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Connected Car Helps Drive Automotive Retail Consolidation

by Greg Ross

December 02, 2021

Originally published in Dealer Marketing Magazine

Automotive Retail is Consolidating

It’s no secret that significant consolidation of automotive retail is underway. Every week, Automotive News reports additional acquisitions by the leading retail consolidators. Earlier this year, Automotive News reported that the consolidation trend has continued steadily over the past 10 years – even through the pandemic. At the end of 2020, the Top 150 Dealer Groups owned 21% of all dealership locations and represented 23% of industry sales volume. This is up from 13% of locations and 16% of volume ten years earlier.  

The need for significant technology investments is one driver of consolidation. Smaller dealers are faced with large investments to enable digital retailing to meet customer expectations. Dealers are also facing new investments in electrification technology to accommodate the industry shift to EVs. And some dealers are choosing to sell rather than make the investments. For example, approximately 20% of Cadillac dealers are reported to be walking away from their franchises, rather than make required investments in selling and servicing Electric Vehicles.  

Tesla’s Retail Approach Shows What is Possible

Tesla’s retail network shows that technology can not only be a driver of consolidation, but also an enabler. Tesla has fewer than 200 Sales Galleries and fewer than 150 Service locations. Connected Car technology is one of the keys that makes it possible for Tesla to service its customers with so few facilities. On the sales side, Tesla enables comprehensive on-line shopping. In service, Tesla says that it can accurately diagnose 90% of all issues remotely and that it can repair 80% of problems without a visit to a service center. Connected Car technology makes this possible by allowing Tesla to remotely connect to its vehicles for diagnosis and for ongoing insights into real-world customer usage. Tesla can also determine the customer’s location if it needs to dispatch a remote repair and Tesla can often repair vehicles with an over-the-air software update. It is safe to say that Connected Car technology is the only way that Tesla could operate with so few physical locations. As this technology becomes more widely used by all OEM’s, there will be growing opportunities for other OEMs to consolidate sales and service facilities.

Lessons from the Pandemic and the Chip Shortage

Both the pandemic and the chip shortage have accelerated trends toward digital retailing and reduced inventories. As reported in Car and Driver, Ford has concluded that the pandemic accelerated customer interest in shopping and ordering vehicles on line. Many dealers successfully responded by offering at-home test drives and deliveries. A build-to-order mindset for consumers has been further accelerated by the chip shortage, which has made it difficult for dealers to hold inventory and for customers to shop from inventory on the dealer’s lot.  

Connected Car Technology Will Enable Further Consolidation

Connected Car technology will further enable the trends toward retail consolidation and digital retailing. As Tesla has demonstrated, a well-connected OEM and Dealer network can easily provide remote sales and service to customers without needing so much real estate. As customers become more comfortable with online ordering and remote service, the most successful dealers will be those who make the best use of technology to serve customer needs.  

We will soon see dealers making extensive use of Connected Car tech in their sales and service operations. For example:

  • In Sales, vehicles can be made available for any-time test drives and parked inaccessible locations. Vehicles can be electronically disabled to prevent theft and only enabled for prospects with a valid authorization code.
  • Also in Sales, a limited test drive can be extended to a short- or longer-term rental, with data collected to make effective suggestions to the customer for a customized vehicle, accessories, and software.
  • In-Service, ongoing monitoring of vehicles will create increasingly sophisticated predictive models. These will allow Dealers to contact customers long before a failure occurs and offer either a physical repair or a software update.
  • Also in Service, Dealers can monitor vehicle diagnostics trends, and can proactively schedule vehicle maintenance to be done at a time that is most convenient for the customer and also the most efficient for the dealer.

The bottom-line result will be continued consolidation and more efficient use of real estate to meet the needs of automotive shoppers and owners. 

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Car Buying for the Connected Customer

I had a recent experience with buying a beautiful new Chevy Colorado that showed me that much progress has been made to meet the expectations of connected buyers, but also revealed how much remains to be done.

Web Shopping Experience:

I had a great experience with the Chevrolet website and its integration with local dealer sites. From driving a friend’s truck, and from prior experience, I had already decided that I wanted a new Colorado. The Chevrolet website helped me navigate effectively through the many decisions that a new buyer needs to make – particularly for a new pickup. Once I knew exactly which truck I wanted, and in what color, the Chevrolet site then did a good job of searching for local dealers who could sell me one. Unfortunately, a search of my local dealers’ inventory showed me that nobody had the combination of trim, accessories, and color that I was looking for. I was not discouraged though, as the site also made it easy to contact three local dealers to let them know what I was looking for. I was also able to include a note, to say that I was looking for this specific configuration, and that I was ready to buy. 

This work was completed on a Sunday evening, and I received confirmation from Chevrolet of the truck I was looking for, and the dealers I had selected. I was very pleased to be contacted by all three local dealers first thing on Monday morning. This is where the opportunities for improvement started to show.

Three Dealers, Three Different Experiences:

All three local dealers started with prompt contacts via both email and text, as I had requested. This is where the breakdowns began:

Breakdown #1: Dealers Waste My Time

All three dealers asked me to re-send the specification for the truck that I was looking for. I re-sent each one the email that Chevrolet had sent me, but why should that be necessary? It was that same Chevrolet website that had helped me identify the dealers that should contact me.  I don’t know whether the dealers actually didn’t receive the specification sheet or if they didn’t feel that they could rely on the information? In any case, it was an unnecessary bit of extra work for the customer.

Breakdown#2: Dealer Stuck in the Stone Age

The first dealer contacted me to confirm my information, which I provided. They also confirmed that they did not have the truck I was looking for. I asked Dealer 1 if they would help me either order or locate my truck, and if they would give me a price. Dealer 1 would not do any of this until I agreed to come in to meet the “Truck Specialist.” I confirmed that I already knew exactly what I needed, and that I didn’t need the Specialist. Dealer 1 would not do business with me unless I agreed to waste my time. Dealer 1 was out.

Breakdown#3: Dealer Thinks I’m a Deadbeat

Dealer 2 took my (repeated) information and conducted a search within a 400 mile radius. The closest match was not very close, including $1,500 of features that I did not want. Dealer 2 said that they could order the truck that I wanted, but it would take 10 weeks to arrive. Dealer 2 required a $4,000 deposit to place an order. Further, if I didn’t buy the truck, the deposit would only be refundable if/when the dealer sold the truck. Dealer 2 explained that this large, semi-refundable deposit was required by dealership policy, because the dealerships had been “burned before” by customers ordering what they wanted. Dealer 2 was out.

Breakdown#4: Dealer Gets the Order, but 8 Weeks and more Data Re-entry

Dealer 3 took my information and offered to order a truck with a $500 deposit. I agreed to give Dealer 3 my business and dropped off a check. Amazingly, Dealer 3 told me that the order could not be entered for another 3 days or so. My first question is why the order that I had carefully completed on the Chevrolet website and routed to the selling dealer would have to be re-entered by the same dealer? These two systems aren’t (or can’t be) connected? And the next question is why it should take 8 weeks for a standard order to be processed? This is inconsistent with customer experiences formed by next-day deliveries. It is also inconsistent with the Chevrolet website experience, which guided me to the precise truck that I wanted. The rest of the system needs to be aligned to deliver that specific truck promptly in order to meet connected customer expectations.

How a Connected Shopping Experience should work:

I’m now anxiously awaiting word from my dealer about production and delivery of my new Colorado. Over the next 8 weeks, I hope that I will see Chevrolet take advantage of opportunities that should come with a fully connected production system and a fully connected truck:

  • Build Progress: I should be able to track the progress of my order as it slowly moves toward production. I hope to get regular updates and indications of a likely production date.
  • Build Verification: Since the truck has a built-in telematics system, I expect to get an email or text from my new truck when it first fires up at the factory! Maybe a report on passing all of the end-of-line tests, showing no faults and readiness to be shipped?
  • Order Tracker: That connected truck should also let me track it as it moves from the plant to the dealership, and then text me when it arrives.
  • Personalization and Set-Up: Finally, before my truck gets delivered, why not let me input some of my preferences, so they are already loaded when I get in? Let me configure my radio pre-sets, set my preferred temperature, and configure some of the many settings in the infotainment system? I think I’d rather do that on-line before delivery. As an extra benefit, I could learn about all of the truck’s great features while deciding on my preferences. Seems like a better experience and a more efficient process for everybody.

We will see. Meanwhile, I’m looking forward to driving that brand-new truck.