Five factors that drive innovation in auto retail

Dealership gross profits have declined from 3.3% to 2.4% between 2015 and 2018. Over that same time frame, an average dealership’s operating profits saw an even more drastic decline – from 8.9% to just 1.7%. The decline in profitability coincides with a growing dissatisfaction among consumers regarding the traditional vehicle purchasing method.

According to global strategy, design, and engineering consultancy Star, there are five main areas that define the challenges facing the automotive retail industry right now. These are the factors that drive innovation for dealerships as we see them now.

Dissatisfaction with the Dealer Experience

A Gallup poll discovered that less than 1 in 10 car buyers would honestly rate the satisfaction with their salesperson as “high” or “very high”. While there may be personality conflicts and other issues, two factors stand out with salesperson dissatisfaction.

Turnover in the dealership is still quite high, especially for salespeople. A consumer expecting a product expert or a seasoned sales agent often finds a lackluster experience with someone neither empowered to or willing to negotiate.

Also, salespeople take the flack for the extensive time investment required to buy a car. Consumers believe it should take no longer than two hours to buy a vehicle while average time spent still remains around four hours.

Related: Policaro Group on the use of innovation and technology in automotive retail

Digital Retailing Expectations

As digital retailing in other industries has revealed, consumers are more comfortable purchasing large items online such as furniture. An expectation is that as much of the car buying journey a consumer wants to do online should be available online. As recently as 2019 in the Deloitte Global Auto Consumer Study, more than half of car shoppers are willing to consider completing their purchase fully online – well before the pandemic began.

Consistency in the Online and Offline Buying Journey

An online presence needs to be not just compatible with the store’s physical branding but cohesive with it. Visually and conceptually the online experience should reflect the values and processes a customer will find in store, but it seldom does. For most shoppers that switch between the methods, they have to start all over again.

One of the factors driving innovation is the entertainment market where consumers can ‘hand off’ the experience from one device to the next. Whether it’s in their Facebook account or when streaming on Netflix or Prime Video, they expect to pick up where they left off. It requires deft marketing and an investment by OEMs and dealers to integrate a consumer’s online and in-person experience.

Operational Challenges

Contrary to the typical dealership model, consumers are opting for less touch points in the sales process. Research by PwC in Germany shows that nearly two-thirds of car shoppers would be willing to purchase directly from the OEM, skipping the ‘middlemen’.

In the United States, few manufacturers are seeking the ability to sell direct to consumer and legal battles are trying to protect the traditional dealership model. However, dealers will need to identify reasons why shoppers want to cut them out and correct the issue to avoid a turning tide.

Related: How to improve digital innovation at your car dealership into 2021 (video)

Declining Brand Loyalty

The same PwC study discovered that half of German dealers are seeing less brand loyalty among their customer base and an increased likelihood that shoppers will explore three or four brands before making a purchase.

With consumers less committed to a specific brand, it requires that dealers and OEMs develop campaigns to strengthen the trust a legacy consumer has in the brand and the selling dealership.

By identifying areas your dealership is deficient, it’s possible to reverse the trend of declining dealership profits, both per deal and as a complete store.

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