I can’t help but look at our current business situation and describe it with a sports metaphor.
At the time of writing, it’s Super Bowl weekend in a few days, the NHL all-star game has just finished and the NBA all-star game is not far off, I am filled with sports analogies. Using football lingo, auto retail is stuck in the backfield and is up against an all-out blitz. We are not ready to go down on one knee just yet, but we are scrambling like hell to stay standing.
The blitz is made up of inflation, high interest rates, consumer debt payments, lower consumer disposable income, intermittent vehicle and parts supply disruptions and new retail business models, to name a few.
It’s coming at us from every direction. All we can do is be like a pinball in a pinball machine, and bounce off whatever gets in our way and keep running. The problem is, we are running from side to side, not down the field where we are supposed to be headed. In other words, we don’t seem to be making any yardage.
Sure, for the most part, profits are higher than ever, but we all know that is not sustainable. How long will it be before sins of the past rear their ugly heads and exert downward pressure on our profitability?
Granted, the pandemic exposed many sins from the past, and gave us time to come up with many new game plans. We are leaner and meaner from an operations standpoint, and with any luck we will stay that way. There are headwinds, however, that we need to pay attention to.
Our people are our most valuable assets. With the cost pressures they face in their daily lives, I expect wage pressure to interfere with our progress downfield. We need to retain our good people and we need to train new hires in the way we want things handled in our stores. Our managers and staff need to be engaged for us to take full advantage of our business model, which, at the end of the day, is measured by repeat business and employee retention.
I also anticipate we will be subjected to more and more inventory as factories come back online and product produced must be moved. Our deeply ingrained tendency is to fill our lots full to overflowing, then lease additional vehicle storage space, only to watch our days in inventory and along with it, inventory carrying costs, soar.
We will be tempted to over-pay for used vehicle trades to move that inventory, quickly abandoning the discipline we temporarily developed during the pandemic. Many of the gains we made were on the backs of low inventory levels and high consumer demand. Those days, I fear, are over.
So how do we get out of the auto retail backfield?
The vehicles that we will stock will be technological masterpieces. No longer just transportation, we will be delivering experiences, at the time of sale and throughout the lifetime of vehicle ownership.
Our customers will depend on us more and more, since the vehicles we sell them are complicated and will need regular attention. Many of our vehicle issues will not be mechanical, but rather electronic, and as such we will be competing with our brands for the revenue that over-the-air updates will provide. Some will be covered under warranty, but others will not. We must be prepared for this.
We will need to continue to embrace being ambassadors for electrified vehicles. Not only will we be asked to stock unproven models, but we will also be doing this in an environment of limited charging capacity.
We will need to train the customer on how to take care of these vehicles. Government mandates will drive the industry and the consumer towards electrified vehicles. That means that the staff we train must be fully engaged to pass on the knowledge that our customers will need to be fully satisfied. Much of this will be done on our nickel as dealers. Do this we must, to have the opportunity to earn their loyalty and trust.
We must continue to have a keen eye on used vehicles, parts, and service. New vehicles come in at the top of the customer funnel, however, it’s these adjacent and complementary businesses that provide the profit margins we need to thrive. I strongly suspect that we will be developing and introducing new adjacent businesses in the coming years, based largely on electrified vehicles, but also on aging ICE vehicles.
I can see a time where dealerships have mobile charging services, much like today’s customer shuttles to complement their charge-at-home installation services. Electrified vehicles will be able to act as power generators for non-vehicle applications.
This will create a whole new revenue opportunity for dealer services. Also, as ICE vehicles age over the coming decade, ownership patterns will change and new services to support older ICE vehicle models will emerge. Body shop and vehicle reconditioning services will become demanded by vehicle owners and not just at time of purchase but to extend their ownership cycle.
At the other end of the spectrum, many dealers are calling it a day. After tremendously successful careers, lack of ownership succession and a ready supply of acquirers exists who are ready and willing to pay fair price for stores and related real estate. Where some dealers see headwinds, other dealers see nothing but opportunities. Dealers, by and large, are great entrepreneurs and optimists, but some do run out of steam, and still others become ready to move onto other challenges and opportunities in a second career.
Getting out of the backfield is a challenge for all of us, and is not easy in an environment where you do not completely control your outcome. We all put our own spin on how to do that. There is no one right way.
Rather, I suggest there are many successful ways; depending on personalities, experiences, insights, and expectations. One thing is for sure, however. This is, and will continue to be, an exciting, fascinating, and rewarding industry for those that continue and choose to embrace it.
