THE decade ahead will not see the death of the car dealer, but it will see more collaboration between dealers and other industries and different perspectives by the consumer.

This is the view of global consulting firm KPMG, which in its latest Mobility 2030 research series in the UK focused on automotive retailing.

In the report, KPMG outlines ways for dealers to stay ahead of the pack and retain profitability.

KPMG UK said it was important for dealers to act now “by moving away from traditional retail approaches and early experimentation, to designing and developing coherent, future-proofed retail strategies, business and operating models”.

In KPMG’s view, the automotive retail market faces a burning platform because:

• Current approaches are financially unsustainable; margins continue to fall and the only way many smaller groups survive is to be swallowed up by larger ones or supported by national sales companies (NSCs).
• In the mid-term, new-car sales will decline, reducing the number of automotive retail groups, and OEMs, that can be supported by the market.
• Consumers increasingly no longer accept the ‘product push’ approach; consumer demands for convenience, affordability and environmentalism, among others, will only continue.
• Expectations from broader retail are increasingly embedded in automotive retail, such as omni-channel, experiential and hyper-personalised customer journeys, which are no longer differentiators at this point but really only ‘hygiene factors’.
• The challenges underpinning the above, such as a poor customer experience, lack of affordability and limited innovation in the market (until recently), all indicate a market ripe for disruption; if the incumbents don’t do it, others will, and new competitors are already making progress, including the likes of Amazon selling cars and parts.

Associate director of Mobility 2030 for KPMG in the UK, lead researcher Edwin Kemp, said that existing and new customers can be accessed more easily, effectively and regularly by adopting a customer-centric approach.

He said this would be the key to capturing value over the course of the customer relationship, and collaboration between car manufacturers (OEMs), NSCs, dealer partners and other third parties will be instrumental to success.

“The journey for OEMs, NSCs and dealers will not be easy,” he said.

He said the automotive industry faces short-term challenges including:

• The banning of combustion-engine vehicles in many European cities.
• The increasing customer interest in other forms of mobility.
• The changes in finance options and growth of personal finance.
• The rise of Mobility-as-a-Service (MaaS) products as consumers move away from private vehicle ownership; this includes a reduction in young people with driving licences, an ageing consumer group and growing car-share membership.
• Rise of electric vehicles, with estimates in Europe of 4.9 million annual unit sales in 2027, representing 23 per cent of the vehicle market; this compares with 375,000 sales in 2018, or two per cent of the market.
• Autonomous car trends, with an estimate that 25 per cent of vehicles will have Level 4 or 5 autonomy by 2030.

“In our view, the significant impact of these forces on the automotive retail market over the period to 2030 will include a decline in vehicle unit sales,” Mr Kemp said.

“Whilst we are currently seeing some short-term increases in car sales across Europe (eg, due to ageing populations driving for longer), we expect a 10 to 20 per cent decline by 2030.

“This is mainly due to the shift from ownership to mobility services which will put pressure on the scale of dealerships that can be sustained.”

The report said that 52 per cent of European executives in the KPMG 2019 Global Automotive Executive Survey were highly confident that the number of physical retail outlets will be reduced by 30-50 per cent by 2025.

“There will be a change in products and services offered as EV sales will replace internal combustion engine vehicle sales,” Mr Kemp said.

“We also expect product sales to be gradually replaced by mobility services, such as subscription and car-sharing models, which will often come together with bundled services, such as access to charge points for EVs and energy contracts.

“OEMs and dealer partners will need to make sure they put in place continued, integrated and convenient touchpoints with customers. This is a very different approach to the one-off product interactions we see today.

“Evolution of key customer MaaS operators will become the key customer group, with the business-to-consumer market declining. Potential implications include the need for larger, urban ‘hub’ dealers to serve major-city MaaS operations, whilst smaller network ‘spokes’ (both in urban and rural areas) continue to serve consumers.

“OEMs and dealers will need to consider the relevance of their current customer value propositions, segmentation and targeting, whilst a deep focus on the customer and their experience will be key to ‘winning’.”

Mr Kemp said that as digitisation advances and consumers grow more comfortable with online purchases, OEMs will need to develop credible direct-to-consumer online channels.

“New mobility services are ultimately more easily accessed through these digital platforms,” he said.

“Meanwhile, new store formats, such as city stores, should be considered by OEMs for brand repositioning, advertising and to generate leads for the network.

“Specific customer channels may need to perform specialised roles, as opposed to the current dealer model where all services are offered under one roof.

“For example, marketing might be done through city stores, financing and insurance carried out online, while vehicle handover as well as service, maintenance and repair (SMR) will take place at dealers.”

The report said that the optimal location of dealers and other physical sites is likely to change.

“In the short to medium term, retail sites must be closer to the customer, providing more convenient, flexible access in major urban areas or efficient coverage of customers in less densely populated rural areas,” the authors said.

“However, as autonomous vehicles begin to take hold around 2030, will the location of physical dealer sites even matter in a world where cars can drive themselves to and from the point of vehicle handover or for service, maintenance and repair?”

The report foresees the impact on aftersales business on which dealers currently rely.

“Battery EVs are expected to reduce SMR requirements by 40-60 per cent compared to ICEs,” the report said.

“There will be a shift in value away from hardware to software, challenging traditional skillsets and introducing new competition.

“In fact, 92 per cent of executives believe that the aftermarket will become part of the OEM’s (remit) to some extent.

“New competition will come from areas beyond tech-savvy developers and software-related SMR providers. Finance and insurance, where new online, alternative finance companies are already competing against the OEM captives and major banks through better terms and customer experiences, will also heat up.

“Collaborating with these players, rather than seeing them solely as competitors, will be absolutely critical for the survival and success of OEMs and dealer partners.”

KPMG said the degree and pace of change was likely to vary by country and region.

“In our view, those urban areas where ICE vehicles are no longer permitted enter, which also have the necessary population density for new MaaS models, where younger consumers cannot afford or store their own car, or have greater awareness of the health and environmental concerns around ICEs, will inevitably be the crucibles where this first plays out,” the firm said.

By Neil Dowling