Car Dealers Should Lead Way to New Mobility

Fittingly, I started out the 2020 NADA Show in Las Vegas at the J.D. Power Auto Summit, as it was Dave Power himself (a Wharton legend), who began customer satisfaction surveys.

His premise was that pleasing the customer was ground zero for business success.

The fundamentals don’t change, and when I look at developments in emerging mobility models since I initiated the first National Automobile Dealers Assn.  convention workshop on the topic in 2018, it is amazing how focus on the customer combined with business fundamentals still dictates success/failure. In many cases, that surprises the “smart money” types.

When I did my workshop two years ago, automaker subscriptions were the flavor of the day. It seemed like every manufacturer was barreling in with a program, convinced that vehicles, like phones, were a commodity that everyone wanted to pay for, at will, on a monthly subscription basis. 

Many OEMs pursued programs without regard to fundamental customer economics, or even customer desires. Dealers seemed tangential to the programs.

Trouble was, “subscriptions” in the car business have been around a lot longer than mobile phones, Netflix streaming or any recurring-revenue service. That is, daily, weekly and monthly car rentals began soon after affordable vehicles hit the streets more than 100 years ago.

The traditional ownership model is cheaper and more convenient than a subscription for higher-end consumer whom these programs were targeting. Inventory and switching costs made it an abject money loser for those who offered new-vehicle subscriptions to ordinary consumers. 

It was a great example of a solution for which where was no problem, and eventually everyone gets tired of losing money, right?  Not to say that some programs don’t seem to be gaining some traction (those that more resemble traditional new-vehicle leases with an opt-out clause, used-vehicle subscription programs, and plans aimed at small businesses). But many OEM new-vehicle subscription programs have faded.

A couple of years ago, both subscriptions and car sharing were not only popular with the automotive media, but with so-called smart-money investors. 

The investments and meteoric rise of companies such as Fair were the topics of the day, from both the consumer-subscription side and the Uber-rental supply side. 

The Casualty Rate

We all know where that went now, right?  Loads of capital can’t mask a fundamentally flawed model, just as artificially cheap prices can’t go on forever.   Ford closed its Chariot ride-sharing shuttle service, and sold its Caravan subscription service to Fair, just before Fair went into a major reversal. 

ReachNow merged into ShareNow/Cars2Go (owned by BMW and Daimler), and then closed shop in the U.S. entirely. 

Lyft recently bought the rental/subscription Flexdrive, a high flyer in its own right a few years ago, now subsumed. 

General Motors’ Maven has closed in eight cities, Getaground at the beginning of this year laid off a quarter of its staff. And don’t get me started on the billion-dollar-plus valuations on scooter companies – probably the next imminent collapse afoot, defying demand and fundamental economics, another whole industry propped up by the venture folks.

On the other hand, ride sharing has grown dramatically during the last two years, and, although profitability is an issue there as well, it is clear these companies meet a well-defined need in the market. They will-fine tune business models for a lasting future. 

Indeed, the panel discussion, “The New World of Retail Disruption” at the J.D. Power Summit outlined how “disruption” has morphed more into working with the automotive retail world than against it, for the benefit of all.

Uber at NADA Show

Jim Bauman from Uber for Business (an actual auto-industry veteran), noted the ride-share company’s meteoric growth, but then outlined how working with dealers by using ride vouchers to replace expensive, inconvenient shuttles and excessive loaner fleets is a new development that’s mutually beneficial.

Uber Booth NADA 2020 (002)

At root, all new mobility options require a fleet of electric or gasoline-powered vehicles (scooters notwithstanding). This fleet needs to be managed, especially when still privately owned, as with ride sharing. (Uber booth at NADA convention)

So my own mix on all this follows precisely along the lines of 2020 NADA Chairman Rhett Ricart’s speech at the trade group’s convention.

He indicated dealers hold the key to all sustainable emerging volume Mobility as a Services businesses. Established dealers are, bottom line, the most efficient way to procure, service and maintain the asset.

I have yet to see a MaaS model that doesn’t conform to this reality and work with it, to make economic sense.

All other models, with lofty goals of a new way to distribute and maintain volume consumer transportation vehicles, may look good on paper. But when the investment capital runs out to subsidize these “new visions,” the companies themselves quickly disappear as well.

I don’t mean to suggest dealers will not have to adapt and change, as will new emerging mobility companies, so that each group works together to roll out better, cost-efficient and profitable methods of individual consumer mobility options.

Unlike a few years ago, this is already beginning to happen as the “new folks” begin to mature in their business models and traditional automotive retailers began to adapt and accommodate.

Ricart Is Right

Ricart is correct: Forward-thinking dealers will be “more than just fine,” but I also note that, as one of the most savvy retailers out there, Ricart, almost two years ago, announced the expansion of his fast-growing fleet and commercial services offerings by creating a new 113,000 sq.-ft. (10,498 sq.-m) building to accommodate new emerging models of transportation.

rhett-ricart_1.jpg

“We’re looking at figuring out mobile service, pickup and delivery, commercial rental. There’s a lot of different items we’re looking at.” (Rhett Ricart speaking at NADA convention)

To the elder Rhett Ricart’s point, dealers will be “more than just fine,” because of their proven ability to adapt. As Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

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.