There is a revolution in new vehicle retailing.
Selling and servicing new vehicles will never be the same.

Maybe, but at PricewaterhouseCoopers we see
the industry’s traditional “push” selling tactics continuing to blunt any
real progress in retailing. True, some noteworthy experimentation to rewrite the rules of
automotive retailing is evident in practice:

  • Increased manufacturer participation in the
    distribution process and retail network
  • Large public and private dealer groups as
    well as manufacturers seeking to implement “best practices” and alternative
    retailing models
  • Consumers, empowered by emerging E-commerce
    technology and their experience with other retailing processes, finding alternative retail
    structures or end running the current system through brokers or affinity groups

Automotive Retail Barometer
Whether these experiments represent real progress has been difficult to measure –
until now. We at PricwaterhouseCoopers would like to introduce a new approach to measuring
efficiency in automotive retailing and how it changes over time. We call it the
PricewaterhouseCoopers Automotive Retail Barometer (“PwC ARB”). The PwC ARB
considers the interrelationship of key automotive retailing factors and their
interrelationship with the ever-changing macroeconomic environment and gauges the
efficiency of the retailing process.

PricewaterhouseCoopers Automotive
Retail Barometer
– When we look at the industry’s performance in this
way, we discovered that rather than improving, automotive retailing efficiency has become
less so in recent years. This is largely because of various retail and dealer incentives
being used to move vehicles. These incentives, which averaged approximately $2,000 per new
vehicle retailed (“PNVR”) in 1998, are being used to move vehicle inventories
and are functioning as a safety net to compensate for the inadequacies of the existing
distribution process.

Advances in technology continue to drive
rapid change in automotive design and manufacturing. But sadly the production of vehicles
for retail inventories in a push mind set remains the defining element of the relationship
between manufacturers and their retail channels. Given this grim reality, it is difficult
to determine which of the aforementioned industry experiments will prove capable of
breaking out of the industry’s historical pattern. But one thing is already clear: No
single approach is likely to serve all needs.

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Consumer-centric retailing
What is evident, however, is that for an automotive retailing approach to be truly
effective, it must be consumer-centric and have the organizational and product assembly
and delivery flexibility to function effectively in multiple distribution channels
simultaneously. At PricewaterhouseCoopers, we know that successful enterprises will
include the following:

  • An assembly and distribution value chain
    capable of anticipating and responding quickly to customer demand for high value products
    through genuine value enhancing distribution channel
  • A merchandising strategy that goes beyond
    just satisfying market demand for new vehicles, but providing a broad ranges of
    transportation products and services over a lifetime.
  • A multi-channel retail network that is
    responsive to the diverse sales and servicing needs of individual and household customers.
  • A technology-based information support
    system for the extended retailing enterprises focused on enhancing customer retention and
    loyalty and empowered by real-time customer information preferences and aspirations.

It is also possible that retailers from
outside the industry will play a part in the changing industry landscape. Some are already
looking to automotive retailing as an alternative way to leverage the economies of scale
of their existing consumer-focused distribution network and retail stores for the benefit
of their loyal customer base. We expect that one or more of these non-automotive retailers
will invest substantial new capital and challenge many of the traditional approaches to
automotive retailing. These new entrants may make effective partners as certain segments
or products become viewed as commodities or when the existing retail channels are deemed
to be undistinguished, similar or too expensive for the value delivered.

Then as Now
Ten years ago, the U.S. automotive market was very similar to what it is today. Annual new
vehicle sales were almost 15.4 million units. Profitability for Chrysler, Ford and GM was
at a record $11.2 billion. Franchised automobile dealerships earned a 1% pre-tax return on
total retail sales of approximately $300 billion. Then, as now, incentives, rate
subventions, dealer margin reductions and a myriad of other financing tools supported the
new vehicle market. And, also then as now, manufacturers, dealers, consumers and industry
pundits alike groused about the need for greater manufacturing efficiency, a more
customer-friendly buying and servicing experience, brand distinctiveness and an improved
ordering and delivery network. Why then, despite this clarion cry for change has so little
changed in automotive retailing?

To answer that question in depth order a
full-text copy of our study, “Measuring The Automotive Retail Revolution”, by
contacting J Ferron of PricewaterhouseCoopers @ (313) 446-7174.