Pub. 1 2018-2019 |Issue 1

31 The Dealership of Tomorrow: 2025 Retail automotive trends for the next decade An independent study by Glenn Mercer, GM Automotive LLC Prepared for the National Automobile Dealers Association Executive Summary Our overall top-level conclusion is that, over the next decade, franchised new- car dealers operating in the USAwill seemany changes to how their stores are set up and run, but no significant disruption to their underlying business model. Such an evolutionary prediction is unfashionable in today’s environment, dominated as it is by pronouncements about accelerating rates of change in every aspect of life. But car retailing is an enormous industry that is shaped by over a century of habits, consumer preferences, regulatory regimes, and constant adaptation to an evolving environment. We see little in our survey that would dramatically alter that trajectory. Accordingly, we see franchised new-car dealerships continuing to evolve, but at a moderate pace, over the next decade. That does not mean we do not see significant changes taking place, from the slowbut steady consolidation of store ownership, to growing sales of electric vehicles, to accelerating penetration of autonomous driving features, and muchmore. We even see the risk of a dramatic shock to the system, if mobility service companies succeed in breaking the centuries-old bond of ownership between Americans and their means of transport. And by the end of the decade we see the typical dealership having evolved from themargin- optimizing operation that it once was, to one that is more focused on sales volume. Below these general findings, we present our detailed results in two strands: core conclusions about the dealership system overall, and additional findings that focus on several topics of specific interest. In terms of core conclusions (discussed in the numbered chapters), in 2025: • We expect to see a rate of unit sales similar to today’s 17million level, but with a shift inmix to themore expensive andwealthier ends of the vehicle and customer spectrums. • We project that the physical dealership still exists, even if much of its activity is online, and even if its physical format may be substantially altered. • We believe the independent franchised dealership model will remain very dominant through 2025. But we also expect factory-direct models to grow (especially for high-priced vehicles), to achieve a market share in the low single digits. • While we have less confidence as to howmany dealerships (“rooftops”) there will be in 2025, we project a slow consolidation, from roughly 18,000 today, to perhaps 16,500 or so. • We aremore confident that there will continue to be consolidation in ownership of stores, fromaround 8,000 owners today to perhaps 6,500 by 2025. Private ownershipwill continue to dominate, with the gainers regional chains, and the losers metro-area single- point stores. • We expect that, as for profitability, income statement ratios will be somewhat lower than they are today, while balance sheet ratios (e.g. ROE) may hold up better. But stronger profits will flowmostly tomore aggressive stores: the average storemight fall behind. • Andwe foresee that the drivers of store profits will continue to rapidly evolve. By 2025 the shift frommargin to volume will be complete, changes in online technology and inmarket preferences will ensure the transition away from