Are Car Dealers on Thin Ice or Lacing Up Speed Skates?

Automotive retailing has always adapted. It wasn’t that long ago that a crop of well-funded Silicon Valley startups was going to render dealers obsolete. 

I remember attending a trade convention circa 1999, listening to Scott Painter, as the CEO of CarsDirect.com, sending the message, along with other similar start-ups, that the Internet was ushering in a new age, that would disintermediate car dealers out of existence.

It is 20 years later, and, although the landscape has consolidated a bit, automotive retailers still are around and doing well. In fact, most of those “revolutionary” Internet start-ups are gone, consolidated into a few giants that, yes, changed the industry, but more in an evolutionary way.

The change predicted now though is different than years past, as it centers not just on a new way of retailing (selling vehicles with online technology vendors or in different venues like Carvana) but challenges the very premise of private-vehicle ownership itself. 

As dealers, we are used to the cyclical ups and downs of the market (and we have been on the up side for an unprecedented long time now). But if something fundamental changes, say if 10%-20% of the purchase market is taken out of the system in the next cycle, who is prepared for that?

Predictions now, not just from Silicon Valley start-ups but from Wall Street and even astute if not so disinterested, dealer brokers, forecast dramatically more sales will be taken out of the system, permanently, replaced by Mobility as a Service (MaaS), within the next decade or so. 

A Deloitte University Press publication predicts that by 2030, approximately 70% of new vehicles will be sold to new mobility fleets, not consumers. 

Ark Investment Research predicts that by 2030 the total market capitalization of the new mobility providers will be six times more than the market capitalization of all the vehicle manufacturers combined.

IHS Markit predicts that by 2040, while the number of vehicle-travel miles will be up by 65%, the number of actual vehicles sold will decrease by 33%.

These numbers are dramatic. They could be way off, but still portend tremendous change ahead. 

Not only that, but it looks like the largest of dealer vendor organizations are proactively preparing for this change, with dramatic changes of their own.

One need only look at Cox Automotive and listen to its pronouncement that its New Mobility Group will balloon into a $5 billion business within the next decade.  Cox Automotive took in $7 billion in total revenue last year, virtually all from car dealers. Cox reportedly expects its new mobility business will outpace its cash-cow Manheim auction business within 10 years.

In a WardsAuto article, Cox Chief Operating Officer Mark O’Neil predicts that approximately 16,800 franchise dealership rooftops will constrict to about 9,000 by 2034, and that about 9,000 owners will drop to 1,000 by as soon as 2030. It is clear how they see the future unfolding. (Mark O'Neil, left)

Ironically, it was on the same day at two different events in two different states that two respected industry leaders presented two different viewpoints. 

I was at the first Fleet Forward Conference in San Francisco (that brought together Silicon Valley transportation start-ups with more traditional fleet industry folks), when Dave Liniado, Cox’s vice president-growth and development, reiterated some of these forecasts for Cox’s new Mobility Solutions Group stated above.

On the same day, Wes Lutz, the Chairman of the National Automobile Dealers Assn. and the owner of Extreme Dodge Jeep Ram in Jackson, MI, offered an alternative viewpoint to the Automotive Press Assn. in Detroit.

Lutz set out to debunk three so-called myths: that ride-hailing services will replace personal-vehicle ownership; that autonomous vehicles will make roads safer; and that dealers are thwarting electric-vehicle sales. (Wards: “NADA Chairman Takes Aim at Three ‘False Narratives’)

Who knows what the future will hold? That’s why dealers need to prepare today for whatever rolls out. 

Betting against change never is a good strategy. For automotive retailing, it isn’t a stretch to say lack of preparation now for MaaS changes could be a serious mistake. 

Adaption and flexibility have always been the hallmark of dealers who have survived our cyclical business. This won’t change.

I’m reminded by the popular organizational-change book, “Our Iceberg is Melting,” by renowned Harvard Business School Professor John Kotter. He tells the story in a fable format, with penguins as characters no less.

A community of penguins must deal with the threat that the iceberg they have lived on for decades may be melting and is in danger of splitting apart.

As with any established company used to the norm that has always worked well, dealing with this change must be sold to the community, without the benefit of being 100% sure of future probabilities.

A sanguine penguin questions an elder who did not want to act until all assertions were a certainty.

Those who wait until change is upon us, who wait until they are 100% sure, find themselves unable to catch up fast enough. Just ask a taxi company owner. The first step in promoting change is reducing complacency and increasing urgency.

Dealers are experts at solving today’s transportation needs. Just as irrefutable, though less popular with the Silicon Valley start-up types, dealers have the immediate, lowest-cost, inevitably necessary infrastructure and location points to satisfy Mobility as Service needs better than the start-ups.

It’s 2019 and given the facts that are now evident, it may be imprudent for a dealer not to begin to investigate and enter the new world of Mobility as a Service in profitable and scalable ways that leverage a dealer’s strengths and core business. 

I recently attended an industry conference where Scott Painter spoke of his new, well-funded start-up, Fair.com, that, well, also seems to disintermediate dealers.  Though the rhetoric and business model is toned down, clearly the fundamental “use” of car dealers in the Fair.com model is much the same as with CarsDirect.com those many years ago.

Dealers provide the source of the Fair inventory that is then purchased by Fair, to be subscribed/leased on the new Fair.com app to the end user. That consumer is Fair.com’s customer, not the dealer’s.

The more things change, the more some things seem to stay the same.

John F. Possumato is an attorney, the founder of Automotive Mobile Solutions and DriveItAway, and a graduate of the University of Pennsylvania’s Law School and Wharton School of Business. He can be reached at [email protected] and 856-577-2763.