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How can dealers remain relevant in the changing auto finance landscape?

How can dealers remain relevant in the changing auto finance landscape?

As Sword Apak’s Senior Marketing Executive managing events and attending several conferences globally, I frequently hear about disruptive changes that are starting to impact the automotive finance journey, and in particular the potential impact on dealers to continue attracting and retaining customers. 

There’s little doubt that over the course of time disruption from regulation, distribution, environmental factors, social change, technology and digitalization will all change cars and the way they are used, impacting both the volume of stock dealers hold, and the way that stock is retailed.

At the recent Compelo Motor Finance Conference in Berlin, several speakers touched on the need for dealers to imminently consider how they can adapt, evolve, and diversify to stay relevant and remain a key part of the car buying journey.

How is the dealership sales model changing?

Conversations at Motor Finance led us to thinking that whilst different countries have different nuances to their retailing model, the franchise system is broadly similar over different markets and has changed little over recent years; and what’s become evident in the UK is that the current franchised dealer distribution model is coming under pressure.

Despite some dealer networks continuing to expand; overall, networks are consolidating in the UK, with dealership numbers falling from 10,201 in 1975 to 4,900 today. News of Vauxhall dealers being restructured by PSA Group could unfortunately accelerate this even further. This drop can also be seen across other mature markets in Europe as disruptive factors continue to keep competition high and a saturation point continues to loom near.

Key to the dealership model changing is the way customers choose to source finance.

The traditional ‘analogue’ model was:

  • Buyer established a budget > identified car > identified and visited dealer > test drive > purchase decision > finance arrangement > sale.

Whilst today’s market is becoming increasingly omnichannel, this model remains true to a large extent, albeit the number of dealer visits per sale has fallen significantly.

The evolving ‘digital’ model is starting to look like:

  • Buyer establishes a budget > identifies car and finance arrangement in principle > contacts dealer/retailer channel > sale.

One of the subtle differences challenging dealers is that thoughts of finance now often comes before the dealer visit. Finance can of course still be arranged through the dealer channel, but with online aggregators which promote dealer stock now offering their own finance, as well as the impact of a shift in financial regulation to greater customer engagement and transparency, the control and income potential of automotive finance looks increasingly likely to move back to the lender.

The rise of online finance looks set to be led by those who control online distribution, as they are well positioned to create better payment profiles to maximize buyer convenience. For franchised sales, this finance could be led by captives; and for used car sales, it could be the online aggregator/classified service providers for the same reason.

So how can dealers remain a pivotal point in the auto finance journey? At Motor Finance, a couple of speakers mentioned the need for co-operation with the OEMs and finance providers being vital which seems sensible advice as it’s likely that OEMs will play a more direct role in the distribution of their cars, so dealers must find ways to co-operate and collaborate effectively with OEMs for the mutual benefit of all.

Embracing changing customer behaviour

One of the key disruptive threats to the current dealer model is a change in customer behaviour and expectation levels.

Customer expectations of their car buying experience are now being driven by a seamless experience in other areas of mobility such as Uber, and from other industries such as Amazon who strive to provide an expert customer retail experience. For dealers to continue competing they must consider how to create a similarly excellent and hassle-free experience for customers, with no misalignment between the online and onsite experience.

So how do dealers transform their network into a profitable, modern, multi-format sales channel? How can they combine the best digital opportunities with the strengths of the traditional dealership channel to create a seamless customer experience? How can they ensure a customer can start a finance application online, walk into a dealership and pick that application straight up again?

Dealers will need to think about the introduction of new diverse retail formats, maximizing the data they have around buying patterns and looking for trends, as well as embracing new technologies for communicating with customers to support the sales and service process.

How can dealers remain relevant?

Bricks and mortar dealerships are changing in format, size and concept. We can see an increased emphasis on developing flagship or completely digital retail stores in the heart of city centres, where the brand meets the customer in their own living and working environment.

Dealers will benefit from developing an omnichannel approach that optimises the customer journey and adds real value to customers through collaboration with the OEMs and finance providers.

We may also see dealers diversify the way they utilise their real estate. Could we see dealers building “up” to create office or residential space in city locations? Perhaps dealerships become retail hubs offering other services such as coffee shops, creches, hairdresser etc?

Dealers will certainly need to embrace the cultural shift, moving more into the ownership and mobility customer experience, and ensuring they optimize every square metre to meet customer expectations and gain competitive advantage by offering both the right products and right services.

The good news for dealers (in the US at least) is that millennials are still likely to rely on dealers more directly to make a final purchase decision. MSN research suggests that 62% of US millennials (aged 18 to 29) plan to buy their next car in person, at a dealership. I know our VP of Marketing has some thoughts around this too so look out for a blog piece from her on this subject soon!

The overall opinion at Motor Finance was that it’s likely we’ll see a dual digitalized and physical channel approach to the auto finance journey for quite a few years yet, but dealers need to embrace change and think about diversification and the evolution of the dealership now.

By Helen Woodhouse at 24 May 2018, 12:02 PM



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