Car Dealerships Are Starting To Feel It
The glory days for car dealerships are coming to an end.
This is something that I keep a close eye on. To me, we are watching a repeat of the retail apocalypse, this time in the automotive industry.
We have a lot of moving parts within this sector. All of it seems to go against the dealerships.
In fact, it is safe to say they are cooked.
Let us look at a couple of factors.
Electric Vehicles And Tesla
Tesla is hurting the car dealership model. The company is going to sell 1.8 million vehicles without one order going through a dealership.
Overall, this is still a small percentage of the total. Plus, Tesla's numbers are global, being less in the United States. We are in early days but that is when the trend becomes noticeable if one is looking.
The biggest challenge with EVs is they require less service. This is one of the biggest reason why dealerships are fighting them. Many car dealerships generate over 70% of their revenue from service. This number gets larger once the profits are factored in.
In other words, making money on the sales of the car is secondary as long as they keep getting the service.
It is a model that is certainly threatened by EVs.
As more get on the road, the service is going to drop off at some point.
Is It Starting?
There are some reasons to be concerned. While this is something that is going to require watching, we are looking at some things that are alarming.
To start, look at the sales of vehicles in the U.S.
We can see a noticeable decline from 2016. Obviously, the COVID year was tough. However, 2022 was below the total vehicle sales in 2020.
This is not a strong trend.
Even more alarming is the service revenue.
This is what we have from the most recent report.
XTIME REPAIR ORDER VOLUME INDEX FOR JULY
We can see how things are trending down in this area also. While it is not stark, it is established that repairs are declining for car dealerships. If we couple this with the decline in car sales, this could be the start of something nasty.
Robo-Taxis
Could the future of automobiles be self driving vehicles?
This is the forecast of many. If this comes into being, it radically changes the business model. People could usher in transportation as a service. If this is less costly than ownership, it destroys the entire premise of the dealership.
While this is still speculation, there is another factor. The best selling vehicle in the first half of 2023 is the Tesla Model Y. Each of these has the hardware for self driving in them.
That means that each quarter, more potential robo-taxis are put on the road. Once the software is ready (and approved) owners could simply upgrade their existing vehicles.
Will this become a reality? It is still too early to guarantee this. However, it is likely we see it come to fruition as technology is pushing ahead.
If so, it will be another stake in the heart of the car dealership.
We are likely to see a lot of valuable real estate come available as these corporations suffer through major disruption.
Just look at all the shopping malls that are basically empty these days. Who would have predicted that 15 years ago?
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Interesting analysis on disruption in the automotive industry. The transition to electric vehicles and the prospects for autonomous vehicles really challenge dealers.
I think so.
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