Some people like car dealerships. They’re tense and expansive, and it’s hard to feel like someone is getting a raw deal. But as the auto industry increasingly goes electric and moves online, companies like Honda are rethinking every aspect of the buying process—including spaces.
Honda today announced that it is introducing a new dealership design, which takes up less square footage and is modular and flexible; For example, what was once a showroom space can be converted into offices for employees. It will also have electric vehicle chargers, as the company aims to sell half a million EVs in the US by 2030. “Our dealers are looking for ways to modernize and digitize their business,” Mamadou Diallo, American Honda vice president of auto sales, told reporters last week. He says recent experiences have taught the automaker that selling a car “will not require as much space.” And they’re not the only ones who want to look at square footage.
Like many recent changes, this change is partly a reflection of the pandemic. Automakers are grappling with shortages of semiconductor chips, a serious issue for vehicles that require hundreds and sometimes a thousand or more to function. Supply chain bottlenecks mean new car dealers have fewer vehicles to show customers. Meanwhile, inspired by a new breed of electrified direct sales companies like Tesla and Rivian, large automakers began experimenting with customers to reserve and even buy their cars online. Ford made the first sale of its electrified sports car, the Mustang Mach-E, on the Internet and took online reservations for its electric pickup truck. Volvo said last year that its electric vehicles—which the automaker says will account for 100 percent of sales by 2030—will be sold exclusively online.
This can make buying cars more convenient, but it also makes them easier to sell. Building cars to fulfill customers’ online orders takes some of the guesswork out of vehicle production, which means less unexpectedly unpopular models end up—and eventually sell—at a discount on showroom floors. “We’ve learned that, yes, operating with far fewer vehicles is not only possible, but better for customers, dealers, and Ford,” Ford CEO Jim Farley told investors last summer. “But we’re also seeing a significant increase in the number of customers configuring and ordering our vehicles online, so we have better visibility to actual demand.”
This adjustment of the pandemic period does not always work in favor of the car buyers. Dealers report that the combination of a tight car market and limited inventory means they can offer customers low discounts in hopes of making their new purchases a lot. Buyers pay more, and dealers make higher margins per sale. But industry experts are divided on whether those conditions will last beyond a public health emergency and related supply chain conflicts.
Still, the era of rows and rows of makes and models and colors may be over for good. “The dealership doesn’t need to be somewhere on the highway to the Taj Mahal,” says Mike Anderson, president of the Rickes Group, an automotive consultancy. The dealerships Anderson recommends start bringing vehicles to potential customers for test drives, and then return to their homes or offices when the deal closes. Automakers such as Tesla, Ford, Mercedes-Benz and BMW are also experimenting with mobile servicing, or having technicians visit customers’ vehicles. In some places, “many guests won’t even see the dealership at all,” Anderson says.
It can take years or even decades to physically replace a dealership because remodeling a building takes time and money. Honda executive Diallo says the automakers’ new dealership design “isn’t a program we’re forcing dealers to adopt,” but that’s a direction Honda wants its dealers to follow as they renovate and update. We do. Brian Kelly, vice president of Volkswagen of America network operations, says the automaker is considering similar optimizations. “We believe that increased EV adoption, consumers’ increasing preference to purchase vehicles through digital retailing solutions, and the proliferation of mobile servicing and vehicle delivery—among industry-wide changes—will have a further impact on the traditional size and layout of dealership facilities, He said in a statement.
However, most people will still be in talks with the dealership in some form or the other. Even as Americans got used to buying equipment and clothing and car rides online, they resisted suppressing “ordering” on large purchases like vehicles. Car buyers felt a little more comfortable with the idea of internet transactions during the pandemic; According to investment banking company Cowen, auto ecommerce sales grew by about 25 percent in 2021, accounting for 9 percent of all US ecommerce sales. (Clothing & Accessories, the largest e-commerce category,
19 percent included.) John Blackledge, an analyst at the firm, calls the pandemic “a huge pull-forward” for online car retailers like Carvana, which sells used vehicles and saw huge growth during the height of the Covid Went. But the industry isn’t digital yet, and Carvana has a deadline of 2022. “Buying a car online – it is early. We have growing penetration, but we will have to see what players like Carvana do to drive it,” Blackledge says.
Major changes in the way cars work also indicate a change in dealerships. Inspired by Tesla, more automakers are building software-enabled cars that can be serviced or updated over the air. The US government wants electric vehicles to account for 40 percent of auto sales by 2030, and California—the nation’s largest car market—intends to ban sales of gas-powered vehicles by 2035. But electric cars have fewer moving parts and require less service more often than their gas-powered counterparts. For dealerships, which make most of their money servicing vehicles, electrification can mean lower margins and industrywide consolidation.
If that happens, it will be a continuation of a trend, says Erin Kerrigan, managing director of Kerrigan Advisors, which advises dealerships. Even as electric cars struggle to gain traction in the US, the industry changed ownership of a “historic” 383 dealerships in 2021, a 71 percent jump from the years before the pandemic, the firm said. had got. Most of them were small family businesses acquired by large auto dealership groups. Those big companies are running out of cash because supply chain woes have driven up the prices of new and used cars.
In some respects, online savvy has been the difference between those who are still in business and those who are not. Historically, automakers assigned a specific area to each of their dealerships. But the Internet “really has begun to break down the geographic boundaries that used to limit a dealership’s sales potential,” Kerrigan says. “Larger, better-resourced auto dealership groups are rushing to build their own digital retailing tools and websites. Car buyers can see the first signs of this industry turnaround on the showroom floor – that is, if they make it there.