The traditional view of a
new car and truck dealership has changed because of the supply-chain forces reshaping the
industry. The dealership link to parts of the supply chain is now more likely to be
defined in terms of information rather than cost.

The cost associated with
maintaining a vehicle inventory is no longer an advantage to a dealership. Instead, these
new-vehicle inventories represent a “cost center” to someone, be it a dealer or
car buyer.

A 60 day vehicle costs a
consumer in dings and scratches from excessive handling. These heavy-inventory vehicles
ultimately get “spiffed” by dealerships or distributorships, therefore netting
less overall margin.

The Competition for

Consumers are finding other
ways to get information about new products. The information source is usually a distant
computer server, as opposed to a dealership’s bricks-and-mortar building. The value
of the physical facility is declining, since it adds more cost on average as showroom
floor traffic declines.

From the financial
perspective, significant declines in dealership margin have had to be partially offset by
expense cuts. In the market now, total dealership expense percentage plus net profit
percentage (13 percent) is less than the total dealership expenses of only a decade ago.

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While expense cutting gives
the desired result of smaller and less costly dealerships, it may also affect personal
relationship with consumers. Cumulative personnel expenses for dealerships are nearing an
all-time low of four percent of total sales. As total payrolls shrink, dealerships will
find it harder to build close ties with customers.

Dealerships Face

The traditional concept of
a dealership is undergoing a fundamental change. Dealerships nowadays need to provide more
than simply a location for would-be car buyers to shop. Brochure racks and salesperson
patter will become outdated as consumers expect dealerships to emerge as electronic
sources of information.

Manufacturers and
distributors are looking to new Internet initiatives and one-to-one marketing programs to
reach customers directly. The trend is clear. Dealerships need to find new ways to add
value and earn a margin in the extended automotive enterprise.

For instance, many
dealerships are taking advantage of the rapidly increasing value of the information they
generate. Additionally, many dealerships are realizing that they can create more value in
service relationships that they can control. These two ideas are evident in the new
retailer network plans of Ford, the regional efforts of AutoNation and the attacks on the
repair market by Penske Car Care Centers.

Both mechanisms hinge on a
common trait not tied to a physical building: they keep the dealership in the loop of key
ownership/repair transactions, thus enabling to better define the individual consumers and
their life-style interests.

Building customer
relationships presents a huge opportunity, even in the electronic age. Dealerships control
at least two important phases in the cultivation of long-term relationships: 1) initially
winning the customer’s trust and 2) keeping the trust by providing service and/or
product repair to the customer.

A new role has emerged for
the dealership. However, it is essential that, owners of dealerships move aggressively to
link their transaction information and their manufacturers, or risk being supplanted by

Some other information
sources such as OEM Web pages, insurance company Web sites and magazines also are
replacing the dealership as a place to shop for vehicle. This is a tremendous concern for

The dramatic redefinition
of dealerships is occurring because today’s customers are intent on getting the
information they want, and at the exact moment they want it. In exchange, consumers leave
information about themselves–in the form of demographics and lifestyle information–that
the manufactures need.

Dealerships are the key
link to this information. Failure by dealership owners, personnel and field staff to
recognize this new consumer information will enable competitors to replace an existing
strategic link. That would be a terminal error.