Changing face of franchise dealers

The global automotive industry is seeing changes in a host of areas right from vehicle design and distribution to after-market sales and service.

The distribution model and the franchise dealer, in particular, is the focus of this write-up. Prior to this becoming a reality, automakers sold vehicles directly to end customers. The US has been home to the franchise dealer model since the late 19th century; in fact, it’s illegal in most states for an OEM to sell directly to consumers.

Flagging franchise Yet, the past few decades have not been particularly memorable for the American retail community and the number of franchise dealers has nearly halved since 1970. Despite this, they still hold an important position given their vast number of employees. In 2015, they had on their rolls over 1.1 million individuals, accounting for approximately one per cent of total employment in the US.

There are some who believe that the franchise dealer model is ripe for reinvention. Traditional sources of information on vehicles have become less popular with more consumers using digital media to purchase vehicles. Market feedback suggests that they dislike the current car buying experience. These complaints have been heeded by retailers who are now changing their procedures.

Most dealerships now feature online sales specialists who help determined which vehicles buyers may be interested in before they step into a showroom. Some dealers have also moved away from the commission model. A leading Japanese luxury brand is piloting a programme that touts no-haggle pricing for its buyers.

Another recent development has been the rise of ‘mega dealers’ who, with their size and scale, offer customers the kind of experience that smaller mom and pop stores simply cannot deliver.

These include being able to return a car within a set timeframe (should buyers change their minds) or test-driving multiple brands on one lot.

While striving to be flexible and receptive to customer feedback, dealers have been able to manage the shifts and keep pace with new trends in the auto market. Going forward, with more changes expected in the very core of transportation, they are in for even more challenging times.

More than sales Beyond buying vehicles, customers now expect a wider range of maintenance and related services from franchise dealers. These include advice on safe driving, avoiding wear and tear, remote assistance for vehicle problems, automatic reminders on maintenance, roadside assistance, buying used cars at a fair market price and so on.

There is no question that the ownership experience has remained consistent since the invention of the automobile where the customer buys a car through the dealer intermediary. Owners then operate these vehicles at their discretion and maintenance is carried out as and when needed.

Recent advances in technology could, however, change all this dramatically along with related service industries. For instance, buyers may not need the dealer to intervene when they can order and customise a vehicle online which will be delivered to their homes. Likewise, a dealer service department would not be required if a driverless car heads out for maintenance on its own and is ready for use the following day.

Of course, vehicle ownership in the autonomous age will be a luxury limited to a few but future mobility changes will impact the dealership landscape. OEMs and franchise dealers need to rethink strategies and adapt themselves to these new buying models.

India is no different and vehicles are distributed through the franchise model. However, manufacturers and dealers are moving a tad too slowly in capturing today’s behaviour patterns and putting in place appropriate strategies.

As a result, independent third parties are entering into vehicle distribution network and this is putting pressure on dealer margins and viability. The need of the hour is a robust distribution strategy which takes into account different market segments. OEMs and dealers have to work a lot more closely in the coming years.

The writer is Partner, Price Waterhouse

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