Car Dealers Beware. Why Protecting the Franchise System is the Least of Your Worries.

Much has been written about Tesla's challenge to dealer franchise laws. Most automakers don't think that Tesla's model is sustainable at high volumes. And while time will tell who is right, automakers and dealers might be missing the bigger disruptions that are about to rock the foundations of the dealership business model.

On the new car side, dealer profitability has traditionally been generated from the three fundamental components of most new car purchases: selling price, trade in allowance, and finance and insurance income. And a peek into the future suggests that all three components will be disrupted as technology and mobility continue to converge.

Let's start with the easiest of the three, price negotiation. While it is still a common practice, True Car has already leveled the playing field. Tesla has eliminated negotiation from their process. Even Lexus is experimenting with no haggle pricing. Expect this trend to continue until price negotiations are a thing of the past.

But that's only the beginning. What about trade-ins? This is a practice that is a vestige of pre-automotive horse trading. The fact is trading a car into the dealership results in higher prices for customers. While most buyers know they can make more selling their car to private parties, historically this has been a random, risky and time consuming process that delays the new car purchase. So most customers trade-in their car for the sake of convenience and expediency. 

But technology is about to change this. The recently launched Beepi, is likely the first in a series of technology enabled start ups that have the potential to do to the used car business what Uber did to the taxi business. 

Beepi has taken the risk and inconvenience out of private party used car sales. From a 30 day sales guarantee, at a higher price than dealer trade in allowance, to managing the payment process, registration and delivery, Beepi has created a viable alternative to the trade-in. And this creates the potential to finally de-couple trade-ins from the new car deal.

That, however is just the tip of the iceberg. What if used cars didn't exist at all? It's not as far fetched as it seems. Elon Musk has already stated his intent to re-use Tesla batteries to power the grid, so the idea that cars could be dismantled, repurposed and recycled is not so far out there. And like all technology products, cars can be modularly upgraded so that they are likely to last until they become obsolete, and unsellable. And a world without used cars will have a knock on effect to the third part of the transaction, financing. The first casualty will be leasing...as it will be impossible without a residual value.

In addition, as we move to fully autonomous driving vehicles, it is more likely that these vehicles will be shared than owned. In a scenario where there are no owners, only users, the idea of new vs used becomes somewhat irrelevant...as does the purchase transaction itself!

And of course, modularly upgraded cars and autonomous car sharing changes the dealership service business model as well.

So instead of worrying about whether or not Tesla will disrupt the franchise model, perhaps automakers and their franchisees should be thinking about what the new automotive franchise business model will look like post auto/tech convergence. For in the end, it's not about who owns the business, but rather what the business is.

Why Car Companies Shouldn't Wait For Autonomous Driving to Emulate Uber

Sometime in the not too distant future, your personal car experience is likely to be just like today’s Uber experience…you will pick up your smartphone and summon your car. Your phone will notify you when it is at the door, ready to pick you up. When you arrive at your destination, it will drop you off and go park itself.

And while autonomous driving will transform everything about driving and owning cars, car companies need not wait until then to look to Uber for ideas to transform their customer experiences.

Uber has been so successful, even in the face of regulatory challenges for one simple reason…Uber used insight and technology to create new and better digital points of experience to eliminate or augment significant physical pain points in the conventional taxi/limo experience.

And while the car business has come a long way from the days when dealers threw your car keys on their roof to force you to buy a new car, the automotive purchase and ownership experience is still fraught with more pain points than most other categories. And in some cases it has taken third party disrupters, like True Car to bring relief to an obvious pain point, lack of pricing transparency, that automakers easily could have eliminated themselves.

So what can car companies learn from Uber? How can they pre-empt third parties and fend off new competitors by taking back and transforming the customer experience? How can they leverage technology and customer behavior trends in their favor?

While most car companies have created a few customer apps, they tend to be 'one offs' such as captive finance apps that help manage payments, or electric vehicle apps that help monitor range and charging levels. Because Uber realized that the actual ride was only a fraction of the entire experience, they developed a seamlessly holistic app that guided their customers and drivers through the entire process, providing the right information at the right time.

A fresh look at the process in a holistic and empathetic manner will allow you to discover new opportunities architect an all-new, technology driven customer journey that will drive better and more frequent brand experiences that will engender greater customer satisfaction and loyalty. 

Some things to look for:

Address disconnects and pain points

Collaborate with your dealers to tackle the most brutal pain point of all…the F&I, (finance and insurance) process. Uber understood that cash was inconvenient; that tipping could be confusing; that splitting a fare could be potentially embarrassing; so they stepped in to address these issues. 

Today’s buyers are used to on-demand, transparent experiences, while F&I remains largely a mysterious, intimidating, time intensive process that can leave the customer second-guessing. The benefits of an app driven F&I experience that confirms approval and payment terms prior to stepping into the dealership include higher levels of customer satisfaction, increased captive finance penetration, better traffic quality and greater dealer operational efficiency. All of which can be accomplished without sacrificing dealer autonomy or F&I income. 

Other areas to consider: trade in valuation, service appointments, recalls, etc.

Look for new opportunities to add value throughout the ownership cycle

Automakers should view the entire purchase and ownership experience through the lens of their customer's world. How does your car fit in their lives? How can you help to create better customer experiences?

Should your app monitor gas mileage? Or better yet, should it anticipate when you need to fill up and direct you to the gas station with the best gas prices? 

Should it help you find a parking garage? Or better yet should it contact an on demand valet to meet you at your destination and park the car?

Ask customers  to rate every interaction with your brand and make the results public

While a few of your dealers might bristle at the thought, the good ones will view this for what it is...a marketing opportunity for their dealership to garner positive word of mouth and greater levels of trust. And that trust will halo back from the dealer to your brand. It will also finally force 'problem' dealers who are hurting your brand to raise their game or go home. This should eliminate the need for the age old 'come to Jesus' interventions that rarely yield positive long term results.

Think in the future tense

It is important to also remember that Uber is not only a technology play that eliminated pain points, but that Uber is also a lifestyle play that capitalized on the emerging sharing economy to develop a peer to peer business model. Automakers should be looking for insight into other nascent trends that will create new opportunities for their business, and allow them to be authors of history of the future.