Think Tank

The Future for Dealerships in the Era of Connected Vehicles

I’m old enough to remember a time when the decision to travel to some distant place was, pretty much without exception, followed immediately by deciding which travel agent to call.  Try mentioning that to a millennial and see what reaction you get. Crickets.

While travel agencies have not entirely gone the way of the dinosaur, their place in our world has been marginalized and diminished to a sliver of its former state. And the cause of that shift is obvious, at least to those who’ve been around long enough to see the before and after–the ubiquity of the Internet, specifically the World Wide Web (as we old folks called it once upon a time), has almost completely eliminated the need for a once necessary intermediary broker.

Technology is at it again. Self-service sites like Travelocity deliver many of the same services, like search, low-price guarantee, suggestions of ancillary services and excursions based on preferences that a trusty travel agent would. This has greatly reduced (often to the point of near elimination) the roles once played by the third-party intermediaries such as travel agents, stock traders, real estate agents and even bank lenders who alone held the access and expertise needed to connect seller to buyer.
The IoT (Internet of Things), and specifically connected vehicles and Industrial IoT, portends a fate similar to that of the travel agent for the arguably-venerable occupation of the automotive dealer. The networks of dealers who act as localized intermediaries separating the manufacturers of passenger cars, industrial equipment, manufacturing equipment, and agricultural equipment from customers are on track to be disrupted. I’m not clairvoyant enough to know whether such a major shift is directly around the corner, or that the dealer will be erased completely versus subjected to a “softer” diminishment and transformation. While the coming change will likely take time, the writing is indeed on the wall.

Why? Like the effect of the Web on travel agencies, the effect of the IoT on dealerships is first about disintermediation and democratization. OEMs (original-equipment manufacturers) are already offering connected services as value-adds to the equipment they manufacture, establishing a direct line of sight between themselves and the end users of their equipment, a line of sight once obfuscated by the dealer that stood as the man-in-the-middle. For the first time OEMs now know who their customers are and precisely how those customers use the vehicles or equipment in their possession. Because the connected services they now provide via their equipment are inherently recurring in nature, and therefore inherently relationship-based, the relationship that’s established and ultimately “matters” from the consumer’s perspective is with the OEM itself, not with the dealer with whom they may have initiated the purchase or lease.

And when it comes to examining the habits and needs of their customer base, what services they might require or when and how to properly upsell and cross-sell to these consumers, it is rapidly becoming the OEM who will be the only entity in possession of the data needed to do that well. Consider the role that this customer usage data ultimately plays in customer retention.

Sure, an OEM may “throw a bone” to dealers by directing a consumer in need of a service/up-sell/cross-sell to a dealer of their choosing, but the metaphorical keys are now in the OEM’s metaphorical hands, and is a power shift that is ignored at one’s peril.

Unlike the woebegone travel agent of yore, automotive and industrial equipment dealers are among a small cohort of industries that enjoy a level of legal protection and codification that might appear to be a bulwark against this shift. But while Uber and Lyft face a seemingly never-ending set of legal barriers to the adoption of their near-ubiquitous services around the world, their march toward the shining example of the “sharing economy” in action in the transportation space continues thanks to overwhelming demand. It is not going to be stopped, rather merely delayed.

The lesson of Uber and Lyft is that even governmental protection from disruption is, ultimately, ephemeral. In most U.S. states it remains illegal for automotive manufacturers to sell to consumers directly, effectively providing a special legal status to dealers. But if such legal protections are a barrier, only the unwise dealer regards the barrier as permanent. In 2015, Tesla managed to permeate the legally protected and seemingly impenetrable stranglehold of the New Jersey automotive dealer network, with Governor Chris Christie (somewhat grudgingly) permitting the manufacturer to open four stores in the state. Pandora’s proverbial box has been opened, so it’s not a matter of “if” for dealers, just “when” and “how.”

Make no mistake: OEMs understand this. All of them. The brass ring they seek is not merely the incremental new revenue streams provided by IoT add-on services. It’s ownership of the customer. Thanks to reliance on dealer networks they’ve never had it, and they want it bad.

The wise dealer will begin the process of self-reinvention now. I wish I could provide better advice to them as to what that reinvention might look like. I can’t, and I understand in advance the hate mail from them that’s no doubt coming my way. But I can say that the footprint, influence and control enjoyed by equipment dealers is soon going to be much smaller and very different than it is today. And after this happens in the next couple of decades it will be millennials who will tell their children about a day-gone-by when people went to this thing called a “car dealer” to get a car, only to be met with… well… Crickets.

About the Author

Brendan O’Brien, co-founder and chief innovation officer, Aria Systems

By |2017-12-04T14:49:08+00:0010/4/2017|

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