The Future of Your Dealership

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THE REASON I'VE BEEN SO GUNG HO ABOUT the Internet over the past two years is because it's the only practical way for a dealership to dramatically grow its revenue.

There are other ways, of course: A dealership can expand its physical presence into other markets by opening more shops — but that's expensive, difficult and risky. A dealership can also do nothing and float along with the economy — but we've seen what's happening to those stores.

Smart dealerships take on the Web in a big way.

It's good that so many of you seem to be doing this now. The rest of you may have missed the window of opportunity — at least as far as jumping into straight e-commerce goes. In addition to other dealerships, there's huge pure-play e-commerce guys like Motorcycle Superstore and RevZilla to compete against. As you can see, the pool is pretty darn crowded now.

So given this situation, I want to set the stage for a plausible future that you need to think about — if not outright plan for.

The year is 2012. The two years prior didn't provide the much hoped-for economic recovery. U.S. consumers don't have the disposable income, nor the economic security, to fuel the powersports industry at a level necessary to maintain its current model.

More and more dealers close. In fact, so many of them close that large urban centers around the U.S. are now without a single powersports dealership. OEMs are sitting on warehouses and leased lots filled with noncurrent vehicles. Production back in the vehicles' respective home countries is at a virtual standstill.

The dire economic situation has forced the OEMs (as well as parts, accessory and gear manufacturers) to rethink not only their own business models, but the overall business model for our industry as a whole. The idea of having thousands of undifferentiated retailers across the country selling undifferentiated products out of establishments that by their very nature are burdened with unsustainable overhead and other expenses has finally proved its ultimate folly.

Customers still want their vehicles. The OEMs still want to stay in business producing them. The ultimate problem is the distribution and retail sales system. So what happens now?

The smart OEMs realize they can leverage the phenomenal opportunity that the Internet provides to essentially sell semi-direct. Customers would shop on-site, pick out the vehicle and options and then buy merchandise online.

However, our industry's products present a level of technical, financial and legal complexity that still require another link in the supply chain. Unlike other products shopped for and bought online, a vehicle is not shipped directly to the end customer.

The solution? A model that trades information for inventory.

Vehicle and PG&A inventory is now held as high up in the supply chain as possible. What were once "dealerships" that occupied tens of thousands of square feet are now transformed into small "authorized delivery, setup and service" locations. It's a radical transformation from huge dealerships to many more boutique-type establishments that now focus on more high-margin business activities such as the F&I portion of the sale, vehicle service and warranty work and so on.

The fundamental discovery that allows this model to work is the realization that the just-in-time logistics costs to get the vehicle to the delivery point can be done far more economically than the aggregated real and opportunity costs of the old (i.e., current) way of doing things.

Customers also shop for OEM-branded PG&A on the OEM's site and have the opportunity to take delivery (for installation or setup, for instance) of the products from participating retail and delivery locations for a revenue share with the OEM.

These locations are now composed of mostly high-margin activities, relieved of much of the nonvalue-added overhead burden from the previous industry model. However, because there's the potential for many more locations in any given market, the emphasis on quality and high levels of customer service is even greater.

So what's the moral of this cautionary tale? It's this: If you think the Internet has been disruptive to your business so far, you've not seen anything yet. Our industry hasn't even begun to scratch the surface of what the Internet and all its prodigal technologies and business practices can do for (or to) us.

A lot of you are shaking your head and saying, "This guy's nuts!" Keep in mind I was telling you two years ago to get into online sales. What if I'm right about this? What are you going to do to prepare?

This article originally appeared in the Dealernews November 2009 issue.