Incredibly Shrinking Car Dealership

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Few people love car dealerships. They are tense and stretched, and it is difficult to get rid of the feeling that someone gets the raw deal. But as the automotive industry increasingly shifts to electric vehicles and moves online, companies like Honda are reimagining every aspect of the buying process, including the space in which it happens.

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Honda announced today that it is introducing a new dealership design that takes up less square footage, is modular and flexible; for example, what was once a showroom can be converted into employee offices. It will also have electric vehicle chargers as the company plans to sell half a million electric vehicles in the US by 2030. American Honda, told reporters last week. Recent experience has taught the automaker that selling cars “wouldn’t take that much space,” he said. And they are not the only ones who want to lose square meters.

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Like many recent transformations, this shift is in part a reflection of the pandemic. Automakers have struggled with the shortage of semiconductor chipsa serious problem for vehicles that need hundreds, and sometimes more than a thousand, to operate. supply chain bottleneck means new car dealers have fewer cars to show off to their customers. Meanwhile, inspired by the new generation of electrified direct selling companies such as Tesla and Rivian, major automakers have begun experimenting with allowing customers to book and even buy their cars online. Ford made the first sales of its electrified sports car. Mustang Mah-Eon the Internet and accepted online booking for his electric pickup. Volvo said last year that his electric cars— which the automaker says will account for 100 percent of sales by 2030 — will be sold exclusively online.

This could make buying cars more convenient, but sale it’s easier for them too. Building cars to fulfill online customer orders takes some of the guess work out of car manufacturing, meaning that fewer unexpectedly unpopular models end up languishing — and ultimately discounted — on showroom floors. “We learned that yes, working with fewer cars on the lot is not only possible but better for customers, dealers and Ford,” Jim Farley, Ford CEO, told investors last summer. “But we’re also seeing a significant increase in the number of customers who are customizing and ordering their cars online, so we’re better able to see real demand.”

This pandemic-era adjustment has not always worked in favor of car buyers. Dealer Report that the combination of a tough automotive market and limited stock means they can offer fewer discounts to shoppers hoping to get rid of their new purchases. Buyers pay more and dealers earn a higher profit per sale. But industry experts are divided over whether these conditions will continue after the public health emergency and its associated supply chain problems.

However, the era of rows and rows of brands, models and colors may end forever. “A dealership doesn’t have to be some Taj Mahal somewhere on the highway,” says Mike Anderson, president of automotive consultancy Rikess Group. Dealerships that Anderson advises have begun bringing cars to potential customers for test drives and then returning them to their homes or offices when they close a deal. Automakers such as Tesla, Ford, Mercedes-Benz and BMW are also experimenting with mobile service or field technicians visiting customer vehicles. In some places, “many guests won’t see the dealership at all,” Anderson says.

It can take years or even decades for dealerships to physically change because it takes time and money to upgrade a building. Diallo, Honda’s chief executive, says the automaker’s new dealership design “is not a program we force dealers to take,” but the direction Honda wants its dealers to take when they repair and upgrade. Brian Kelly, vice president of network operations at Volkswagen of America, says the automaker is considering a similar adaptation. “We understand that the increased adoption of electric vehicles, the growing preference for consumers to purchase vehicles through digital retail solutions, and the spread of mobile service and vehicle delivery – among many industry-wide changes – will have a direct impact on the overall size and layout of traditional dealerships.” the message says.

However, most people will still interact with dealerships in one form or another. Even as Americans got used to buying appliances, clothes, and car trips online, they resisted the imposition of “order” on large purchases like cars. Car buyers have gotten a little used to the idea of ​​online transactions during the pandemic; e-commerce car sales are up nearly 25 percent in 2021, in accordance with investment banking company Cowen, which accounts for 9 percent of all e-commerce sales in the US. (Clothing and accessories, the largest e-commerce category, accounted for 19 percent.) John Blackledge, an analyst at the firm, calls the pandemic a “big push” for online auto retailers like Carvana, which sells used cars and saw huge growth during the height of Covid. But the industry is not yet digital, and Carvana had a tough 2022. “Buying a car online is too early. We have penetration growing, but we need to see what players like Carvana do to stimulate it,” says Blackledge.

Big changes in how cars function also portend changes in dealerships. Inspired by Tesla, more automakers are building software-enabled vehicles that can be serviced or updated over the air. The U.S. government wants electric vehicles to account for 40 percent of car sales by 2030, and California, the nation’s largest car market, is set to ban the sale of gasoline-powered cars by 2035. But electric vehicles have fewer moving parts and require less frequent maintenance than their gas-powered counterparts. For dealerships that make most of their money servicing cars, electrification could mean lower margins and lead to industry-wide consolidation.

If that happens, it will be a continuation of the trend, says Erin Kerrigan, managing director of dealership advisory firm Kerrigan Advisors. Even how EVs struggle to catch on in the USThe company found that the industry had a “historic” 383 dealerships in 2021, up 71% from the years before the pandemic. Most of them were small family businesses acquired by large groups of car dealers. These larger companies are full of cash as supply chain problems have pushed up the prices of new and used cars.

In some cases, the Internet experience has been the difference between those who are still in business and those who are no longer in it. Historically, automakers have assigned a certain region to each of their dealerships. But the Internet “has really begun to break down the geographic boundaries that used to limit the dealership’s sales potential,” says Kerrigan. “Bigger Groups of Car Dealers with Better Resources” seeking to create their own digital retail tools and websites. Car buyers can see the first signs of change in the industry on the show floor, if they get there at all.


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