Technology Leads with Future In-House Dealership Models

Eric Volkman

February 24, 2022

4 Min Read
iStock-458075769-800x400

In the US and other jurisdictions around the world, the independently owned and operated car dealership has been part of the auto industry for many a decade.

Yet, in an environment where vehicles and the driver’s relationship to them are changing quickly, a shift is occurring in the retail space too, albeit at a slower pace. Nowadays, automakers are eager to turn to a direct sales model, in which they, effectively, completely replace the dealership. Some are veering more towards the agency model, a sort of hybrid in which the dealership function is quasi-independent, but many of its operations are controlled by the car manufacturer.

The chief motivations behind this are obvious – control and profitability. In the traditional dealership model, it’s the retailer that has the direct relationship with the customer. After all, the vast bulk of its profits come not from the initial vehicle sale but the servicing and parts necessary after it.

The profit part of the equation is particularly compelling today, given the kinds of models consumers are hungriest to buy. “Historically franchise dealers have done a horrible job at selling EVs and hybrids; the agency model helps to eliminate this poor sales procedure,” said John Possumato, founder and CEO of auto industry services company Driveitaway, of a key motivation why “going agency or direct” is such a goal these days.

“There is good reason why dealers have historically given EV and hybrids little attention,” he continued. “If a salesperson and dealer can make five-times the gross profit on a truck or SUV, in a retail business notorious for sales associate turnover (it averages over 100% turnover a year), why would anyone on the sales side of the store want to spend all of the time and attention to educate and sell an EV to a new prospective customer, until, at least, it’s as profitable to do so?”

That argument is hard to contradict. So why, exactly, hasn’t every single automaker around the world switched overnight to either a direct or agency sales model? The main roadblock can be summed up in two words: the law. Connor Sabatino, an attorney who has handled numerous vehicle industry cases in his career, explains that in America “many states still prohibit factory stores or direct sales”.

This goes back to nearly the start of the auto industry in the early decades of the last century. Lawmakers wanted to limit the power of carmakers in retailing their wares and protect consumers from what was feared might be an oligarchy. Mission accomplished. In this day and age, “For manufacturers pursuing a direct-sales or factory-store model, the largest challenge is navigating this patchwork of dealer laws, ensuring all sales transactions occur only in a state where that activity is legal, and determining the extent of delivery-related services it can directly provide to its customers in those other states before that state’s regulatory body asserts that the delivery activity amounts to dealership activity requiring a license (which, in those states, a manufacturer cannot obtain),” Sabatino said.

Technology strength

Such restrictions are a huge reason why the more established automakers have had, and will have, a tougher slog transitioning to an agency or direct model. Another challenge to surmount is the development, or modification, of the tech backbone strong and sophisticated enough to support the relationship with the customer, providing him or her with the online and mobile connectivity functions they’ve come to expect as included in their purchase. Of course, the wider the retail network, the more disciplined this tech regime will need to be.

“At the root of dealership network management lies a certain degree of standardization, at least for medium and large dealerships,” said Anne Junge, director of sales and commerce transformation at business consultancy Capgemini Invent. “A holistic and connected customer relationship management (CRM) system is needed to ensure consistent messaging throughout the customer journey and across all distribution levels,” she added. “These systems should use machine learning to track the evolving customer relationship, identifying, predicting, and supporting changes to consumer buying-behaviors.”

Those are only the most important items in a retail auto network’s tech shopping cart. Junge said that other critical elements include sales and service applications, which according to her must be “100% embedded” to properly serve the customer during the various phases of ownership.

Manufacturers are clearly willing to do the heavy lifting necessary to transition from the old way of selling cars to the new models that bring them closer to the customer. However, is this just a passing fad at the end of the day, or a long-term switch to a brave new way of “moving the metal”? Possumato slants heavily toward the latter. “Outside the US, no question everything will go agency model, at least until the model might prove less lucrative than most OEMs imagine,” he said. “In the US, I personally think the evolution will be the same, although it will take a bit longer because of franchise laws, the very strong National Automobile Dealers Association/state franchise dealer associations, etc.”

 

Subscribe to a WardsAuto newsletter today!
Get the latest automotive news delivered daily or weekly. With 5 newsletters to choose from, each curated by our Editors, you can decide what matters to you most.