Retail establishments in the automotive industry primarily engage in the retail sales of new or used automobiles. These establishments often maintain repair departments and carry stocks of replacement parts, including tires, batteries, and automotive accessories.
The economic and business characteristics of the automotive retail industry start with their marketing and distribution channels. Nationwide, the auto industry retailers generate around 533 billion dollars each year.
Developed largely before World War II, the current automotive industry was structured when demand was well above supply. Presently, overcapacity in combination with demands for an innovative blend of products and services is swaying the industry into consolidation. For example, the purchasing alliance between Ford, GM, and DaimlerChrysler has formed the world’s leading business-to-business Internet company in terms of the scale of operation and revenue. This online enterprise brings together all of its suppliers, streamlining its entire chain supply. These types of activities represent a significant percent of the value of a new vehicle and are an important potential source of cost savings.
The changes in this area reflect a shift from capital-intensive-operations (involving inventory investment) to information-intensive-operations (providing the right vehicle at the right time). This shift is leading to the development of flexible and highly entrepreneurial structures as mentioned above.
The U.S. is a highly diverse market consisting of regional submarkets. Local environments, regional characteristics, economics, and lifestyle all come into play. In the past, mass-produced vehicles was an accepted practice in the automotive retail industry. Today, however, mass-produced automotive models are not working in the American market. In response to the shift in consumer preferences, the variety of products supplied by the automotive industry has risen dramatically.
For example, in one target market, lifestyle changes shifted from a one-person per family wage earner to a two-person per family wage earner. As a result, the demand for light utility vehicles has surged. Additionally, mass marketing plays an integral role in the automotive retail industry. Over two billion dollars are spent to hopefully bring in more customers while trying to create an acceptable return on investment.
For an industry that has been slow to change, it is now being bombarded from all sides with new technology, new players, new channels, and new ideas. The competition is fierce with the emergence of used car superstores, public ownership of car dealerships, and new car dealerships being bought up by large conglomerates. Along with the Internet, consumers are driving the changes in the automotive retail industry.
Armed with information and taking charge of the buying process, the consumer is altering the automotive retail industry with increased knowledge and expectations. Moreover, when the manufacturer’s effort to enter the automotive retailing market failed, Internet-based third parties entered the playing field. It is these new entrants that are the strongest competitive force in relation to Porter’s Five-Forces Model of Competition.
These new players include direct sellers and lead generators. With these new players involved, dealerships thought they would go by the wayside. However, state franchise laws have made it difficult to sell directly online without involving the dealers. Nevertheless, with the competition ever-changing, manufacturers in recent months have announced a new strategy for selling automobiles.
Manufacturers will begin custom order selling that could possibly eliminate a build for dealer inventory in North America to a build-to-order business model. With this in mind, it would be next to impossible for other companies in other industries to win customers over to their own substitute products (Five-Forces Model).
Nevertheless, this could change too. Porter’s Five-Forces Model assumes a classic perfect model. This is hardly the case in today’s ever changing and dynamic markets. Breakthroughs in technology from other industries or startups may completely change business models, personal relationships, and relationships along the supply chain.
Franchise dealerships, mega dealerships, dot coms, manufacturers, and small-town dealers make up the strategic groups in the industry. Small and mid-sized dealerships can often benefit from the advantages of belonging to a larger automotive group. The benefits would include cross-utilization of the same brand of new and used vehicles, lower cost in the financing, and the ability to join larger computer systems. However, can these organizations stay as close to customers as the same independents they are rapidly acquiring?
No one knows for sure; nevertheless, the Internet is pressuring mega dealers and dealer networks to develop closer ties to its customers. Additionally, in the near future, a sizable number of consumers will be ordering, buying, financing and arranging delivery of their new vehicle from the comfort of their own home using the Internet.
With technology and competitive pressures, the success of the dot com company depends on the critical relationship between technology and business. The Internet has already created many vehicle and information options for the consumer. Already, manufacturers, mega dealerships, lead generators, and even small dealerships provide online product and price comparison.
The dot coms that will have the most success will follow a formula practiced by other successful e-commerce companies called the 7C’s.
Automotive retailers should offer web site appealing toward its target customer. This would include rich editorial content on topics such as purchasing a vehicle, and updates on child restraints approved by the federal government.
Provide the customer with multiple means to access information, including the ability to compare reviews on all vehicles makes and models, and instant response for technical questions.
Ø Customer Care:
This will give a customer a description of guaranteed warranties, and alleviate consumer concerns in regard to their security ordering online. Most companies cover cost incurred by consumers in the event of credit card fraud and will assure privacy by refusing to give or sell consumer information to other companies.
Lets customers be involved in a chat forum in which customers can reach out to each other and discuss common concerns, share product experiences, and address personal issues.
Provides the customer with a robust site map, which enables the customer to navigate through the site quickly and efficiently.
This will provide the customer several pertinent links; such as the choice of insurance companies or other related automotive retail websites.
This lets a customer customize their own car-choosing make, model, exterior, and interior colors, and a multitude of other optional equipment for the customer’s convenience.
The new automotive retailing industry will present a number of difficult challenges for the strategic groups involved, manufacturers, dealers, and online buying services. Customers will have little patience for the dot com companies that do not understand the basics. Sluggish performance can mean lost time and revenue while downtime can produce a bad image and lose customers altogether.
The dot coms that will survive are the ones who have a strategic plan similar to the one outlined in the 7C’s. They must be aware of the ever-increasing changes that are happening in the industry, being flexible and open-minded. The dot coms that do not develop these strategies are at risk of leaving the control of their destinies in the hands of consumers and the more aggressive players in the field.
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