Pub. 16 2017-2018 Issue 1

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 2 , 2 0 1 7 12 new jersey auto retailer service will be the primary source of profit growth, OEM payments will become a new “shop” for dealers to manage, control of cost will be more crucial, and other departments (F&I, Used, Collision) will all be challenged. On the human resource front, these changes will accelerate the trend to tran- sition from salespeople to product advisors, and concurrently with this, a movement away from seeing front-line personnel as variable-cost, short-term expenses, and toward treating them more as fixed-cost, long-term investments. • While we do see these changes to the dealership business model taking place, we do not yet see entirely new business models emerging (e.g. dealers as mobility service providers). • When it comes to the store itself in 2025, we expect significant change. As to the physical store, we see only a slight increase in build-to-order, such that inventory levels will remain high (falling only from 60 to 50 days). We also hope that building costs will be relatively lower. As for the digital store, dealers will leverage IT to strengthen personal links with customers, but on a lower cost base. But IT will also drive increasing OEM control of the store, cybersecurity risks, and power struggles with both vendors and customers. • Our view is that the regulatory outlook is difficult, but man- ageable: existing issues dealers can deal with; emergent new issues will probably be resolved over time; and the likelihood of a shift away from the franchise system seems very low, although dealers should remain alert to ongoing challenges to the system. In terms of the other topics covered in the Dealership of Tomorrow project, there are other, general industry predictions we can make when looking out to 2025: • We see smaller, rural dealers facing different challenges than larger, metro dealers, such as low growth prospects, relatively higher investment burdens, and minimal OEM support. Con- versely they have the advantages of geographically-protected markets, strong customer relationships, and lower rates of change to manage. Accordingly, such dealers should consider adopting creative strategies for growing scale, diversifying income streams, and preserving the characteristics that make them such strong competitors. • We asked the experts at the International Car Distribution Programme (ICDP) for insights American dealers might take from their European counterparts. Among these were: o Decide now if you want to be a consolidator yourself, or to sell out to one; o Don’t panic about company stores, but worrymore about growing indirect control by OEMs; and o Aggressively pursue service work, on cars of any age. • Looking at technology issues that could impact the industry, we expect: o The U.S. market share for electric vehicles (EVs) in 2025 will be around 5%. o Virtually every new vehicle sold by 2025 will be equipped with high levels of assisted driving features, with 50% of new cars enabled with partial autonomy, and 10% capable of a high percentage of driving in fully autonomous mode. o Mobility Services (MS) will represent only a modest headwind to vehicle sales in 2025. But, if autonomous vehicles and mobility services can be linked together, they might have a much more negative impact on deal- ers, particularly if consumers begin renouncing car ownership en masse, in favor of “eternal rental.” o Connected car technology, as it develops, should be a positive development for dealers, as this binds the car to the dealer’s service lane. All-in-all, the report concludes that the dealership system will be healthy and intact in 2025, even though significantly changed from today. But we hope dealers don’t just take our word for it, but instead read through the report, draw their own conclusions about how they see the future, and plan accordingly. GlennMercer is a nationally renowned automotive consultant and owner of Glenn Mercer Automotiove LLC. He has spent 30 years following the auto industry, the first 20 as an automotive specialist at a consulting firm and the last 10 as an independent advisor. He has also worked closely with the National Automobile Dealers Association (NADA), including, most recently, on a report that looked at the Dealership of the Future. He can be reached at mercer.glenn@gmail.com. DEALERSHIP  continued from page 11