Automotive Industry enters ‘perfect storm’ of change and uncertainty

You don’t need to be a motor industry specialist to know that the Australian and global automotive industries are facing major challenges. In Australia, this year is likely to see lower new car sales, higher interest rates (barring a recession), decreasing vehicle affordability and continued margin pressure forcing original equipment manufacturers (OEMs) to make radical changes, as evidenced by General Motors, Jaguar Land Rover and Ford, in their product lines and business models.

Such changes are global in their ramifications for dealers as detailed in the 20th KPMG Global Automotive Executive Survey .

Globally, and in Australia, dealers are sharpening their focus on expenses, reducing both new and used inventory and honing in on backend gross opportunities. Some are even considering selling their business. Other factors, such as autonomous or electric vehicles, are all expensive gambles for automakers and potentially major disruptors for car dealers.

In the past six months, the stock prices of major automakers, retailers, and almost any company with close ties to the industry have significantly underperformed the broader market averages. There is also the possible negative impact of a looming general election, that traditionally sees consumers putting off significant purchases such as new cars. Nevertheless, despite eroding industry conditions and the poor stock performance of the entire sector, there are opportunities which dealers must seize.

The biggest opportunity dealerships can exploit is a more seamless retail experience.

That means offering a sales process similar to Google and Amazon – the way many of today’s consumers prefer to shop. Consumers expect 24/7 online availability, the ability to transact online and have their vehicle delivered when and where is most convenient, or click and collect from a delivery centre.

Dealers must also offer transparency in vehicle pricing and financing upfront. So no haggling and negotiating a deal. Consumers also want options to return the vehicle (e.g. within 7 days and limited by 100 kilometres), similar to their interactions with other online retailers. This has some significant challenges as car isn’t really ‘new’ with 100 kilometres on the clock. But the concept is certainly worth considering.

They should also maximise customer opportunities using their CRM database. Targeting current customers whose cars are coming out of warranty, in for 30,000 km service, or driving the previous model and ripe for an up-grade.

Lastly, dealerships should consider adapting their business model to participate in the profit from car loan financing following new ASIC changes put in place last year banning flex commissions between financial institutions and car dealerships.

If the dealer becomes the lender, they can set the rate and then discount at the dealership. This allows more control over the process, greater transparency for the customer and dealerships can participate in the profits from financing a vehicle. All of which contributes to a one stop shop for purchase.

Without changes to dealerships operating model and everyday interactions with customers they may well collapse under the disruption seen in other traditional retail sector.



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