries only continue to climb as the amount of traffic congestion increases.
6- Average person who just needs to get to work and back at the shortest amount of time and the lowest cost does not care about anyone losing their driving privileges.
7-Those who care about their individuality can still custom build a coach that could have all the luxury In the world from plush bedrooms to contemporary offices on wheels.
So if you are one of those retailers thinking that this won’t happen to you, think again. The only two options you should be thinking are the following:
1- How much more profit can you generate in the next 7 to 10 years to give up what your store would be worth if you sold it today?
2- If you want to stay in the game of being a future fleet operator, how much of a culture change are you willing to go through?
Here is what you need to consider when you do the math. Auto retailing will decline by 5-7% per year starting 2017 yearend. Therefore calculate the value of your business today as at least 3 times pre-tax earnings as of the end of 2017, and calculate with a minimum decline of 5% per year, what would be your estimated pre-tax profits accumulative at the end of 2022. You have to decide to take the route of whichever is greater considering that later is a risk.
Our focus in helping retailers has shifted to mobility evolution since last year. So if none of this makes any sense to you and you need help with a strategy give me a call and I will tailor a strategy that will maximize your return on your investment.
Please click on the links to watch our interview video done for Mobility LA earlier this year and the newsletters that initiated the awareness a year ago.
Look forward to hearing from you,