14th February, 2018 · Opinion Piece

The Future of Car Dealerships

3 minutes to read

The automotive industry is in a state of change, which has led to speculation that the footprint of car dealerships will be dramatically reduced in coming years. KPMG’s recently released 2018 Global Automotive Executive Survey found 56% of executives believe that physical retail outlets will be reduced by 30-50% by 2025.

If true, this would represent a profound change for Australia’s 3,500 dealerships which employ some 60,000 people and make a total economic contribution of over $12 billion.

The survey identified a number of reasons for this rapid rationalisation – firstly they reasoned that consumers will increasingly be able to purchase new vehicles online; second, they concluded that the concept of car ownership will change, necessitating a shift from “selling products to selling customer experiences”; thirdly, analysis by KPMG’s local arm has highlighted the emergence of electric vehicles as a threat to dealer service and repair revenue.

These are all fair points and rationalisation of car dealerships in Australia is already occurring for a range of reasons. Nevertheless, fifty per cent or 1,750 fewer outlets within seven years in a country as geographically diverse as Australia is a stretch.

The emergence of online retailing has been a hot topic with the arrival of Amazon in recent months. Consumers are increasingly buying goods online and while they are also turning to the internet for their vehicle purchasing decisions, they are still overwhelmingly completing the sale at a dealership. A US study released this month by Cox Automotive showed that many consumers like to complete at least one step of the car buying process online, but 90% want to complete the transaction at a dealership.

The motor vehicle still represents a significant, emotional purchase for an Australian family and seeing and testing the product at a dealership will remain the most important part of the transaction.

We are told that motorists will increasingly turn away from owning a private car and increasingly transact online utilising a range of mobility solutions on a per needs basis. While mobility as a service can facilitate convenience and drive efficiencies, there will still be a generation who maintain an emotional relationship with the car.

The jury is out on the level at which car ownership in Australia will decline in the next seven years, but when it does I believe dealers will rise to the challenge. Dealers already sell customer experiences – the car purchase is but the first step which precedes servicing, repair and recall work. Good car dealers realise the importance of the customer experience for these multiple contact points. Their resilience and adaptability will allow good car dealers to carve out a space in this brave new world.

The electrification of the Australian fleet has also been presented as major threat to car dealers. The theory is that because EVs require less servicing and repair, it will erode one of the main revenue sources of new car dealerships.

I question whether EVs will penetrate the fleet at the rate many analysts are predicting. Australian surveys show that consumers are put off by the high upfront purchase prices and the limited range which the vehicles can travel. However, even if some of these aggressive EV uptake forecasts do eventuate, it’s not to say that dealers will not benefit from the coming boom.

It is true that EVs will require less servicing and repair work, but they will still require a degree of maintenance and dealers have a long history of training technicians to work on highly advanced vehicles. Furthermore, dealers will be able to take advantage of other avenues of revenue such as the upfront sale of EVs, accessories, finance and insurance.

There is no doubt that the automotive industry is changing, and the new car retail industry will change with it. However, I am optimistic that new car dealers will maintain a significant presence come 2025. Only time will tell.


By David Blackhall