HOW can dealers position themselves to face into what seems to be nothing but ambiguity in the Australian market for 2019?
Dealer groups have been forced to evolve their operations to adapt to the new landscape and those that aren’t agile will face being forced out of the market.
Success in the new automotive ecosystem will not be attained by a single entity dominating the entire process. Each player must identify their role and define their field of play to create their own point of difference.
In the new normal, consolidating with industry peers may be a way for the industry players to survive and keep up with the non-product based players (Google and Facebook).
Finding the right balance between where to compete, cooperate and co-integrate will be the key.
There are exciting times in the future, so let’s embrace the change and find our place in the new customer-focused ecosystem.
Short term strategies:
Re-focus the dealership’s efforts
KPMG Motor Industry Services would recommend dealerships maintain focus in the changing and challenging market – recognising the strengths and weaknesses in the business; and building a plan to optimise your opportunities and operations.
- Don’t waste your customer opportunities
- Don’t be scared of trade-ins. Used vehicles need to be the focus in a declining new vehicle market as they are your best opportunity to maintain gross
- Utilise your CRM database to mine your current customers that are coming out of warranty, in for 30,000km service or driving the previous model.
- Get the finance locked away well and truly upfront and get your F&I team proactively pre-approving customers.
- Start all F&I commission schemes at 100 per cent penetration and disincentivise for lost business. This will refocus the team on the new normal.
Dealer groups need to monitor and where possible reduce costs in everyday operating activities to align with the drop in overall gross margins. Getting your business lean and right-sized will allow you to maintain profitability in a down market and really soar when the market improves.
Conduct a ‘Two Types of People’ analysis and work out how to remove or restructure non-gross generating people out of the business through technology, offshoring or job sharing.
Become easier to do business with (the biggest threat to the traditional dealer model)
Car dealers need to offer a sales process similar to the way people want to buy cars and have been trained to shop by the likes of Google and Amazon.
Dealers will need to have complete transparency in vehicle pricing and financing upfront. Consumers no longer want to haggle and negotiate a deal at the dealership. The price is the price…when was the last time you negotiated the price of a loaf of bread at Coles or Woolworths?
Consumers want to shop 24/7 for cars online, transact online and have their vehicle delivered when and where it’s most convenient to them, or click and collect from a delivery centre. Can you shift your operating model to a click and collect offering?
Lastly, consumers will need to have the option to return the vehicle (typically within 7 days and limited by 100 kilometres), similar to the way they currently interact with other online retailers.
Dealers need to take these steps themselves or must be open to the type of disruption seen in other traditional retail sectors by Amazon or similar businesses. You would be remiss to think the OEMs aren’t already looking at this as a new distribution model.
Become the lender
Dealerships need to consider changing their business model in order to participate in the profit from car loan financing after the new ASIC changes are put in place.
One alternative is for dealer groups to become the lender and provide car loans directly to customers.
Becoming the financier (usually in a joint venture with an established financier) will allow dealers some flexibility to set rates to their customer risk profiles and participate in the gross margins through the value chain.
Becoming a full service provider to your customer will reduce the chances of them being romanced by another dealer.
Long term strategies:
Position the dealer group to take advantage of the forthcoming changes in the industry and be an active participant. Align with a brand in a region to become the retail representative for that brand or be a mobility service provider for a region or a particular segment of the market.
Exit or Grow
Small to medium dealer groups are at a crossroads where they decide whether to remain in the market and fight an uphill battle. If the small players stay in the market, they will need to have strong growth plans in order to compete with bigger dealer groups in the future.
I’m excited to see where the next 12 months takes us, for additional information on the future of automotive, or for a ‘future ready’ assessment on your business, contact Steven Bragg or the KPMG Motor Industry Services Team.
Steven Bragg | National Lead, KPMG Motor Industry Services | M: +61 437 445 200 | E:email@example.com
KPMG Motor Industry Services: firstname.lastname@example.org
Be alert but not alarmed: Part Three – What can Australian dealers do?
By Steve Bragg