The Growing Digital Marketplace is Shrinking Automotive Dealer Real Estate

Adrienne Roberts, a writer for the Wall Street Journal (WSJ), published an article last week concerning the impact digital sales are having on automobile dealers. In it, she discussed how dealers are reducing their real estate holdings as consumers are spending more time online to purchase vehicles. Roberts writes:

Digital sales trends are convincing automobile dealers to get out of real estate. Property has long been one of the most valuable assets in dealer portfolios, with dealers spreading their inventory across valuable space

The question is, where does this leave car dealers? Online commerce is set to grow, not decrease in the coming years. Hundreds of new accounts are being made everyday as more people join the online community. Car dealerships, like every other B2C business, needs to evolve and adapt to the new landscape.

The Physical Impact of Online Shopping

While online transactions take place in the digital sphere, the movement of resources to support such activity is having a real-world effect. For example, Erica E. Phillips reported in a different WSJ article on how digital shopping trends are reshaping struggling industrial areas. There’s an “economic renaissance”, as she put it, in these areas which is due to the increasing value being placed on warehouse space. Companies like Amazon and Ebay require space to house their products so timely deliveries can be made. Increasing property prices and resources to pay for them is revitalizing these communities. Large metropolitan shopping centres and malls are also being closed as they are no longer as frequently visited.

Likewise, some dealerships are paring back their operations so their facilities occupy less space and hold a smaller fleet. AutoNation Inc., Roberts cites, is selling some of its $3 billion in real-estate holdings to pay for a push into the used-car business.

New Role for Dealers in the Digital Age

Approximately 87% of auto buyers may research potential car purchases on social media, but the market is big. There’s plenty of opportunities for dealers that leverage social media to understand how consumers buy cars today. There’s little danger of an app replacing the dealers. In fact, Gabrielle Coppola, a writer for Bloomberg, gives a detailed history on failed start-ups that tried to replace the dealership industry.

Instead of by-passing dealers, many start-ups are now focused on bringing new-car dealerships up to speed on what’s happening in the digital realm. Coppola also points out the following:

• Most consumers want to test drive a big-ticket purchase like a car, and dealers need to do in-person inspections to assess the value of a trade-in.
• Dealers do repairs and maintenance work, and with cars growing more complex and software-laden, that work becomes more specialized.
• Franchise laws that have been on the books for decades were put in place to prevent manufacturers from opening stores that would compete directly with mom-and-pop dealers.

Recent efforts by BMW AG and Fiat Chrysler Automotives NV are examples Coppola cites as a new role for dealers. These companies have developed augmented reality features for smartphones and virtual reality goggles. With them, consumers can examine cars remotely. Dealers are still needed to steer the vehicle to a dealership.

Purchasing trends may have changed, but car dealers are still relevant and needed. They are a key element in the sale and delivery processes.