The future of automotive retail

How auto manufacturers and dealers can begin to adapt to the new market reality


Tom Mayor

Tom Mayor

National Strategy Leader, Industrial Mfg., KPMG US

+1 216-875-8061


John Jullens

John Jullens

Principal, Strategy, KPMG US

+1 313-230-3000
Bernie Moreno

Bernie Moreno

President, Bernie Moreno Companies

Cuyler Owens

Cuyler Owens

Vice President of Client Services, Dealerware

Tom Mayor, National Strategy Leader, Industrial Manufacturing, KPMG (US)

KPMG’s Tom Mayor painted a grim future for the traditional dealership model as autonomy meets mobility services, and consumers start hailing rides instead of buying cars.

Consumers may keep cars with personality or purpose, but the volume of vehicles sold through dealer networks will decline 30 to 40 percent. As more advanced driver assist systems are introduced, cars will crash less, and margins on collision part pass-throughs to body shops will shrivel. Increasing transparency in the used car market driven by disruptors like Carvana will shrink margins there as well.

The panel discussed these pressures and how auto manufacturers and dealers can begin to adapt to the new market reality.

Understanding disruption and customer centricity

Bernie Moreno, President, Bernie Moreno Companies

 “I think right now the most pressing issue against the car dealership model are the car companies themselves,” according to Moreno, a multi-dealership owner.

There exists a disconnect between how auto companies view and manage their dealership network and the reality of disruption from new technologies and competitors, he said, with too much focus on the show room and not enough on customer demands. “Imagine you’re Blockbuster Video in the 1980s and early 1990s, and their answer to Netflix is to have brighter, newer stores that are getting remodeled every five years.”

In fact, Netflix is a great example of a company that disrupted by organizing around the consumer experience, according to Owens from Dealerware, a modern fleet-management platform heavily focused on mobility solutions.

Today, the consumer view of car shopping “is one that almost brings up dread and fright, and walking in to have the interaction is more and more something that folks are trying to avoid,” he said. Dealerships need to respond by meeting the customer where they are and finding ways to deliver on exactly what they are looking for, instead of just providing the traditional, “prepackaged” dealership experience.

Shifting the dealership model

Traditional dealerships contain multiple, independently operated businesses with very different economics under one roof, a low-margin operation requiring a fair amount of investment, KPMG’s Jullens said. They’re facing estimated price declines of over 2 percent a year from an already low point, and regression analysis suggests that, if the current trend continues, there may be no margin left by 2025. Meanwhile, mass adoption of electric vehicles over time will require fewer parts and less maintenance, and dealers who make their largest margins there will become structurally unprofitable.

“The traditional dealership format is fragile in the short term and probably unsustainable over the longer term,” he said.

Cuyler Owens, Vice President of Client Services, Dealerware

Owens said he sees the industry pursuing mobility as a service, perhaps by turning the traditional dealership into a type of distribution model, with service and management, as well as service for vehicles in a fractional ownership model that an increasing number of consumers seek. The manufacturer/dealer also needs to pursue digital tools to improve and shorten the customer F&I experience.

Other manufacturers may follow Tesla’s direct-to-consumer model and eliminate traditional dealers altogether, Moreno said. Moreno, who built the largest Midwest luxury car dealership collection in the U.S., is starting to leave the dealership business behind to focus on leveraging blockchain technology to digitize car titles for real-time information and more simple transfers.

In a truly autonomous, electrified, shared universe, “the traditional dealer model simply disappears,” Jullens said.  “There's no role.” However, the larger dealer groups could unbundle their offerings and manage their assets as a network and brand portfolio, he said. “You can restructure and dramatically take costs out of the system that way.”

Next steps for manufacturers

Moreno suggested that manufacturers should view their retail distribution as a strategic advantage and set their dealers up for success by addressing customer pain points, for which they are primarily responsible.

“They come up with these [incentive programs], and the crazier and nuttier and more complicated, the more they feel like they can stand out. As a result, you've got this Rubik's Cube of nightmares out there on the retail distribution side,” he said. “What do consumers really want today? They want simplicity.” That also includes product and package simplicity. “Look at what Tesla does: three different models, three different trims, colors—beep. That's it.”

Owens discussed the need to get as close to the customer as possible, something his small startup can do serving the dealerships. “We can understand what they're asking for and design around that quickly,” he said. As consolidation demands that large manufacturing organizations give dealers a larger role in ensuring customer centricity, “it’s figuring out a way to have those organizations flatter, more accessible, and giving the dealer body a voice.”

Digitization will be key, but obsession with maintaining a brick-and-mortar presence stands in the way, Moreno said. “If I operate a dealership, the expectation of manufacturers is that I'll spend $500 to $1,000 for a website…. but they want to spend the equivalent of $800,000 or $900,000 a year for a facility. It's perverse. Imagine if it were reversed. What would the consumer really prefer, if the car companies invested that kind of money in technology to make the retail buying experience frictionless?”

John Jullens, Principal, Strategy, KPMG (US)

In the short term, automakers need to determine if they will continue to invest in smaller dealers, while at the same time ensuring larger dealer groups continue to offer their brands as part of their portfolios, Jullens said.

Longer term, manufacturers need to consider alternative scenarios and determine how they will fit in, including collaboration with potential new competitors on data analytics and other innovations, he added. “Because if you don't, they will. They have the capital and the wherewithal to do so, and they might just beat you to it.”

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