Like the changing seasons, the automotive retail industry is in transition and it will require dealers to focus more on long-term planning if they are to remain ahead of the game.
We are all familiar with the changing seasons.
The transition from summer to fall sees the annual ritual of back to school, shorter and shorter days, changing colours of tree leaves eventually leading to snowfall and the onslaught of winter.
Golf clubs get cleaned and stored only to have skis, boots and poles prepared, repaired or replaced for the coming season. Lawnmowers get winterized and snow blowers get serviced and tuned for the heaving lifting ahead. Its predictable; we know what’s coming. The only variable is roughly when.
In the dealership world, it’s an exciting but demanding time. When winter tire season arrives, drivers bring their vehicles into our dealerships to have their summer tires removed and winter tires installed. One set out of storage and another back into storage. It’s as cyclical and predictable as the changing colours of the leaves in the fall — you can count on your customers turning to you to get their vehicles road-ready for the winter months. It’s also an opportunity to rekindle relationships and further market your services.
Many dealerships use the fall to strategize for the current year, updating budgets and preparing detailed plans. Dealer groups hold planning retreats and individual dealerships meet with their brands to set targets for the coming year.
The focus for dealership planning, based on my experience is 99 per cent short-term and 1 per cent long-term. It’s a strategy that worked well in the past, but with all the potential changes set to impact our industry, we may need to spend a bit more time on long-term planning.
We all feel that the tides are shifting in our businesses. Locally, some of us feel the impact of declining new vehicle sales and less customer service visits. Warranty work is all but non-existent, except for recalls.
Internal service work follows the ebbs and flows of the retail side of the business. For some of us our return on sales is decreasing, and for others, banking covenants are feeling a little tighter. Brands continue to add pressure for more new vehicle sales. Top scores on balanced scorecards are getting harder to realize. Many feel that the brands we represent are out of touch with local business conditions, causing a feeling that brand requests are unreasonable.
One key question to address is the temporary or permanent nature of those shifting tides in our local business environments. For many, this is simply a time of temporary business decline that we have all seen and lived through before. For others, there could be a permanent element to those changing tides.
With all the potential changes set to impact our industry, we may need to spend a bit more time on long-term planning.
As many brands shift from cars to trucks, move quickly in the direction of vehicle electrification, and continue to make impractical demands regarding facility requirements to name just a few, the longer-term implications on the business in our local markets is impacted. These items must be addressed in both short-term and long-term business and strategic plans.
As the business shifts for many dealerships, costs will likely rise and as a consequence profits and free cash flows could be negatively impacted. This will have a negative impact on our financing, and in all likelihood will require us to rely more on equity to fuel future business than debt. In a capital-intensive levered business such as ours, this could spell challenging times ahead for some of us.
I believe this is one reason why some dealers have decided to sell their stores. After 10 great years of profitability for most of us, the ride could be coming to an end. The business cycle could be shifting.
Many dealers do not have the energy both physically and emotionally to weather the potential storm ahead. Shifting cycles are nothing new to our industry. It has always been a fact of life and many current dealers have lived through many cyclical downturns. But does this downturn feel different from others? In many ways no, but is some ways yes. There are certainly more external influences than in recent memory.
Brands themselves are shifting gears as they prepare to compete globally in the new world of mobility. On the surface, this might seem to some as headwinds for the Canadian dealer network. In reality, some of the shifts are normal evolutions in the product development lifecycle. In and of themselves, Canadian dealers should not have much short-term and medium-term concern.
In and of themselves, Canadian dealers should not have much short-term and medium-term concern.
The biggest shift is likely the empowerment of consumers through online capability. The influences from retail and finance communities will shape the minds and expectations of many consumers. This will in all likelihood change consumer expectations from their dealerships. This will change how we do business.
I don’t believe there is much short-term risk to if we will be in business. Automotive retail will remain close to automotive customers, both in terms of its importance and its physical location. Our dealer system works, but that does not mean that what consumers and brands expect from us will not change. Those expectations most definitely will, and its impact will differ depending on our local markets.
Just as the colours turn year after year, we as dealers must continually have our eyes on the future of our brands and our local markets from both short-term and longer-term perspectives. We must prepare ourselves to handle a steady barrage of shifting tides, and fall planning sessions are an excellent was to stay ahead of the game.
