The business environment has changed and this requires a mindset shift for dealers from episodic and transaction-based, to ongoing and service-oriented. - IMAGE: AVIGATOR FORTUNER via

The business environment has changed and this requires a mindset shift for dealers from episodic and transaction-based, to ongoing and service-oriented.


For some time, dealerships have maintained inertia with current business practices and processes. As a result, they have been reluctant to fully embrace digital retailing, and, under franchise laws, resisted their OEM partners’ attempts to provide direct web sales options to consumers.

The business environment has changed. In the past, there were a few big companies competing with each other: Coke vs. Pepsi; Airbus vs. Boeing; GE vs. Siemens. Now, there are thousands of startups in every market, and they’re competing with the big players with far fewer resources. Executives who are trying to predict the next wave of disruption should look for early signs of behavior changes in consumers. “In most cases, consumers disrupt markets, not startups and not technology,” says Thales Teixeira, an associate professor of Harvard Business School.

“In most cases, consumers disrupt markets, not startups and not technology. Your way out as a business executive is to adapt and evolve your business model,” said Thales S. Teixeira. In his book, “Unlocking the Customer Value Chain,” Teixeira argues that technology doesn’t drive disruption — customers do. Successful disruptors are faster to spot and serve emerging customer needs faster than larger competitors.

How is this Related to Automotive Retail and Why Should Dealers Care?


Roughly 85% of car shoppers would more likely buy from a dealership that allows them to start or complete nearly all of the vehicle purchase online, according to Cox Automotive. Yet only 2% of new cars are actually sold online. The brick and mortar dealer store remains the dominant sales channel for OEMs. By law, customers are still required to visit dealerships to purchase, while every other retail category delivers an omni-channel experience with products and services available anywhere, anytime.

Many consumers have expressed interest in buying direct from manufacturers because they don’t like negotiating on price and spending long hours at the dealership to sign copious amounts of paperwork. What should otherwise be a delightful experience often ends up being an arduous horse-trading experience. Among those who purchased from a dealership, the average number of dealerships visited dropped from 2.7 in 2017 to 2.3 in 2019, and 61% reported their most recent purchase experience is the same or worse than the previous one, according to Cox Automotive’s 2019 Car Buyer Journey Study.  According to (citing a J.D. Powers and Associates study), more than half of dealership customers would prefer to buy directly from the manufacturer, without any monetary incentives to do so.

Furthermore, a Goldman Sachs analyst report estimated a total cost savings of 8.6% in the order-to-delivery chain for a direct sales model. The components of those savings in order of impact are: improvements in matching supply with consumer demand; lower inventory; fewer dealerships; lower sales commission; and lower overall shipping costs (since fewer dealerships would reduce the number of distribution points). 

In a 2008 review of scholarly literature conducted by economists Francine Lafontaine and Margaret Slade, they found that state-mandated franchise restrictions tend to increase prices and reduce sales.

With information ubiquity and changing consumer sentiments, the forces weighing on the automotive retail landscape are starting to counter-weigh the legacy franchise laws that states have enacted to protect dealers.

When it comes to sales, the internet has virtually eliminated any information asymmetry between buyers and sellers in a way that has rendered haggling obsolete. With most cars selling at rock-bottom prices, and some with negative margins, this has cut into the dealerships’ bottom line. 

New car sales have never been one of a dealer’s more profitable lines of business anyway; often it is the loss leader that drives more business to the F&I, service, and parts departments. Most dealers are recognizing that there are changes happening to their business and are embracing their role as the OEM’s key partner in service and support.

More and more manufacturers are starting to set up direct to consumer (DTC) sales channels. With Tesla setting the precedence as the trailblazer establishing DTC channels across sales, delivery, and service, a slew of new age EV manufacturers such as Lucid Motors and Rivian are following suit with similar distribution strategies. Unlike Tesla, however, Rivian does plan to enlist dealers for service and support.

Volkswagen announced that the new ID.3 will be sold directly online by the manufacturer, while dealers remain involved as “agents” (receiving a sales commission from Volkswagen). This would be a hybrid between the old dealer approach and the full vertically integrated Tesla approach for sales, delivery, and service. A key change is that Volkswagen will now decide on the vehicle price instead of complicated price negotiations at the dealer level. Dealers will remain involved with service and delivery.

Similar to its German counterpart, the design-led Scandinavian carmaker Volvo announced that its inaugural all-electric vehicle, Polestar, will also be sold direct-to-consumers and delivered through its dealer network. Customers will be able to interact with the vehicles at Polestar Spaces with non-commissioned product specialists. Those wishing to order or reserve a Polestar can complete the process through the Polestar app or website either in the comfort of their own home or under the guidance of a Polestar Specialist in their chosen Polestar Space. Test drives can be conducted on-site, deliveries can be scheduled to home or office addresses, and there is no held stock to try and persuade buyers away from their personalized configuration. As for payment, Polestar views drivers more as “users” than owners, and as such, the company will offer a subscription option, in which a flat, monthly fee covers depreciation, insurance, and maintenance.

Dealers should expect changes, albeit slowly, taking hold of the industry. In the interim, they should focus on their strengths and work with their OEM partners to define their role in the value chain before it’s too late to act, as Blockbuster learned the hard way. 

Innovative dealers who capitalize on their strengths and adapt, can find ways to continue to play a vital role in the customer value chain. Dealers’ infrastructure, service bays, and skilled personnel are all valuable assets to help OEMs with vehicle delivery and ongoing service and maintenance.

To meet the varying mobility needs of consumers, dealers should offer a continuum of mobility services from traditional lease and finance, to monthly/weekly subscriptions, and daily/hourly rental. As an example, for a subscription program sponsored by the OEM, dealers can fulfill the switch-out as customers fluidly move across models from year to year, month to month, or even day to day.

Depending on the roles OEMs assign to their dealers, the remuneration models will evolve. Cash incentives, holdbacks, rebates, and floor planning are all different financial levers that OEMs have traditionally pulled with their dealers to steer their business objectives. On the march towards digital retailing, the relationship between OEMs and dealerships will slowly evolve. As an example, the traditional OEM-imposed requirements will change from having dealers invest CapEx in large facilities and parts departments to drive sales transactions, to one where dealers invest OpEx in process, technology, and training, to enhance the customer experience across a range of mobility needs. Ultimately, based on who owns the customer relationship and where value is created, these metrics will change and new ones will be created.

Opportunistic dealers will take this crisis not as a curse but as a blessing in disguise to digitize processes and innovate on top with what customers prefer: convenience and transparency.

COVID-19 has accelerated two trends that were emerging before the pandemic began. The first is the growth of the e-commerce channel and DTC relationships. The second is the demand for innovative mobility models, such as subscriptions and usage-based models. Both models will require building stronger online relationships with the end-user.

With further decentralization of the “buyer journey,” the bulk of the activity leading up to the purchase decision will happen outside of the four walls of today’s brick and mortar dealerships. Model comparison and searching for vehicles have already moved mostly online. Now, we’re starting to see deal pricing, appraisal, and financing also happening online, with 87% of consumers wanting to take car purchase steps online. Negotiating and completing the paperwork online has the greatest impact on reducing the time spent at the dealership, according to Cox Automotive.

The test drive is the last step to digitize in the buying lifecycle. Because of the high investment size and the emotional nature of car buying, buyers need to experience the car and “kick the tires” before they make the buying decision. Test drives are thus an important part of the buying journey. Already some dealers are leveraging car-share fleets as a new medium to enable touchless test drives for their dealerships. 

Dealers can leverage their lots and other convenient parking locations to enable true touchless test drives. They can automate the process by allowing prospective buyers to access the vehicles with their smartphone without ever having to talk with a salesperson, sign a physical paper, or exchange physical keys. Leveraging technology, dealers can extend their store hours and locations, and offer 24/7 test drive facilities without incurring additional overhead costs.

These changes impact investments in real estate and inventory for dealerships. Over time dealership showrooms will morph into “mobility rooms” where consumers come to experience the vehicle, take delivery, and receive service and support. This requires a mindset shift for dealers from episodic and transaction-based, to ongoing and service-oriented; constantly earning the mobility mile-share of their (OEM partner’s) members.

Babak Khademi is in charge of developing new business partnerships and driving growth for Ridecell in North America by working closely with C-level stakeholders to help craft their new mobility strategy around carsharing, ride-sharing, and autonomous fleet management.