After receiving more feedback on “Dealers Best-Suited to Handle Mobility Services” than any trade article I’ve written to date, I wanted to share some interesting ideas from dealers
Judging from the direct response I received on my last Industry Voices commentary, I’m thinking “mobility as a service,” (including car sharing and ride sharing) as an integrated dealer service may be a good idea whose time has come. Or at least it’s an idea to be explored.
First, as a war-horse auto-retailing veteran, I was amazed at the quantity and quality of the feedback from dealer folks.
Granted, these are early-adopter types, but my guess is dealers are not about to be easily shunted to the periphery of shared mobility, which requires, among other things, cleaning facilities, charging stations and holding lots.
People reacting to my commentary included a few folks from outside the retail industry who are convinced that within five years the market will be filled completely with all-electric, fully autonomous vehicles. I wouldn’t place my money on that.
But back to the dealer responses. I want to highlight two recurring themes, one a clear potential solution to an upcoming industry problem, and the other a feeling mobility as a service can increase dealer vehicle sales and retail profits as an adjunct to F&I offerings, something I hadn’t considered.
Just around the time my original article came out, AlixPartners dropped a time-bomb prognostication. It predicted a significant downturn in U.S. new-vehicle sales ahead, to 16.9 million light vehicle units this year and a cyclical trough of 15.2 million units in 2019, partly driven by millions of off-lease vehicles glutting the used-car market.
The report foresees a double-whammy to new vehicle sales, as buyers potentially migrate to cheaper used vehicles and new-vehicle leases get written with anticipated lower residual rates and tighter credit standards.
The report goes on to say that as more off-lease vehicles fill the wholesale market, some analysts believe used-vehicle prices will soften at an accelerated rate, costing automakers’ captive finance companies up to $5 billion.
Any dealer will tell you residuals on a lot of turned-in lease units are out of whack, way underwater, and that’s not good for anyone in the chain.
What dealers are suggesting to me, however, is that these units would be perfect to put into a car-sharing/ride-sharing program at dealerships, and used for several months until the residual depreciation is more in-line with book value. This is a simple, elegant low-cost solution to a severe problem. (And how many functional alternatives are there that help this situation without massive losses?)
The fact is, while these units sit at dealerships, many prospects are being turned down for a vehicle sale or lease because of credit issues, the classic un-bankable deal. Car sharing is an option for these folks, as well as more mainstream clientele who do not require a vehicle full time.
Ride sharing would be an even better alternative here, as the vehicle and part-time employment to pay for it, would be provided at the dealership. If that isn’t a win all the way around, I don’t know what is.
Customers get transportation they would not otherwise have. The dealerships profit on an additional transaction that would not have otherwise happened. The finance company now has the means to work out of an underwater residual value situation.
There would be some moving parts, but fundamentally all this takes is a dealer-based MaaS program and a supporting captive finance company. One would think that the captive finance company might get very creative with ideas like these, if truly faced with remarketing loses approaching the $5 billion mark, as AlixPartners has suggested.
Captive finance companies could calculate exactly how much time in the car-sharing/ride-sharing fleet would be required, at a reasonable depreciation, for residuals to be more in line with actual cash value, and again, everybody wins.
These units are perfect for mobility-services opportunities. And where better to conduct that than at a dealership, the place they are turned in and where customers are conditioned to look for transportation?
Back this up with a little broad based visibility and promotion (out of the $5 billion saved, presumably), and we have a powerful reason for a dealership based MaaS service to be successful on a national scale.
While the above idea had crossed my mind, a second suggestion by dealers had not. Now it seems obvious.
Any sales or F&I pro knows a hard-sell approach usually doesn’t work in the long run. The best strategy is to lay out the benefits and let the customer’s self-interest make the sale.
Well, pair this with a peer-to-peer car-sharing program at the dealership, preferably on the sales floor, in F&I, or even during the process of an online driven purchase, and you have the first new unique way to increase sales and profits on transactions without any hard sell at all.
Let me explain. How many customers would rather have the newest and most feature-filled model, as opposed to the practical one they have budgeted for in their payment?
If customers are financially able but not willing to go a little higher on price, sometimes all it needs is a little creative demo and salesmanship from the dealership to nudge them a little further. How much better to do this, then presenting them with the option of being able to generate income from their purchase, at any time when the vehicle is not in use?
Peer-to-peer car sharing, that is, putting your vehicle out for someone else to use, for a fee, when you are not using it, allows for this income potential.
Early entrants such as Turo have introduced this to consumers as easy, automated and insured. Once again though, this business is best conducted at the dealership, where it can not only be offered to all clientele, but particularly at the point of sale of a new or used unit, where it has the ancillary benefit of nudging a buyer into upgrading his or her new prospective purchase (or actually close the sale when a shopper is on the fence about the purchase).
This idea of being able to convert a purchased vehicle into a cash-generating asset is an innovative and almost irresistible incentive to buy and upgrade, for all types of purchasers and vehicle product ranges, from new luxury sedans to older pickup trucks.
It has been pointed out to me that this process is customary for Tesla vehicles in certain markets. If this goes mainstream at dealerships, the practice could grow exponentially. Once again, everyone wins.