LOS ANGELES -- The single biggest risk to franchised dealerships in the next 10 years is a potential change in vehicle ownership patterns as self-driving cars and mobility services converge, says a consultant hired by the National Automobile Dealers Association to study the future of auto retailing.
But major disruptions from such a convergence are only a distant possibility, consultant Glenn Mercer said last week at a conference before the Los Angeles Auto Show.
"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."
Mercer's research task was to look at the state of auto retailing in 2025. He largely concluded that dealerships would evolve but would remain the dominant way to sell cars.
NADA commissioned the study in March as a way to stimulate long-term thinking and planning among dealers, said Mercer, a former McKinsey & Co. partner who previously studied automaker facility programs for NADA. He presented key findings last week even as his report is being finalized for release to dealers at a later date.
As part of his research, Mercer studied the impact of electric vehicles, autonomous cars and mobility services. He concluded that electric-vehicle sales will grow by 2025 but remain less than 5 percent of the market. Still, it is crucial for dealers to embrace the electric-vehicle market, he said.
Mercer also estimated that 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. Self-driving vehicles pose some risk to dealerships if consumers turn away from buying cars in favor of car-sharing fleets. But, Mercer said, autonomous vehicles could end up boosting sales if they are purchased for elderly people who cannot drive but need to go to doctor appointments and the grocery store or for children who need to get to school and extracurricular activities.
That resonated with Dave Conant, CEO of Conant Auto Retail Group in Southern California, a dealer who spoke on a panel discussing Mercer's report.
"Kids in my neighborhood have their own phones by the time they're 5," said Conant of Newport Beach, Calif. "Why not buy them a car?"
Overall, the typical U.S. car dealership will see evolution, but not revolution, over the next 10 years. "We see change coming to the dealership but not a disruptive overthrow of the business model," Mercer said.
His other conclusions:
- The dealership model will remain dominant, with direct-sales efforts focused on high-end vehicles and representing 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 to around 16,500 stores in 2025, down from just under 18,000 today.
- Steady but slow consolidation of store ownership will continue. Mercer forecast 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 to 18 million vehicles, similar to today's level. But the mix will shift to more-expensive vehicles and higher-income customers, Mercer said.
- 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, Mercer predicted.
- Purely online sales will become common but not dominant.
- Satellite service outlets run by dealers will multiply.
