Bill Chidley, Partner and Insights & Strategy Lead, shares his perspective on a new mindset for automotive retail and how to shift gears to connect buyers’ behaviors online with their offline expectations.

Automotive retail needs a mindset change. Consumer behaviors and preferences change faster than current facilities can keep up, and electric vehicles are coming, impacting future dealership requirements and fixed cost operations.

Dealers are increasingly reluctant to invest in dealerships with functional requirements informed by the past and image requirements they see as burdensome. Meanwhile, OEMs, who need to manage their brands and support their dealer network’s prosperity, are entrenched in an approach to retail that is disconnected from consumers, even though they increasingly desire their loyalty.

Building a foundation on shifting ground

Much has been reported about car buyers’ changing behaviors, led by the radical shift to digital retail accelerated by the pandemic. A 2020 report from Star Global states, “shoppers expect the vehicle buying experience to be quicker and easier, and to align with what they have come to expect from e-commerce platforms.” 

It is now critical to connect buyers’ behavior online with their offline expectations. The customer journey for new and used car buyers often skips browsing dealerships entirely. This shift brings into question the facility’s size, as well as the skills required of salespeople and the systems and training to support them.

Besides shopping online, shoppers today expect a higher level of convenience and personalization from their entire dealership experience. Taking delivery of new vehicles at home, along with pick-up and return for service, are becoming expectations of all consumers, not just premium buyers.

Margins on new vehicles are increasingly tight, putting more revenue pressure on F&I, parts, and service. This can add to consumer anxieties about being pushed into decisions and other suspicions. Understanding these consumer anxieties creates space for new players like Tesla (today), or possibly Amazon (tomorrow) to disrupt the status quo. It also spurs innovation in the pre-owned space. Upstarts like Carvana and Echo Park can create more consumer-centered experiences because of higher margins and lack of manufacturer-driven standards requirements.

Electrification has arrived

The availability of desirable and affordable EVs is almost here, as is the infrastructure to support them. The forecasted adoption rates for EVs vary significantly, so EV’s impact on dealer facility design range from profound to minimal. Issues ranging from how to merchandise EVs to how to service them profitably in the face of over-the-air updates and upgrades loom large as dealers build new facilities today.

Regional adoption of EVs is likely to vary, meaning that a universal approach will be elusive. And while OEMs invest billions in these vehicles’ development, their focus will be on marketing to drive awareness and create demand and incentives to move inventory. Still, the retail experience could very well make or break success.

Focusing on what matters

The many changes happening simultaneously create hesitation for dealers facing big investments in new facilities or upgrades. Dealers are starting to push back on facility requirements. Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, told Automotive News, “Younger buyers are far more comfortable with the digital or remote sales process. And we’re asking dealers to make investments that have a 20-year return on investment on a business model that probably won’t last 10 years.”

For many dealers in today’s environment, the facility they open today might be too big or misaligned with tomorrow’s needs. But dealers are creative and adaptive, so there is plenty of innovation happening “in the trenches” to adjust their retail experience through necessity. This approach won’t be adequate, looking forward to the next ten years.

Today, the auto industry doesn’t act like the successful mainstream retailers who continuously experiment and innovate. Even the hospitality industry, with a similar franchise model, invests in reinventing their property experiences continually.

On the other hand, the auto industry has focused on product design, engineering, and marketing, with only episodic investment in updating the sales and service experience. It is clear that a more innovation-based approach to automotive retail, one that better integrates the online and offline experience, is the best way forward with such a rapidly evolving world. Manufacturers need to move beyond the 10-year renovation cycle of facility standards and adopt a continuous innovation approach like the rest of retail.

A new vision

We see a new approach to automotive facility programs that will better address the manufacturers’ wants and the needs of the dealers. It requires a mind shift from a standards and compliance approach to a continuous advancement process, sharing of best practices, and developing uniquely signature experiences.

The mind shift begins with embracing a new method for retail innovation. Instead of managing a process based on a cycle of broad-sweeping new concept development and then years of converting facilities, adopt a more iterative, ongoing way to provide thought leadership and business value. Manufacturers need to create an innovation center approach going forward that is as fast-paced and dynamic as the marketplace. This approach is incredibly wise in this time of rapid change, where there is no crystal ball to see what next disruption is coming.

Retailers like Walmart, Target, and Home Depot are continuously testing ideas to determine their business value. The process for the auto industry must mirror these approaches to growth. It involves collecting ongoing consumer insights, prioritizing the retail challenges, and seeking solutions that dealers may already be using that work- or show promise. They also must use their resources to create new innovative solutions dealers could never create on their own. The mission is to pilot, improve solutions, and then scale them in real-time with measurable results.

This approach requires investment in reinventing the way OEMs approach and staff for facility program management along with the skills and necessary partners to become retail experts to their dealers and their brand. It needs to harness the power of the dealers’ innate entrepreneurial drive and the substantial resources of the OEMs and put them to work to benefit the entire retail network. In short, it replaces a culture of compliance with a culture of cooperation and co-innovation.

Increased investment is always a barrier to change. In the case of automotive retail innovation, it needn’t be. Manufacturers often budget $4-5,000 per vehicle for sales incentives. The expense is justified to coerce consumers to buy a vehicle in an undesirable process, likewise, with marketing.

Digital tools are available to better focus ads on high-potential prospects with much more efficiency and effectiveness. That means more available investment for retail innovation. As the industry struggles to protect already slim margins, these costs are beyond questioning. Focusing on new retail experience approaches can result in a much higher return on investment, especially for those first to market with the best concepts.

One thing we know about the future of retail is that it won’t wait for you to catch up, but it will welcome you to create it.