The profitability of OEMs has shrunk over the last two years, mainly driven by increased investments in e-powertrains and autonomous driving technology. Looking forward, the rise in shared mobility, combined with the impact of the pandemic, will affect top-line growth and put additional pressure on OEMs’ margins.
M&A and partnerships have surged in the automotive industry with the aim of achieving cost optimization synergies and ultimately enhancing profit margins. Beyond inorganic moves, most OEMs recently undertook global cost transformation programs, whose focus was primarily in the operations space.
This transformation journey had a marginal impact on the retail model, which has been kept substantially unchanged over the last decades.
The current three-tier distribution – focused on a separation of duties between the OEMs’ headquarters, National Sales Companies (NSCs) and the franchised network of dealers – has proved many limitations. The brick-and-mortar retail model required copious capital expenditures, yet the returns for the dealerships in the last few years have been negligible. Low earnings translated into limited investment capabilities to drive digital innovation and deliver the experience that customers expect.
In such a troublesome scenario, the automotive retail model should not be exempted from a complete rethink. The COVID-19 pandemic has further sharpened the need for a change of business model in the automotive downstream as lockdown measures have accelerated the transition of consumers towards digital channels.
In this Viewpoint, we explore the retail innovation journey that car manufacturers should undertake to optimize the cost-to-serve as well as providing customers with a seamless and compelling omnichannel experience. The evolution path of the automotive distribution model we envisaged from the current state to 2030 will be shaped around three main dimensions:
- the consolidation of the dealership network;
- the progressive switch towards the agency model, with dealers operating as agents for the trade of new vehicles and no longer holding inventory risk;
- the adoption of a direct-to-customer business model for OEMs, with dealerships acting as service providers to complement the on-line customer journey.
There is no "one-size-fits-all" approach across Europe. OEMs need to find the right mix and magnitude of these dimensions based on the specific context of each market.
According to our estimates, the profitability level of the automotive downstream value chain could more than double in the next decade with this paradigm change, leveraging greater economies of scale as well as higher commercial effectiveness.
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