This article is included in Part 4 of “Redesigning the Industry,” a 5-part Automotive News series exploring the future of a business in the throes of change. Part 4 focuses on the turns auto retailing might take in the age of mobility. Part 5 will appear in our Dec. 4 issue and focus on what the industry’s power structure might look like by 2030.
As dealerships' business models change dramatically in the future, who will be the winners and losers in automotive finance?
To the extent well-capitalized dealerships embrace the opportunities that becoming mobility centers will offer, those dealerships and their banks may have the most opportunity to support auto finance — and claim the hefty profits that financing offers.
But if automakers, rather than dealers, become the owners and managers of mobility fleets, then the financing profits will flow more to their captive finance arms or affiliated lenders, experts say.
A few insiders say banks have an advantage over captives in a brave new world of fleets and subscription mobility services because banks' scope is wider. They fund various brands from multiple automakers, rather than a few brands from the same automaker.
More dealership consolidation, seen as likely in a future where dealerships take on new duties, "favors [banks] because we are agnostic to the type of car a dealer sells," one bank executive said.
"We help large [dealership groups'] financing more than one-off mom and pops that work with captives."
On the other hand, dealerships that end up with their own fleets that are used for subscription-based ownership models could launch their own lending institutions to finance them, some forecasters predict. One mobility strategist said the finance aspect to mobility will be a "massive opportunity for the dealerships."
He added, "The dealerships of the future will be stronger than they are today if they pivot" toward financing, rather than just selling and servicing, vehicles.
Dealerships could floorplan and run the entire balance sheet for smaller fleet programs, such as app-enabled taxi services like today's Uber, car-sharing services or shared fleet models, he said.
They will also be better positioned to benefit from new profit pools, he predicted. "The biggest profit in auto is finance. Consumer subscription is [a dealership's] first leg into this. Not to mention that it gets them into the insurance profit pool as well," he said. "They will now control the spend on finance, insurance, maintenance and service.
"If you look at the total cost of ownership, they'll really be in a position for a lot more profit than they are today. It's just going to take them awhile to build that business."