NADA 2012 Three emerging trends

Deloitte Motor Industry Services | 8 March 2013

Three Trends from our Trip to NADA that we can learn from

Future of industry and dealers in the USA.

In many ways a trip to NADA is like looking into the future for the Australian market. Both are very mature, have lots of competitors and reasonably rational and efficient markets.

Each year we look for the emerging trends in the USA and try and assess whether or not these may impact the Australian market. There were 3 clear emerging trends from my recent trip to NADA:

  1. Succession Planning
  2. Dealers Capital Footprint and
  3. The role of the internet

Each of them overlaps in many ways and we explore each of these in more detail below.

Trend 1: The need for Succession Planning

In the USA, it is predicted that over the next 5 to 7 years that 80% of all dealers (2,400 in USA) will be owned by less than 300 companies. The big groups can invest in the future through better systems, processes, latest technology and best people. They will be the benefactors as they adapt and shape to meet the changing market conditions.

Like our market, the USA dealers’ profit is under pressure from diminishing margins and increased costs. The forecast for the USA dealers’ is that it will be only those dealers who can withstand these conditions will be the survivors. The big groups can weather the storm for longer with greater economies of scale and efficiencies gained through rationalisation and consolidation.

Of particular note was the general aging of the dealer networks. Many dealers nearing retirement, who survived that last few tough years, have no succession plan with family or equity partners. Their only option will be to sell up.

Also driving the market to further consolidation are:

  1. The role of technology companies and
  2. The rise of Gen Y into the market place as main stream buyers

Technology companies are looking upon the industry as a happy hunting ground. They have plenty of money, lower cost models, low cost of entry products and the best young talented teams in the country all striving to get their share. They will most likely find a low cost model to sell cars in the future using their available skills and technology. Their involvement will change the shape of dealers in the future as they try to compete.

Notably, there was a lot of discussion regarding Gen Y becoming a larger consumer market. They shop, behave, interact in ways that many dealers are not ready for. Do they want to visit dealerships to buy cars? Will they even want to own their own cars? Will they prefer to lease or be on a plan like they do with their mobile phones?

In the future, the main issue will not be the lack of sales, it will be the lack of succession, talent and adaptation to new consumer markets and technology that will shape the way dealers sell cars. The challenge will be that unless dealers are shaped differently for the future some may miss out on their fair share.

Trend 2: The changing shape of dealers in the future

My second key takeaway from NADA is that the USA will lead the way in determining the dealer of future in terms of capital footprint.

This has been driven by necessity: 

  1. Necessity - to make profit in diminishing gross and higher cost environment and also
  2. Requirement - as OEMs continue to place demands on dealers to
    • expand
    • modernize or
    • standardize

With the growing trends in internet and changing consumer habits, there was much debate around the requirement to be:

  1. Located – on the main streets on the most expensive real estate
  2. Online – what impact will online sales have on a dealers footprint

It will be interesting to watch how the USA market adapts to these changes and what shape the dealer of the future may take.

Trend 3: The role of the internet

My third key takeaway was the role the internet plays in the industry today and will play in the future. Three clear messages emerged from the conference:

  1. Local
  2. Social and
  3. E-commerce

Local - Despite the global reach of the Internet, many car buyer still prefer to buy locally in the USA. The focus of local reach was to direct more traffic to your own website.

Social – The social media companies appear to have had a philosophical shift in the way they do business. Social media to date has been about networking and interacting with your friends on things you are doing and things that you like. It appears that social media is about to change. They have got into bed with advertisers and marketers and based on your “likes” will start to push advertising down the line. Will it work? Only the social media users will tell.

E-commerce – I spent some time at the e-bay motors stand. They currently have 15 million cars on their site available for sale and sell about 1 million cars a year (right now a low conversion rate 6 to 7%). However e-commerce is the next shape shifter online. Right now online is only used a source of lead generation. It is difficult to transact. If you want to get ahead of the game, I suggest you look into ways that your customers can not only enquire (generate leads) yet can also buy online (e-commerce).

Conclusion

The best way to predict the future is to create it.

Lessons from NADA reinforce the need to review your position:

  • Do you currently have a succession plan in place?
  • If you decide to sell up – is your business ready for sale?
  • Is your capital footprint model sustainable with lower margins and higher costs?
  • What shape does your business need to take in the future?
  • How well do you understand the changing technologies?
  • How well do you understand your new consumer market – Gen Y?

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