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50% of car dealerships are closing down in 5 years. Are we for real?

In its 2019 automotive annual report, KPMG has found out that “almost half of all surveyed executives (48%) are highly confident that the number of physical retail outlets, as we know them today, will be reduced by 30-50% already by 2025”. In a first read, it would seem that one every two existing dealerships will close down in the next five years. Somehow it seems unrealistic with the data that we have. It’s true that the industry is going through a bumpy stretch in the last few years and in 2020 the pandemic will also take a huge toll.

In the near future digitalization, mobility alternatives, electric and other drivetrain technologies are going to reshape car retailing for sure. However, EY report “Automotive Retail 2030” states that 58% of respondents would prefer buying a car from a traditional dealership, varying with age, (66% of those over 50 will still prefer dealerships). Nowadays technology has made it possible to cover all steps of the customer journey 100% online, so many brands are pushing this channel in order to compensate customer fears due to the COVID pandemic. Obviously this option could eventually make dealerships redundant as sales channels (just as travel agencies, newspaper stands or book shops are more and more unnecessary). But let’s not forget other attributes that give value to customers in traditional dealerships.

First of all, of course, service. Every vehicle needs and will need maintenance and repairs, no matter what technology they use, and a profitable dealership should have at least 80% of margin contribution from service, so this is and it will continue to be, their core business. Secondly, customers seek more and more a specific brand experience, and a visit to a physical outlet can provide a more meaningful experience than online channels. Thirdly, dealerships can take advantage from their proximity to customers in order to provide value added services and consulting regarding finance, insurance, battery and other subscription services and other mobility options. And lastly, OEM will still need a partner for logistics (and for stock buffering and capital expenses, let's not forget) for their operation to run smoothly.

So, in my opinion, retail outlets will continue to exist in a digital world, but obviously, it will require a huge effort to adapt to the new landscape, and those who will not change as needed are indeed in risk of closing down in a near future.

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