There has been a constant background noise from many quarters, but mainly from the general consultancy and technology sectors, predicting the death of the dealership and a move to purely online car sales.
There are still a few within the industry who have some ambitions in that direction. The reality however is that based on ICDP and other research, 96% of all new car buyers still want to do some part of their buying journey in person, and that includes in most cases physically being able to view and try cars.
That implies physical premises that can accommodate a range of cars, and by good fortune, we have a load of such sites today that we call dealerships.
Physical sites therefore remain an integral part of future retail networks, which also enable the provision of aftersales service which is an important part of establishing trust with the buyer, and of building relationships that drive repeat purchases in the future.
Whether all aftersales points need to be co-located with sales points and what the future workshop looks like, is another discussion which I won’t address in this blog but is the focus of a forthcoming research activity which ICDP will be conducting with CitNow Group.
When you look at the efforts being made by the Chinese new entrants to grow their presence across Europe, they all have big ambitions in terms of the number of franchise points they want to have by the end of this year, next year, etc.
I’ve not yet seen an OEM presentation that does not have a slide on this topic in a prominent position.
For the established manufacturers they continuously benchmark themselves in term of network size against their peers – using the European Car Distribution Handbook published by ICDP as their ‘bible’.
But size is not everything, either in terms of the size of the network or the size of facilities within that network.
With my dealer hat on as Managing Director of Auto West London, now that the business is in expansion mode rather than set-up, I spend a lot of my time focused on property.
The CEO of one of our largest dealer groups told me a couple years ago that he views his job largely as that of a property manager – he needs to match franchises with individual properties in a way that maximises the return on the property investment. I’m finding the same.
Within the scope of ICDP research we have talked about the fact that in prime areas, demand for dealer property now exceeds supply and I wrote about this in a blog a few months ago.
But on the other hand, there are properties that have been hanging around on the market for years, so what are the factors that make a difference?
In the property market, there is a maxim that everything is about location, location, location, and that is certainly a key factor.
The first Auto West London site sits on a major road junction heading from Heathrow into central London with 500,000 people passing daily (so I’m told, I’ve never counted them).
It has many disadvantages operationally, but there is no doubt in my mind that the visibility and the buying power of the local population have been major influences on our early success.
On the other hand, our second site, which currently supports the first with aftersales, some new car storage and used cars, sits in a prime location in terms of geo-mapping for the OEMs but is in a residential area and the original building is 100 years old.
The building itself then becomes a deciding factor for some brands as they can’t make their CI fit anything that is not a standard dealer ‘box’.
As our good friend Glenn Mercer has pointed out in his research, Apple can adapt their brand standards to fit any architectural style, yet our industry seeks standardisation when buyers rank look and feel of the dealership behind people and the cars themselves in terms of influencing factors.
Given that the range of cars on display is the second most important influence, this has implications on the size of the dealership required.
Various brands have tried micro dealerships in central London and other big cities to avoid huge rents, but with most brands having several distinct product lines, a two-car showroom has limited value.
I would argue that at best it is a 3-dimensional poster supported by people who will answer your questions, but most often they will have to resort to a screen to show specific features that are not on the models in the showroom.
On the other hand, having massive multi-floor dealerships that we tend to see from the German brands in particular, serve little purpose if many of the cars on display are closely related to each other in terms of specification.
The right size varies brand by brand, but for a brand with broad market coverage, my experience is suggesting that ten is probably about right.
If we look at the quiet withdrawal of the Stellantis House concept, one factor in this must be that the defined requirement of 250 square metres per brand does not give you enough space to effectively represent a volume brand.
All of these factors influence the cost of a site – to buy or to rent – but an additional influence is the sunk investment into the site.
There are many examples of over-investment which becomes a burden on the operator and sets false expectations if they decide to exit.
Some of this is driven by manufacturers who demand investment into their latest look and feel, but some is a choice by dealers who want to make a statement or believe that they can get a positive return when viewed simply as a property investment.
Given that dealer property ranks low against other use cases (including self-storage) on a return per square metre basis, this may be misguided thinking.
In a digital world, property still counts. Having the right property in the right place is an enabler of success. Being stuck with the wrong property can be a burden that it is difficult to shed.
