What Lies Ahead for the Car Dealership?

Are we racing into the future or just cruising along? You may not think of a car dealership as MULO (multi-location) brands, but drive through commercial areas, and you’ll probably see one dealership after another. New cars, used cars, and luxury cars are all on display for consumers to browse, test drive, and buy.

The car dealership industry is still alive and well. According to The National Automobile Dealers Association (NADA), the industry generated over $1.2 trillion in the U.S. alone in 2022 revenue. Close to 3 million cars were sold last year. A whopping 16,000 new car dealerships are operating across the country.

But how consumers shop for and buy cars (new and used) is changing.

Of course, electric vehicles have changed the automotive landscape. But how customers make decisions has also evolved.

Consumers have more options than ever when it comes to purchasing or leasing a vehicle. As with many high-ticket categories, people begin their car-buying journey by researching brands, models, features, and prices online. And, like when consumers buy homes, they can even calculate how much financing they qualify for and can then walk into a dealership with a better sense of their budget and preferences.

But that assumes they walk into a dealership at all.

Many companies are, like other retailers, adopting an omnichannel approach.

• Tesla: Tesla has embraced a direct-to-consumer model. By selling cars online, they have circumvented traditional dealerships. In 2022, Tesla reported over $81.5 billion in revenue.
• Carvana: Carvana redefined the used car buying experience by allowing customers to purchase cars entirely online. Their unique “car vending machines” and delivery options disrupted the used car industry. They reported revenues of over $13.6 billion in 2022. Other companies are now copying that model.
• Rivian: This electric vehicle (EV) startup gained traction with its unique approach to both EV manufacturing and sales. While they operate some physical locations, they heavily emphasize online reservations and direct-to-customer sales.
• NIO: Offering a Battery as a Service (BaaS) subscription model, this Chinese company enables customers to purchase the car without the battery and subscribe to battery-swapping services. In 2022, they reported revenue of over $7 billion.

While traditional dealerships may not disappear entirely, their role is evolving. Future dealerships are likely to have smaller physical footprints, focusing on providing test drives and personalized customer experiences.

Pop-up locations in malls or urban centers are becoming more common, giving consumers convenient access to dealerships.

Car Brands Are Embracing New Sales Models

Convenience and trial are important to consumers, and brands are meeting this need. For instance, Ford piloted a program called “Ford Signature” that offers concierge-like services, in which test-drive vehicles are delivered to customers’ homes. Hyundai’s “Click to Buy” program shortens the time spent at a dealership by allowing customers to complete most steps online.

Models like Mini have established themselves as “lifestyle brands,” and they organize gatherings and events to bring owners together, leveraging the power of community.

While traditional dealerships will likely continue to exist, they will adapt to a changing landscape with smaller, more consumer-focused locations and deeper integration with technology.

Vroom…vroom!