A Look Ahead At The Future, And Why Velocity Matters Today

February 20, 2014

A recent report from the Roland Berger strategy consulting firm discussed challenges for auto dealers and manufacturers in the year ahead.

The firm’s “Re:Think Automotive Networks Study” highlights a variety of pressure points that will continue to converge and squeeze dealer profitability—the rise of pricing transparency, increased sales volumes of less-profitable new vehicles (e.g., smaller cars rather than trucks), the likelihood that new vehicle volumes will “stagnate,” the loss of service and parts business to independent/chain outlets, and the weight (and cost) of factory facility requirements.

Taken together, the report concludes these pressure points will make profitable operations problematic for many dealers in the coming years. It also suggests that as many as 3,800 dealerships will close (through a combination of consolidation and dealers shuttering profit-troubled stores).

hightechdealershipBut here’s what I found most intriguing: The report suggests that the top-performing dealers of tomorrow will be those who get bigger today—the ones who carefully apply their economies of scale, greater efficiencies and process-focused cultures to competitive advantage. Further, the report encourages OEMs to proactively encourage the growth and longevity of this larger, leaner and meaner type of dealer, which they call the “right” kind of dealer for tomorrow’s highly competitive and profit-challenged market.

If I were part of the team helping OEMs devise their dealer network strategy for the future, here are three things I’d strongly advocate that they account for in their plans:

1. The undeniable, dealership-wide improvements that follow the application of Velocity principles in used vehicles. Indeed, I know many dealers whose new vehicle sales, and overall dealership profitability, have benefited from a well-run used vehicle department. Further, there are many Velocity dealers who have expanded their regional footprint, adding additional stores and growing new/used vehicle market share, as a result of the financial successes they’ve achieved in used vehicles.

2. The process-driven cultures Velocity dealers create as they elevate their used vehicle performance to the next level. Sometimes, I don’t think factories really understand how difficult it can be for dealers to wrestle back the traditional department “silos” and reinvent the people and processes necessary to get every dealership manager and employee engaged in a highly collaborative manner and work toward the shared goal of profitably retailing a greater number of used vehicles in less time. Velocity dealers are now applying this successful, process-driven blueprint to increase their new vehicle sales performance and profitability—a fact that should not go unnoticed by OEMs.

3. The obvious benefits Velocity-style used vehicle management brings to factory certified pre-owned (CPO) programs. I haven’t done a formal study, but I suspect that, by and large, Velocity dealers are more willing CPO program participants than their non-Velocity counterparts. I also believe these dealers likely do a better job implementing a profitable and successful CPO strategy, even with the cost/margin challenges the CPO programs typically present. The reason: Velocity dealers understand how to manage CPO vehicle profit margins at every step—thanks to the process- and profit-focused culture they’ve created.

The Roland Berger report left me with a final thought: Dealers who are not proactively focused on the future, in close partnership with similarly minded OEM and vendor partners, probably won’t be around to see it.