Monday, July 9, 2018

DEALERS AS DINOSAURS? IT COULD HAPPEN!

I wrote recently about changes in retailing cars in the USA, and plans by some car companies, which could have the effect of eliminating traditional bricks’n’mortar dealerships from the sale process.

You can either call my forecast prescient, or plain dumb, but changes are coming, pushed along by ride-sharing, which means potential customers no longer  choose to own their own car.

The outcome may be Uber, or some other form of taxi-replacement. Already, in cities like Vancouver you can rent a car for a short period, using an app, then picking up the car in a conveniently-located parking lot - and, maybe, returning it to a different parking lot, more conveniently located to your next destination.

Or autonomous vehicles which are purpose-built, much like a small train carriage, as opposed to a conventional car.

In 20 years, what will carmakers be building?

Chances are they’ll be forms of personal transport, powered by electricity, or some form of synthetic fuel which leaves behind zero emissions, like a fuel-cell-vehicle (FCEV).

But, whatever it may be, I’m not sure I would be keen to plan, and build marble palaces, from which to retail cars. Two recent developments on the Queensland Gold Coast, where I live, point me in this direction.

First, a highly-successful longtime car dealer recently spent AUD$7-8 million constructing a brand new facility to sell the Jaguar Land Rover range.

On the eve of its grand opening, he announced that he had already sold the dealership operation to a large automotive investment group, because as sales of JLR vehicles were proving extremely volatile, his opinion was that he would not get a satisfactory return on his investment – so he took the money, and ran.

Second, another longtime dealer in premium and luxury vehicles in Brisbane, sold his business to another automotive investment company, and quit the scene. That investment company has embarked on a grand and palatial edifice to house a new Gold Coast dealership specializing in Bentley and Maserati.

Do these guys know something the rest of us don’t? Or, more than likely, they foolishly believe the future will be the same as the present. Whilst there is a large concentration of High Net Worth individuals living on the Gold Coast and its environs, I certainly don’t imagine that sales of such super-expensive cars would amount to enough volume to justify the palace being constructed.

Apparently the investment group paid AUD$2.9 million for the land, and the total cost of building the ‘palace’ is estimated to be in the vicinity of AUD$5 million. For what? To impress its trickle of new customers?

The building will cover 1730 sq metres, and the basement, covering 2010 sq metres will be for servicing and parking. It’s massive.

The Gold Coast may be Australia’s sixth biggest city, but a retail outlet of this magnificence will struggle to deliver a suitable return on investment. I reckon five years from now, it will have been re-developed into a shopping mall.

Which, as a sidebar, brings me to another point which has baffled me for all of the 40 years I spent in and around the car industry.

I think carmakers demonstrate unmitigated gall when they demand that dealers/businessmen spend squillions of dollars building retail premises to showcase their range of premium automobiles.

This requires huge financial risk for the dealer, and then a year or so later quite often some bright spark of a marketing director will convince the carmaker’s Board that the totality of corporate identity on display at all the dealerships needs to be changed, to reflect some esoteric sleight-of-hand of re-branding the car range. These sudden changes of d├ęcor, new marble flooring, new furniture and lighting, exterior signs showing the new logo, etc. often run into more millions.


Meanwhile the carmakers sit back churning cars out of the sausage machine, and putting huge pressure on the dealers to keep selling, and selling, and selling – to soak up the ever-increasing supply of new cars, which apparently justifies the carmakers' investment in greater production capacity(?).

And this is all happening in almost complete disregard for pressures and changes in the market place (aka ‘the real world’), over which dealers have no control.

To put this in perspective, I recall that a Jaguar dealer in a very prominent east coast market in the USA, in 1990-94, point blank refused to comply with Jaguar Cars North America’s demands that he totally refurbish the dealership at a cost of many millions, to align with the appearance of Jaguar dealers around the country.


His response to Jaguar was: “I sell the most number of cars in my area of responsibility, I do not discount the cars, I have a 70% return of existing customers, and according to the J.D.Power measure of customer satisfaction, I have the highest rating of all surrounding Jaguar dealers”.

“Tell me again, why I need to squander millions refurbishing my dealership? How will that improve my already solid relationship with my customers, and sell enough cars to cover the investment?”


I agreed with him completely, and it always made me wonder about the qualities needed to be a successful dealer – in short – integrity, caring customer service, transparency in dealings, and the maintenance of the dealer-customer relationship, after the sale was completed. None of the preceding ever seemed related to the quality of the premises.

Tell me now, how is spending squillions on an automotive palace going to pay off over the next 20 years?

I reckon the two Australian dealers I have just written about probably pulled off their smartest business move in years, and now fishing and golfing is their siren song.

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