Last year, we wrote an article about many of the headwinds facing auto dealerships. The story keeps getting worse.
The move toward electrification is accelerating with huge sums of money being invested by the auto industry and new startups. Volvo just announced that they will be fully electric by 2030. No more hybrids, no more internal combustion engines – electric or bust. What was not as well publicized, however, is that they intend to only sell their electric models online. This would follow the path of Tesla and Rivian. Intense competition could force other auto makers to follow suit.
Finance and insurance reflect 24% of dealership profits according to a 2018 KPMG analysis. If a car is sold online, that profit may not go to the dealership.
Volvo also announced their fully electric cars, like Tesla, will be receiving over-the-air software updates. That means car owners frequently will not need to visit the dealership for updates, recalls, or even repairs. 42% of the average dealership profits come from repairs and maintenance. As technology advances, fewer trips to the dealership will be required. Collision avoidance technology is expected to drop the total collision repair market by 76% by 2040 per KPMG.
A 2020 Consumer Reports study found that an electric vehicle can expect $4,600 lower lifetime maintenance and repair cost savings over an internal combustion vehicle. That is money coming directly out of auto dealership sales. A KPMG analysis from 2018 estimated that up to one third of urban dealerships need to close and the remaining car dealerships will need to slash costs by up to 42% by 2040 to retain sustainable levels of profitability.
Dealerships may need to shrink their numbers, footprint, and number of employees to remain viable over the longer term. Their one saving grace, at least from a real estate perspective, is that much of their value is in the underlying land.