Vehicle Sales and Profitability: What OEMs Need to Do to Make the Numbers Work
Disruptive forces of urbanization, digitilization, sustainability and omni-channel retail sales points were already beginning to seriously impact the automotive landscape pre-pandemic. The pandemic forced changes – including remote work, distance learning, and online everything – that motivated a re-thinking of the want vs. need dynamic. Post-pandemic, those forces have only gained momentum, creating an atmosphere of significant challenges – and opportunities – depending upon the lens through which they are viewed.
Between chip shortages for vehicles and the Delta variant of COVID-19, uncertainty in the automotive sector is high. Still, forecasters now see a solid recovery as the year progresses. Among these disruptive forces and their accompanying uncertainty, who is best positioned and prepared to profit? What strategies need to be employed to mitigate their risk?
Differentiated Business Models Offer Promise of Profitability.
One factor in the profitability equation has reached elevated prominence: flexibility. The days of creating a “one size fits all” dealership network model is in decline. The pandemic may not have caused a change in the how and where people choose to shop, buy and service their vehicles, but it certainly accelerated critical aspects of it. The financial concept of a diversified stock portfolio has suddenly found new applicability in the idea of a diversified retail-point portfolio, where OEMs, dealers or other interested parties can invest in a manner that helps mitigate the risk.
Location + Flexibility = Opportunity.
There are other factors at work in addition to the four disruptive forces already mentioned above. The move to an electrification future is accelerating at a pace beyond the projections of just 18 months ago. Government regulations are motivating change, whether by rewarding EV actions or putting in place policies designed to financially impact companies and individuals who are slow to adapt.
Location – once defined only by geographic boundaries — now encompasses online “locations” that offer automotive sales and service in which customers have very little, or no, interaction with physical retail points. Finding the right balance between optimal market representation and alternative retail formats is critical. To achieve more pragmatic results requires a holistic look at profitability over an entire investor market. Going forward, manufacturers, dealers, and investors willing to buy into a business model with that level of flexibility may very well usher in a new automotive buying, selling, and servicing dynamic designed to weather the storm of unknown disruptive forces.