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No industry is immune to disruption, yet incumbents often have a hard time conceptualizing a different competitive reality. Market changes that start on the periphery and look insignificant at first often grow to transform an industry. Just ask traditional book sellers and travel agents that missed the shift to online or movie rental chains that missed the shift to streaming.

The automotive retail ecosystem is facing its own set of disruptive forces that are poised to fundamentally change the industry. New consumer habits, technologies (e.g., digital, electrification), and business models will redefine how value is created and captured. This transformation has been in motion for many years, but the pandemic has accelerated many of these changes and created a unique opportunity. For example, the crisis has forced consumers to try new buying models, upending beliefs about what can or needs to be done in-person versus online. Similarly, it has forced dealers to experiment with new digital technologies and solutions.

In the midst of fast-moving change, it’s easy for dealer organizations to get stuck either trying to preserve the status quo or incrementally evolving the existing model for the short-term. There may be some truth to the old quip that long-term planning at many dealerships revolves around the question “What’s for lunch?” That’s not to say dealerships don’t have the capacity to address market changes; many responded quickly to recent crises and experimented with new models. However, the type of near-term, reactionary resiliency that is often demonstrated is insufficient to address the structural changes facing the industry.

To remain relevant and viable, dealers need a longer-term vision and strategy that grapples directly with the big shifts facing the industry.

To remain relevant and viable, dealers need a longer-term vision and strategy that grapples directly with the big shifts facing the industry. That means forgoing conventional approaches to strategy development and implementation, which work in times of relative stability, and adopting approaches that are specifically designed to navigate disruption.


Work Future-Back

This pattern of disruption has played out many times before. An industry faces a range of disruptive forces and the incumbents fail or are slow to act. There are many reasons why incumbent firms struggle with change, but a consistent contributor is not sufficiently addressing the “hard truths” shaping the future of the industry. A few examples from automotive retail include:

  • Digital is increasingly critical, and dealers struggle with it
  • New and existing OEMs will push direct-to-consumer models, and eventually, the regulatory landscape will change including franchise laws coming down
  • New entrants will play significant roles in the used car market
  • Lower maintenance electric vehicles will significantly reduce service revenue

To sufficiently grapple with these changes, dealers will do well to shift from a “present-forward” to a “future-back” mindset. Rather than build a 2-3 year strategy that is an extension of what they do today, they need to look as far as 10 years into the future and then work back to today. This will help clarify the critical strategic choices they need to make to ensure long-term viability. This longer-term lens can then be used to help guide near-term decisions. This is particularly important when the changes require more fundamental shifts to the business model and underlying capabilities. You can’t change an organization that has built up over many years overnight.


The Need for Dual Transformation

As we look at the trends reshaping the automotive retail landscape, we also see the need for dealer groups to embrace a “dual transformation.” This means simultaneously repositioning today’s core business while at the same time creating tomorrow’s new growth businesses. The dual approach extends the resiliency of the existing business model while buying time to launch and grow new ones.

Transformation A – the reinvention of the existing business – will require important changes to how dealers operate today. They will need to redesign the customer experience to serve better-informed consumers who expect a more streamlined experience and don’t want to shuffle back and forth between sales, management, and F&I. They will need to shift investment to digital channels and experiences like trade evaluations, while appropriately scaling back investments in elaborate in-person amenities and armies of sales staff waiting for a customer to walk in. And they will need to add new services and solutions — like pick-up and delivery — to improve customer experience and keep pace with market leaders.

Transformation B – the creation of future businesses – will require dealers to make clear choices regarding new market opportunities and set appropriate investment and capability-building plans that account for the pace of change and uncertainty in those areas. These might involve, for example, service opportunities for mobility fleets, new subscription services, or participation in car-sharing marketplaces. These investments will prove critical as returns on traditional revenue streams will be eroded by new direct-to-consumer business models that control significant portions of the used car market and by technology shifts like reduced service requirements from EVs.

One of the keys to a successful dual transformation is understanding that while distinct, there are critical interdependencies between both transformations. The individual choices need to add up to a coherent whole. The resource allocation decisions need to be balanced across the two. And management must ensure that the right degree of separation and autonomy is provided to new ventures, while not allowing them to become completely decoupled from the relevant assets of the existing business.

The existing automotive retail landscape is not dead, but if it wants to survive and thrive, leaders need to embrace the need for transformation.


About the Authors


Ned Calder is a Partner at Innosight, based in Boston, and a co-leader of the industrials practice.




Shari ParvarandehShahriar Parvarandeh is an Associate Partner at Innosight, based in London.