Dealers still matter – did anyone doubt that?

4 min read

If we look back over the last quarter, there have been some fairly significant stories in the automotive dealer world. We have seen the completion of the deal for Lithia to add the Pendragon dealer business to their previous Jardine acquisition in the UK, and Group 1 doubling the size of their UK presence by adding the Inchcape UK retail business. AutoNation had previously bid for Pendragon and was rumoured to be looking at buying the Inchcape retail business, so they may still be looking for other opportunities in the UK, which would mean that the four largest US dealer groups also had a UK presence.

Meanwhile, Mercedes-Benz announced that it was looking to sell its German wholly owned dealers and were looking to foreign buyers, so effectively admitting that operating dealerships was best done by dealers rather than manufacturers and Cazoo exited the used car retail business, taking one more step towards oblivion and effectively confirming that all the claims made at the time of launch that dealers were dinosaurs were wrong.  

On the manufacturer side, Ford did a U-turn on agency across Europe, stating that their “evolved franchise network” will keep the dealers as “the very important backbone of our system”. JLR decided not to proceed with agency for both Jaguar and Land Rover in the UK at the end of this year, promising instead “its own unique retail model” – which will include dealers operating under a modified franchise agreement.  

What all of these stories highlight is both the opportunities and challenges in automotive retail. A simplistic approach adopted (with expensive external ‘expert’ advice) by some OEM brands and disruptors like Cazoo towards retail has ignored the critical support provided by dealers to keep the wheels turning. 

They have assumed that customers can all be steered into one or a few types of customer journey and that all of their needs can be managed by a few rigidly defined processes. In reality, there are probably more types of customer journey out there than we could ever imagine if we sat down with a clean sheet of paper and tried to define them all.  

At one level, scale and scope is increasingly important as digitalisation creates new needs for skills and investment as well as the opportunity to get better answers from larger volumes of data across an extended view of the customer buying journey.  

However, this still needs to be combined with the insights gained from treating each customer as an individual and shaping a deal around their needs rather than your offers. Clearly, in the end, there is a middle ground to be found, but success will not be found at either of the extremes of the spectrum. 

If we look at the role of the dealer in automotive retail without considering the contractual format (which is an enabler or barrier to certain ways of working, not the destination itself), then they play a number of roles. They are the provider of aftersales support for anything that needs a physical interaction with the car.  

That requirement should diminish in the future, but the need will never go away unless we have “sealed for life” cars that never crash. The dealer handles the used car in whatever way the broader system demands. That might be buying it in for resale at risk, or it could be acting as a service provider to prepare it for a second or third lease by the manufacturer, but again, there is some element of inspection, logistics, preparation and remarketing that will always be required, as long as the first owner does not keep a car for life.  

New car sales need to be transacted, meaning the administration, registration and handover to the customers – something that will never go away and is becoming increasingly important due to technological change. Finally, end-customers need to be found for cars, which involves both marketing and selling.  

This is actually where the debate has been focused in the last few years and where agency still must demonstrate itself as a viable alternative to the franchise system. Nobody believes that you can avoid having retail outlets in some form (including Tesla, Nio and the other direct players), so the debate is not about the need for ‘dealers’ but about the need for a manufacturer to mitigate risk through the wholesale stage, and whether a network of 100-plus dealers operating largely independently of each other can achieve a better outcome in terms of volume and net pricing than through a centrally-directed approach. 

Overall, the need for dealers is key, and the opportunity to get a reliable return on investment is well-proven. That is what drives the giants like Lithia, Penske and Group 1 and brings them to Europe. The challenge for dealers is to demonstrate to OEMs that in the one or two areas where alternative approaches exist, the costs incurred exceed the value that is delivered – to customers and the manufacturers themselves.