FRANCHISE SYSTEM IN JEOPARDY?
I remember in 1983 a pioneer “cell phone” representative demonstrating the first “car phone” mounted in the trunk of his vehicle that looked like a medium size suitcase with heavy wires attached to it. He had to make several attempt to obtain a proper signal so that he could show me how this state of the art telephone was going to change our lives. 33 years later imagine the things that you can do with your cell phone today which weighs about 6 ounces. Most important of all is that the household use of the landline telephone now is almost nonexistent.
I attended the “AutoMobility LA” last week which was a series of workshops describing the future of transportation prequel to the Auto Show press conferences. Rapidly developing autonomous driving, vehicle connectivity, data sharing between technology companies, growing electric vehicle and alternative energy initiatives combined with social trends and traffic congestion; is dramatically changing the scenery and the future of mobility. Alternative transportation concepts, ride sharing, much improved connectivity and data sharing via cloud quickly building the artificial intelligence will soon make up the network foundation of safe and quick self driving vehicles that will give consumers the flexibility to pick and choose what best serves their individual mobility needs.
Comes with that the question of what will happen to the automotive retail distribution system called the franchised car dealerships as we know it today. Developers and scientists are all focused on eliminating the increasingly congested transportation systems that are in place today that impacts air quality, productive time, and quality of life not to mention the risk of human lives.
While manufacturers are exercising extreme caution not to alarm the retail industry, the indications are clear that by 2025, the number of auto retailers in the United States will be dramatically reduced. Unlike what is being predicted by some industry analysts, the efforts of the top start up industries are encouraged and supported by most of the auto manufacturers to define and accommodate the future of mobility. This will not only translate into fewer vehicles to be produced but it will also make private vehicle ownership somewhat of a luxury. BMW’s “Reach Now”, Audi “Ride Share”, “Uber”, “ Lyft” and many others are experimenting with concepts of alternative transportation. During their press conference at the Auto Show Hyundai announced the “subscription” model alternative to leasing or retail to begin in 2017 on their “Ioniq” lineup which are all electric, electric hybrid or plug-in Hybrid vehicles to be introduced in 2017. All of this will gradually eliminate the need of a vehicle distribution network as we know it today.
Hyundai’s subscription model will eliminate the obstacles of price fixing since there will no longer be a purchase or a lease transaction. To subscribe to a transportation service one would simply go on a web-site, make their selections and sign up for a program that best suits their needs. This subscription in most cases will have no added cost, no maintenance requirements, no mileage restrictions, registration fees or associated taxes since they will all be included in the monthly subscription fee. At that point the only function of a so called “dealer” would be a place to go pick up your vehicle.
In the later stages of this concept and before 2025; as autonomous driving and artificial intelligence associated with it develops, private vehicle ownership will gradually fade into the sunset much like what happened to your landline telephones.
The other emerging technology that will also alter the scenery is “3D PRINTING” used in micro Factories where they have started building cars within hours from start to finish and all made to order, not much different than the amount of time it takes to get your haircut. “Local Motors” currently have 3 Micro factories in the United States where they can build you a car while you wait. “Divergent 3D” is another one that displayed proto-types at the Auto Show last week.
Moral of the story, in the past few years, we have made several predictions that were unlike industry trends but were proven to become reality. We were told by all optimists that 2016 would be another record year in the US for retail sales. Right now we are tracking to finish the year at 1.7MM units, down 500,000 from 2015. As I have mentioned in my December 2015 newsletter, this is another start of the cyclical down turn which will continue declining for the next few years.
WHAT ARE YOUR CHOICES…
If you are a small to medium size dealership, this would be a great time to prepare your exit strategy. While the sales would be declining, by doing the right things you can still build value into your business or retain what it is today for a little while longer. If you wait too long you may become the victim of emerging mobility trends and much like what happened in 2008, you could be among those that ended up closing down their dealerships by reasons that are not quite predictable today. This country went from 22 thousand to 18 thousand dealerships almost overnight. The identity of retail stores by 2025 will dramatically change to merely become distribution centers for customers to pick up cars from. Needless to say there will be some type of profit generating criteria for those centers much different than what they are for a car dealership. The end result will be; you will need much fewer distribution centers than you need dealerships as we know it today. If you are big enough and innovative enough to accommodate these drastic changes, you might become one of them.
BEGIN DOING THINGS RIGHT….
If you never paid attention to the climate of your companies cultural level as it relates to the trends of today’s consumers, if your processes and marketing plans are still based on the auto retailing cliché that has been around for decades, if your ROS is still at or below2%, if your own self concept is defensive rather than constructive; start now or do the right thing and bail out, this is not for you anymore.
I personally made serious adjustments to the character of services that I will provide to our network of clients going forward. ” CONVERGENT ALLIANCE” now is a “MOBILITY DEVELOPMENT STRATEGIST” and no longer just a retail development company. Our goal now is to assist our clients to transition into this transformation successfully or prepare them for an exit strategy so that they can maximize their return and cash out. Either way, you need to immediately start paying attention to the following:
1- IDENTIFY YOUR ORGANIZATION’S ENVIRONMENTAL SELF-IMAGE
2- INSTITUTE A PROCESS IMMEDIATELY TO DEFINE, COMMUNICATE AND ASSIMILATE AN IMAGE THAT WILL CATAPULT YOUR ORGANIZATION INTO THE NEW ERA OF MOBILITY.
3-FOCUS ALL OF YOUR MARKETING EFFORTS ON SOCIAL MEDIA AND ABANDON ALL CLASSICAL WAYS OF MARKETING AND ADVERTISING.
4- REVISE ALL OF YOUR PROCESSES TO ACCOMMODATE CONSUMER TRENDS TODAY.
5- BUILD THE BEST TEAM OF EMPLOYEES THAT YOU COULD EVER IMAGINE AND RETAIN THEM.
6- CONTROL YOUR EXPENSES LIKE NEVER BEFORE WITH A SYSTEMATIC PROCESS AND IMPROVE YOUR RETURN ON SALES.
7- REMEMBER THAT IF YOU DO DECIDE TO EXIT, ALL OF THE ABOVE WILL STILL DETERMINE HOW YOU ARE GOING TO CASH OUT.
We have currently programs in place in our organization to address all of the above, I encourage you to reach out to me so that we can assess and identify your specific needs in order to achieve these objectives. Starting January 2017, we will offer 100% FREE INTIAL CONSULTATION for retailers to propose a custom curriculum initiative. Have a Happy Thanksgiving.
Arlan
Mobility Development Strategist