Inventory challenges have plagued the industry, with microchip shortages and broken supply chains leaving dealership lots bereft of product and customers on long wait lists for their vehicles.
Less is more. That’s one of the key lessons dealers and their automakers have learned from Year Two of COVID-19.
“As retailers we don’t have to pile up hundreds and hundreds of vehicles in our yards and plants to accommodate consumer needs,” Shahin Alizadeh, CEO of Toronto-based Downtown Auto Group, told Digital and Mobile Editor Greg Layson in an interview. “That was a bit of a silver lining [for an industry] used to having acres and acres of product sitting around hoping we can turn it over.”
Inventory challenges have plagued the industry, with microchip shortages and broken supply chains leaving dealership lots bereft of product and customers on long wait lists for their vehicles.
Said Alizadeh: “I’m not satisfied when we as a group have hundreds of back orders at the moment...this tolerance for [such] timelines is not going to be long-lasting.”
Consumers, however, are growing accustomed to waiting for the vehicle of their choice, while dealers and auto companies are reaping benefits from the shift away from overstocked lots, such as lower floorplan costs and reduced incentive spending. And it could be paving the way toward a new way of doing business.
The agency selling model, in which customers buy vehicles directly from the automaker via the dealer, is gaining momentum overseas. Mercedes-Benz, for example, reached an agreement in December with its European retailers to transition to the agency model.
Alizadeh says dealers must have greater control of inventory levels, while executives such as Hyundai CEO Don Romano say the current retail model isn't sustainable.
“To me, it’s a tsunami that’s building up out over the ocean, and it’s coming at us, and I don’t think we’re paying enough attention to it,” Romano said in a Page 4 story. “Our dealer network is more important than ever, but the need for that dealer network to evolve — quickly — before that tsunami hits the shore is vital to their long-term success.”
Dealers and their brands on this continent can look to direct-to-consumer selling models such as those pioneered by Tesla, fledgling electric vehicle startups and Hyundai’s luxury brand, Genesis.
Overhauling industrywide business practices will likely face resistance, especially from dealers who view the agency selling model as an existential threat. Automakers, themselves, will have to resist the temptation of saddling dealers with product once the inventory shortage ends.
Such change will require delicate negotiations, rewriting franchise agreements and, above all, industry discipline.
It won’t happen overnight, but Year Three of COVID-19 could mark the beginning of the end of the traditional way dealers interact with consumers.
