The ‘economics of the box’: prospects for the dealer business model

While there’s no immediate cause for alarm, the business conditions for car dealers – especially small independents – may get more difficult if new engine technologies and changing attitudes to car ownership become more widespread. The big consultancies and researchers expect electric car ownership to grow fast, if the technological, cost and infrastructure hurdles can be solved. If so, the immediate effect for car dealers will be a fall in after-sales revenue as electric cars substitute for conventional internal combustion engine ones. Electric cars generate around 25% of the service and parts revenue of conventional ones. Their expectation is that, by 2030, EV cars may become mainstream in cities and in some countries, such as China. Following closely on that forecast are two more. First, that urban dwellers may be willing to trade car ownership for mobility. Put simply, they continue the transition from ownership to leasing – which has already happened – and take the next step from leasing to on-demand mobility packages. Firms like Uber and Lyft are betting that change will happen, at least in cities and suburbs with high congestion and car ownership costs. So too are Peugeot, Renault, BMW, Audi and Mercedes-Benz. If that took place, the retail new car market would shrink even faster from the 2030’s onward. Second, there’s the much vaunted arrival of autonomous driving cars. Most experts expect this is thirty years away at least but they are all convinced that personal car ownership will cease to be mainstream if it does occur. The future for traditional car dealers who think that existing franchise protection laws and manufacturer’s investments in dealer networks will act as a bulwark to change and do not consider and assess these trends will not be bright.

Read more