Recap of The Next 5 Years:
For those of you who follow us might remember, (if not, all of our publications are on our webpage at www.convergentalliance.com). that since may of 2017 we have estimated 2017 total sales to be under 17MM total and we are on track for that. 2018 will be the beginning of the second quadrant of mobility transition in the U.S. Here are the expected developments in the next 5 years:
By 2023, total light vehicles sales will level somewhere around 13MM units, of that less than 10MM will make up the private ownership and the mix of electrified vehicles will exceed 50%. Most of the human driven vehicles and all of the level 4 autonomous vehicles will be luxury brands and will make up 80% of the retail sales.
SUBSCRIPTION MODEL WILL DOMINATE RETAIL SALES:
After a bad start for Cadillac last year in New York test market, Volvo this year announced their subscription model at the LA Auto Show press conference and actually, during the show, had a customer subscribe for a Volvo on an I pad from start to finish in less than 20 minutes. Volvo subscription model is for 24 months, for a fixed monthly (non-negotiable) payment that includes, warranty, all maintenance including wear and tear items, registration, and insurance. The only thing that the customer is responsible for is the fuel; that is for non-electric vehicles. Starting in 2018, most manufacturers will offer this model since it basically gets rid of dealer negotiations and goes around the price fixing regulations. Millennials will absolutely embrace it and the model will grow to dominate the industry.
F&I AND AFTER MARKET WILL TAKE THE BIGGEST HIT AND PROVIDERS WILL BE FORCED TO CHANGE STRATEGIES:
Since the subscription model provides everything that F&I offers in its packet, retailer F&I departments will eventually become extinct. Existing after market companies will have to come up with plans that will include vehicle insurance and comprehensive product menus that they will offer retailers particularly to mimic subscription for used vehicles which will become the bread and butter for retailers going forward. However most of the product will be offered inclusive of the payment that will eliminate the need for the F&I department. New internet buying services will emerge to offer used car subscriptions and they will offer retailer inventories for their model.
LARGE SIZE ACQUISITIONS WILL TAKE PLACE:
In preparation of the “Ride Hail Fleet Operations” large dealer groups will continue to swallow a bunch of small dealers to create market dominance when the time comes. Auto Nation has been on a mission so far to exactly do that and in fact made a deal with Waymo to service their fleet vehicles at their used car superstores to start the experiment. To that end, Waymo has already plans in place to start providing Chrysler Pacifica stage 4 autonomous ride hail services in Arizona within designated markets in 2018. Later in the year they will expand their application to Pittsburg and perhaps San Francisco.
GM AND VW WILL LEAD UP THE RIDESHARE INDUSTRY:
GM’s investment in autonomous technology, Lyft and partnership with Waymo, is a clear indication of their commitment to future of mobility beyond any other manufacturer so far. While they don’t have a clear business plan, (or so they say not to disrupt the retail industry), they have made significant investment financially and intellectually to prepare for the future of transportation. They understand that building fleet vehicles with autonomous technology is not the same as developing model after model for the consumer and that they will remain purely as coach builders. VW is the other worldwide manufacturer that has initiated significant efforts into the ride share business by acquiring “Gett”; equivalent service to that of Uber and Lyft in Europe. So far everyone else has pretty much been watching on the side lines with little or no effort with the exception of the disruptors coming into the market. To that end Lyft will perhaps grow beyond Uber unless Uber gets its act together and start looking at the future with more diversity and investment partners.
SUGGESTED ROAD MAP FOR THE RETAILERS:
Under the above landscape and as we get closer to the end of the era of the conventional car dealers, we have suggested since last year that there are really few options to consider. If this new business model is not for you, you are at the peak of value for your business today, cash out. Keep in mind that business volume and therefore the perceived future value of your dealership will continue declining. If you think that year over year you can make more money in 5 years than what you could cash out today, you may take the gamble. To play it safe, I’d say take the money and run. But for those entrepreneurs who have the willingness to transform to the future of transportation business there are steps to take:
1- Immediately start thinking about eliminating your F&I departments and remap a process with which you can sell cars without it.
2- Figure out a way if you actually can sell vehicle liability and comprehensive coverage under your dealership umbrella. Some states have stricter rules for this business.
3- Unequivocally, adopt a non-negotiable one price selling at your dealerships and proudly and aggressively advertise your process.
4- Develop compensation plans to support the sales system and attract quality staff to provide the best customer service humanly possible, shift the focus from product to people.
5- Develop new strategies for your service department to grow your fixed ops business and cross train your advisors and your vehicle sales staff.
6- Shift to a 100% digital marketing strategy and provide tools to measure effectiveness and efficiency on a daily basis.
7- Invest in processes and workshops to develop your people individually and organizationally. Create a business environment that offers, comfort, excitement, opportunity and security for its employees.
8- If you are a small size dealer operator with less than 5-6 locations, this plan will only allow you to sail through the mobility evolution for the next 5-7 years unless you own luxury franchises. Beyond that you still need to make plans to maximize the return on your investment.
ON THAT NOTE, WHETHER YOU ARE A RETAILER, AN ALLIED INDUSTRY MEMBER OR EMPLOYEE, OTHER INDUSTRY PROFESSIONAL OR JUST A FRIEND WHO HAVE BEEN RECEIVING OUR NEWSLETTERS FOR THE PAST THREE YEAR, I WISH YOU THE BEST FOR THE HOLIDAYS AND THE UPCOMING YEAR, MAY YOU BE BLESSED WITH GOOD HEALTH, LOVE AND PROSPERITY.