NADA Study Maintains Dealers Shouldn’t Worry about Revolutionary Changes
NADA commissioned the study in March as a way to stimulate long-term thinking and planning among dealers.
In the report, Mercer takes a very conservative view of change over the next decade. “We see change coming to the dealership but not a disruptive overthrow of the business model,” Glenn Mercer said.
Mercer’s observations include:
- The dealership model will remain dominant, with direct-sales efforts focused on high-end vehicles and representing just a small fraction of U.S. vehicle sales. But dealerships will become more alike with dealers adopting prescribed features of factory stores.
- The number of U.S. dealerships will shrink slightly to around 16,500 stores in 2025, down from just under 18,000 today.
- Steady but slow consolidation of store ownership will continue. Mercer forecasted a pool of 6,500 owners by 2025, down from 8,000 today. Private ownership will continue to dominate.
- U.S. light-vehicle sales will be in the range of 17 million-18 million vehicles, similar to today’s level. But the mix will shift to more-expensive vehicles and higher-income customers.
- Vehicle profit margins will be lower, but asset returns such as return on equity may be more stable. The gap between strong and weak stores will widen.
- Purely online sales will become common but not dominant.
- Satellite service outlets run by dealers will multiply.
Electric Vehicles, Autonomous Cars and Mobility Services
Mercer concludes that electric-vehicle sales will grow by 2025 but remain less than 5 percent of the market.
However, by 2025 all vehicles will have high levels of assisted-driving features — though perhaps just 10 percent will be capable of full-fledged autonomous driving.
Like many other industry observers, Mercer believes that single biggest risk to the dealership system is the potential link between autonomous vehicles and mobility services. But he doesn’t believe that the impact will be severe.
“Our own estimate is that this is relatively unlikely to happen, but, if it did happen, it would be cataclysmic and has to be flagged,” Mercer said.
“If mobility services converge with autonomous vehicles, such as what Uber is testing in Pittsburgh today, and, in so doing, succeeds at breaking the age-old bond of ownership between Americans and their cars and trucks, that would change things dramatically.”
But dealers shouldn’t underestimate this risk. Black swan theory, developed by Nassim Nicholas Taleb and made popular as applied to the U.S. financial crisis in 2008, is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying which presumed black swans did not exist, but the saying was rewritten after black swans were discovered in the wild.
Dealers should absolutely stay optimistic and focused on running their stores. But they shouldn’t have their heads in the sand and not recognize the potential disruption that the industry (and their stores) may face over the next decade.
Mercer’s report is being finalized and will be released to dealers at a later date (we assume close to the NADA Convention in late January).