21 June 2019
Increasingly we are having discussions about where the future of automotive retail is headed, especially from key stakeholders such as property investment funds and the banks. Given the ongoing issues with general retail both from a high street and out of town perspective, it is only natural for there to be major concerns. To date though, those concerns simply haven’t translated through into any greater than normal levels of distress in the sector. I recently attended the AM conference on the future of automotive retail where a number of presenters set out their views on the sector.
Whilst vehicle sales was the major focus area, of equal importance is the impact on the aftermarket. The highly respected research organisation ICDP were one of the speakers who made the following key predictions:
- In 2030, vehicle sales will comprise of 25% Hybrid (inc PHEV) and 15% BEV.
- Aftersales revenues from a BEV are anticipated to be around 50% of an ICE per service visit.
- Crash repair revenues anticipated to fall 16% due to the impact of advancing autonomy and crash avoidance systems
- But, by 2025, 69% of Parc up to 4 years old will be under some form of managed aftersales contract and 71% of those contracts will be under the control of the OEM / franchised dealer network.
So a significant degree of change is predicted which will likely have a major impact on the current business model. My own predictions of likely changes in the coming years will be centred around the following key areas:
- Increasing volumes of direct sales with an agency fee for the dealer.
- Customers who increasingly wish to visit the dealership as part of their buying process but will then complete their purchase online.
- Further levels of consolidation especially in the fragmented and relatively undeveloped independent used car market.
- Material reductions in the level of property assets deployed in the sector and focus on greater returns generated from assets in high cost prominent / retail locations.
- Income streams from traditional aftersales services in gradual decline, and replaced by alternative income streams such as opportunities presented by connected services.
The underlying outlook for the sector in my view is a period of sustained evolution rather than revolution. Nevertheless, the traditional motor retail business model must change and adapt to ensure that returns from the business continue to be sustainable.
“Change is the law of life, and those who look only to the past or present are certain to miss the future.” John F Kennedy.
