The auto dealer of the future

...standing out in the crowd

Evolving customer demands, increasing pressure from automakers to adhere to image requirements, growing competition from online sales, service, and marketplace providers: the challenges facing auto dealers today are unrelenting. In an environment where change is the only constant, auto dealers in Canada are struggling to find the right road to success. The ongoing decline in auto sales, which extended to a fifteenth consecutive month in May 2019 [1] with a drop of 5.9%, isn’t helping matters.

New challenges bring new opportunities. Dealers that embrace technology innovation rather than fearing it can easily set themselves apart from their competition. By using solutions like AI and data analytics, they can transform their organizations into future-focused, customer-centric and highly competitive dealerships.

Recognizing the factors driving change

The current business environment for Canadian auto dealers is complex and changing constantly. In addition to managing their day-to-day operations, dealers must understand and respond to a number of evolving factors – factors that are shifting the very foundation of the automotive industry, including how cars are built, sold, used and serviced.

Consumers today are more demanding, better prepared and armed with more data than ever before when they go to purchase a car, truck or SUV. Tech-savvy millennials and the Gen Z cohort following in their wake are at the centre of a massive shift in purchasing behaviour. These consumers use technology as a matter of course. With pricing, comparison and rating apps at their fingertips, what they really want from auto dealers and other companies that they work with are personalized experiences that cater to their unique lifestyles.

Globally, the sharing economy is projected to grow to $335 billion by 2025.[2] The sharing economy refers to the co-use of everything from automobiles and bicycles to houses and workstations. In the automotive space, companies like Uber and Lyft are making ride sharing ubiquitous, while organizations like Zipcar, Communauto, and Cars2Go are giving Canadians the ability to use vehicles on an ‘as-needed’ basis. These services are changing how consumers think about transportation – a shift auto dealers cannot underestimate. Dealers aren’t the only ones with concerns; with the sharing economy on the rise, some automakers are introducing their own alternatives – such as GM’s Maven car-sharing offering in Toronto.[3]

Technology innovation is spurring competition as nimble start ups work to disintermediate the automotive industry by offering solutions like online marketplaces for used car sales, automobile insurance, financing options and service packages.

Canadians are not flocking to online financing and insurance vendors at present; one recent study showed that over 65% of respondents who purchased a new or used vehicle over the past three years applied for financing at the dealership.[4]

The automotive industry is undergoing significant change, with automakers and other companies pouring money into technologies ranging from connected services to electric vehicles and autonomous driving. A 2018 PwC U.S. study showed that between 2012 and 2017 $2.6 billion was invested in companies developing technology supporting autonomous passenger vehicle development.[5] Such innovation is putting more pressure on dealers already burdened by mandated image programs and other investment requirements. With more connected customers and integrated technologies on the rise, dealers also need to invest in training and development to ensure their staff can provide exceptional customer experiences. Training, however, is already a challenge for many. A recent Ontario Motor Vehicle Industry Council (OMVIC) study showed 68% of dealerships were not in compliance with the all-in pricing law introduced in 2010 – a fact attributed in part to lack of training.[6]

Dealerships should not rely on business as usual. If they don’t provide the experiences customers want, they could easily lose market share to those that do.

Standing out from the pack

In the midst of ongoing changes to vehicle technology and consumer behaviour, the question auto dealers need to ask is, ‘How can we stand out from the pack and become the auto dealer of the future?’

The answer begins with shifting their mindset: looking at change as an opportunity rather than a threat. By embracing the idea of empowered consumers and more personalized customer service, auto dealers can create a vision for the future that recognizes the factors driving change and the need to align their operations to adapt as the future unfolds.

In the years ahead, the defining factor of success will be customer service – which means dealers also need to focus on fully understanding their customers. This includes looking at how they sell and to whom they sell, at their customers’ satisfaction with the sales process and after-sales service, and at how their dealership communicates, generates loyalty and attracts repeat business.

Dealers can use this information to create exceptional and seamless customer experiences. For example, knowing that car buyers conduct research online before they visit a dealership, dealers can look for ways to seamlessly shift their customer journey from online to in-store. This might include offering online tools that let customers build and price vehicles or compare features or prices in a way that is echoed when they visit a dealership.

Of course, one sale is just the beginning. Approximately 70% of Canadian consumers lease vehicles. This highlights the importance of auto dealers staying close to the customer throughout the lease agreement if they want customers to keep coming back.

Questions auto dealers need to ask themselves:

What’s driving your costs? How much unused inventory do you have?

Why did your existing customers choose to buy from you?

What differentiates your top performing and bottom performing dealerships?

Will your customers come to you for their next vehicle servicing?

What separates an amazing salesperson from a mediocre one?

How do you determine the price of a used vehicle? Are you leaving money on the table?

Starting the journey: Harnessing the power of customer data

Understanding the factors driving change and the characteristics of the auto dealer of the future is one step – figuring out how to make the transformation a success is another. This is where technology can play a critical role. For example, AI and data analytics can provide a better understanding of what motivates and influences customers, while also providing the knowledge required to engage with them across their customer journey.

Smarter analytics can also remove the guesswork from decision-making, helping auto dealers maximize manufacturer incentives or optimize dealership space based on location – such as by offering shared-car options in urban centers. We've highlighted below just some of the potential areas where data analytics may help auto dealers identify hidden opportunities for cost savings and create value across their operations.

Pricing Optimization:

  • Used car pricing / appraisal optimization based on holistic view of local competitive landscape
  • OEM incentive maximization

 

Inventory Optimization:

  • Dealership level demand forecasting
  • Inventory holding cost minimization

Expense management:

  • Facility maintenance cost driver analysis
  • Marketing and advertising effectiveness
  • Salesperson benchmarking
  • Financial alignment for incentive based compensation

Customer Service Retention:

  • Behaviour driven customer journey optimization
  • Next best service recommendation for customer retention
  • Optimized timing and marketing to increase likelihood of repeat servicing

Preparing for tomorrow, today

To succeed as an auto dealer in the future, today’s dealerships need to embrace the change imperative and technology innovation. By creating a vision of the future and using technology like AI and predictive analytics to harness their customer data more effectively, Canadian auto dealers will be better positioned to get ahead of their competition – becoming dealers that are not only customer-centric, but also proactive and able to provide the personalized experiences their consumers demand and expect.

Connect with PwC

PwC’s automotive industry and analytics specialists will work with you to understand where you may unlock value in your organization and explore your options for the future.

Contact us

Eric Castonguay

Eric Castonguay

Deals Partner, National Corporate Finance Leader, PwC Canada

Tel: +1 416 815 5094

Frédéric Bouchard

Frédéric Bouchard

Partner, PwC Canada

Tel: +1 514 205 5079

Gurpreet Brar

Gurpreet Brar

Managing Director, PwC Canada

Tel: +1 204 926 2487

Follow PwC Canada