We recently returned from the National Association of Dealer Counsel Convention (NADC) in Chicago. The keynote presentation by highly-acclaimed franchise law firm of Bass Sox Mercer, titled ‘Will Dealers Remain Relevant’ was a sobering message.
While it is difficult to focus on future plans when the present is so extraordinarily lucrative, the perspective of many in-the-know automotive attorneys is that it is critically important to consider the direction of our industry in order to secure your long-term goals BEFORE the pendulum swings.
Our Top 8 Takeaways from NADC:
1. ONLINE SALES AND DISTRIBUTION: It will only take one state to change laws regarding direct ordering and sales of vehicles to the consumer to result in a monumental change in direction for the rest of the country.
2. ELECTRIC VEHICLE REVOLUTION: The OEMs are working on the inclusion of direct-to consumer ordering and distribution as part of their proposed new Electric Vehicle Participation Agreements. These agreements are intended to be mandatory and will apply to all Dealers that sell electric vehicles.
3. SHRINKING MARGINS: For many reasons, the OEMs will continue to shrink the built-in profit margins between themselves and their Dealers.
4. GLORIFIED DELIVERY CENTERS: A long term strategy of converting dealerships to glorified delivery centers would remove the middleman and a wide moat of expenses for OEMs. The elimination of margins by substituting the payment to Dealers of flat delivery fees would accelerate that process.
5. THE POLITICS OF URBAN SCIENCE: Urban Science research allegedly shows that consumers wish to change the dealership model in order to deal directly with the party who manufacturers their vehicles. This research is often cited as the foundation for the justification for radical OEM direct initiatives.
6. VOLUNTARY INCENTIVE PROGRAMS: Increased utilization of Sales Incentive Programs in order to exercise control over certain market areas and Dealers and, in some cases, to support the re-alignment of market areas.
7. DATA CONTROL: The gradual takeover of customer data by OEMs and their increasing control of Dealer websites and other customer communications is seen by franchise counsel as part of a planned strategy to minimize Dealer independence and is a precursor of things to come.
8. VEHICLE OPTION PACKAGES: Certain OEMs have plans in the works to take in-house the upgrading of vehicle option packages so that they can deal directly with customers after the vehicle is purchased. This is being viewed as the beginning of a new initiative to ship basic vehicles to Dealers allowing the franchisor to control the customer experience post sale, thereby circumventing Dealers.
Sentiment and perspectives on our industry run the gamut from Optimistic to Concerned to Sobering:
Causes for Dealer Optimism:
· Very high profitability
· Lower expenses
· Increased online sales and cheaper digital marketing
· Low interest rates
· Higher dealership values
Causes for Dealer Concern:
· Inventory shortage
· Politics and the economy
· Mounting retail price pressure
· Expense of electrification
· Higher taxes
· Facility upgrade requirements
· The 8 key takeaways listed above reveal a new future that some Dealers will decide to adapt to while others may choose to exit.
BOTTOM LINE for Dealers:
It’s more important than ever to proactively prepare for your future, so when the current bubble inevitably bursts you will be well-positioned for what’s next.
How Our Team Can Help:
Contact us to confidentially discuss options for the future of your dealership, and your best exit strategy.