for Ward's Auto
June 05, 2019
While inherent conflicts exist between OEMs and dealers in some areas, the facilities debate should not be one of them.
Manufacturers want dealers to upgrade facilities so the dealerships better reflect the brand. Dealers see new investments in the face of declining new-vehicle margins. I see an opportunity to reframe the discussion from facility re-imaging to re-imagining.
One of the first principles in architecture is “form follows function.” By this measure, dealerships are already out of date as their role in the car-buying process has changed. It will change even more with digital retailing and new mobility models.
However, what’s needed is not a re-imaging of the current template, e.g. nicer buildings, new tile and carpets, updated signage and repaved lots. What’s needed is a re-imagining of the entire store.
When Capital One Bank decided to upgrade its facilities, it did not create nicer teller stations. Instead, it created “financial cafes” that became places where customers would enjoy visiting, be productive and get help with banking transactions as needed.
Dealerships sell the highest-involvement product in the world, yet many people would rather visit a dentist.
A more open and educational environment, where consumers can conduct research and find guidance through the purchase process instead of experiencing sales pressure, would greatly increase store relevancy in the digital age.
This also requires a re-imagining of technology. Dealerships need to evolve from fixed stations for sales people to shared mobile screens. They need to be able to facilitate portions of the sale remotely. Telephony needs to support collaborative selling, bringing in experts as needed, and not limited by geography.
Consumers should be able to move seamlessly from the virtual to the physical and back again.
On the sales side, showroom size should not be driven by OEM product breadth. Today’s showrooms offer a space for the entire product line. This layout was designed for product selection. It made sense when the dealership was the place to learn about vehicle choices.
But today most consumers make product selections at home and enter the store further down funnel. What they need is space to view the vehicles in their decision set.
Digital retailing will profoundly change store function. Research and negotiation give way to confirming choices and trade-in. New layouts need to reflect this.
Another important issue is consider is declining front-end margins. This trend will force dealers to operate a razor and razor-blade business model: The product is sold on the front end at little to no profit, and the money is made on the back end.
This shifts operational priority to increasing fixed-operations revenue, which requires a renewed focus on service retention, increasing yield from current service customers and increasing service market share.
What should the dealership of the future look like when the majority of revenue comes from service and not sales?
With more than 50% of profit driven by service, and with the proliferation of concierge service and subscription models, dealers might consider replacing waiting-room lounges with a service showroom as Mike Maroone, former president of AutoNation, once suggested.
This would be dedicated space with technology to inform consumers about ownership support offerings including dealership collision centers, dent repair, detailing, aftermarket products, tires and maintenance contracts.
Think into the future when dealers will be servicing electric vehicles and fleets of autonomous and ride-share vehicles. Does the current service department location and design facilitate these functions?
Before investing in facilities, dealers should think about the connection between form and function, and how consumers will be buying and servicing cars in five years.
How can you re-design your store to be functional in a digital retail environment? What will the process be for servicing autonomous vehicles while owners are at work?
If form follows function, today’s facility designs should not presume doing business as usual. Once re-imaging shifts to re-imagining, OEMs and dealers will find more common ground not just with facilities programs, but also with branding, marketing support and pricing strategies that all can be areas of conflict today.
To view this article in the Industry Voice section of Ward’s Auto, click here.