What’s the future for car dealerships?

Car sale at dealership green colorful car

At a time when the global car market is about to set a new record and produce over 100 million vehicles per annum, most powered by an internal combustion engine, it is hard to believe that the industry is looking to a future where fewer cars are produced and local car dealerships will no longer exist.

KPMG’s 19th Global Automotive Survey, published in January, asked over 900 automotive executives from Western Europe, USA, China and India and over 2000 consumers what they believed the major changes to the auto industry would be. The majority believed that over 50 per cent of bricks and mortar dealerships would close by 2025 and that most automotive manufacturing would move out of Western Europe.

The survey also highlighted consumer fears over data security: three quarters agreed this is a major influence in purchase decisions and should be integral to vehicle standard operating equipment – a view shared by 85 per cent of executives. The concept of what constitutes “standard equipment” must therefore be redefined.

These survey results are influenced by the rapid takeup of alternate source vehicles (in other words, those with non-internal combustion engines) expected over the coming decade.

The internal combustion engine (ICE) has been an extremely robust and successful means of driving personal transportation for over a century but it comes with unique features that have led to current distribution channels.

With over 10,000 moving parts, the ICE is complex and requires constant and highly technical and expensive maintenance. Historically, this has led to the advent of the local dealership model, as dealers managed the vehicle ownership relationship from sales through to service.

With fewer moving parts, the vehicles of the future will be more software driven than mechanical, which eliminates the need for expensive and specialised servicing.

Up until now, sales of alternate fuel vehicles have been stunted for a number of reasons, with legacy issues at the top of the list. Retooling a plant to move from producing ICE vehicles to electric ones is a very costly exercise.

However, global concerns on climate change and the need to reduce CO2 emissions under the Paris Climate Agreement has led to many governments now implementing dates by which emission producing cars must cease to be sold in their countries .

In recent months, Germany has implemented an end date of 2030 to the sale of ICE vehicles; France and the UK have implemented the same for 2040; and China, the largest car market in the world, will shortly announce a date.

Additionally, some States in the USA, such as California, are implementing their own regulations to limit CO2 emissions and push the alternate fuel source agenda.

Both Original Equipment Manufacturers and technology companies are investing in this new technology. The KPMG Survey also pinpointed that fuel cell electric vehicles (FCEVs) replacing battery electric vehicles (BEVs) was this year’s number one manufacturing trend.

As electric vehicle servicing intervals can now extend to 100,000km, the dependency of the customer on the dealer network is curtailed, leading to possible forced closures.

To survive, dealerships must evolve from Transaction Hubs to Experience Hubs, where vehicles will be built at a very personalised level. These Hubs will interact with drivers at every stage of the ownership life cycle and reinvent the concept of customer service. Sales support is no longer enough.

In Australia, these changes can already be seen, such as car showrooms popping up in major shopping centers, including the Jaguar Landrover dealership at Westfield Bondi Junction in Sydney. These are more akin to the Experience Hubs of the future, where customers can experience both product and brand, combining a shopping mindset which comes with being in a retail complex. Mercedes Benz has also joined the trend, opening Australia’s first Mercedes-Benz Me Café in Melbourne, where the focus is as much on the quality of the coffee as the cars!

There may be fewer dealerships but they will be exciting places to visit!

Wayne Pearson, National Leader – Motor Industry Services, KPMG Enterprise