It Might Be The Beginning Of The End For Dealership Showrooms

It Might Be The Beginning Of The End For Dealership Showrooms

  • October 20, 2020
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Illustration for article titled It Might Be The Beginning Of The End For Dealership Showrooms

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The Morning ShiftAll your daily car news in one convenient place. Isn’t your time more important?

Very few people need a dealership showroom anymore, BMW is doing better than expected, and automakers are fretting over electric vehicle fires. All that and more in The Morning Shift for October 20, 2020.

(Irregular FYI: Some of the links below are to paywalled websites; most of you know this, though I’m putting this here for those that don’t. Pay for the news you value!)

1st Gear: Dealer Showrooms Are Increasingly Antiquated

When was the last time you were in a dealer showroom? I feel like they loom larger than they should, physically even. Car companies have programs to make sure their official dealers project the right image, keep a certain look, but that’s changing, as Automotive News reports. In the age of a pandemic things are getting a little more proportional.

From Automotive News:

Several automakers relaxed deadlines for brand image and facility upgrade programs in the early days of the coronavirus pandemic, but they generally say dealers’ investments in updated showrooms are necessary to boost sales and customer experience.

That leaves dealers, after feeling relief to get a break on some deadlines for a bit, now concerned that automakers’ facility mandates will clash with the accelerated shift to digital retailing. Retailers say changes to the way facility programs are designed are necessary to bring them in step with rapidly changing consumer habits.

“We’re looking at these facilities programs, at the requirement to build a palace, at precisely the moment in time when digital and remote sales are kind of coming of age and the culture is changing,” said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. “Younger buyers are far more comfortable with the digital or remote sales process, and we’re asking dealers to make investments that have a 20-year return on investment on a business model that probably won’t last 10 years.”

The speed of the pandemic-induced shift toward online transactions, given the comparative riskiness of negotiating and signing paperwork in person, has cast renewed attention on the future of brick-and-mortar stores. What becomes of the showroom if customers don’t want to visit it?

What is obvious, of course, is that customers want the process to be as friction-free as possible.

What customers want is a sales experience with a dealer who will help them navigate the process, electronically or in person, and a service experience in which their vehicle is fixed quickly and correctly the first time, NADA Chairman Rhett Ricart said.

“I think the manufacturers are listening to the dealers, but they are realizing that they’re going to have to adjust more quickly than anticipated,” said Ricart, who also is CEO of Ricart Automotive Group in Columbus, Ohio.

“Customers really don’t care how big your showroom is,” he added. “Quite frankly, they never have.”

It is extremely hard to feel any sympathy for dealers, given that the whole dealership model is basically propped up by lobbyists. Still, I assume a lot of new car buyers begin with loads of online research before going to a dealer, test-driving the car, and then sealing the deal, so that is some utility. That is not much argument for showrooms, however, which are about as fun as auto shows. Look but don’t touch.

2nd Gear: BMW Is Also Back To Doing Just Fine

Daimler said it was doing better than expected last week; now BMW concurs. BMW doesn’t say it in its release, but I’m assuming this is largely down to the luxury car market recovering, just like with Daimler.

It’s a feature, not a bug, of capitalism that the wealthy do just fine whenever there is an economic downturn.

From Bloomberg:

Automotive free cash flow in the three months ended in September was 3.07 billion euros ($3.6 billion), BMW said in a statement on Monday. That’s up from 714 million euros a year ago and exceeds market expectations.

Several markets recovered faster than anticipated, leading to sales growth, and BMW also cut costs during the quarter.

[…]

BMW said its earnings forecasts remain unchanged. The company will release complete details on its third-quarter results Nov. 4.

3rd Gear: GM Has A Big EV Announcement Today

Well, GM is expected to have a big EV announcement today, according to Reuters. The announcement is that GM will be making EVs at various plants.

Per Reuters:

General Motors Co GM.N is expected to announce on Tuesday significant investments to expand production of electric vehicles at a factory in Spring Hill, Tennessee and potentially other sites.

GM said in a statement Monday that it planned to make a “major U.S. manufacturing investment announcement” on Tuesday. The Detroit News reported that the automaker planned to begin building the Cadillac Lyriq electric SUV at its Spring Hill, Tenn. plant. AutoForecast Solutions, which tracks industry production plans, said it expects the Lyriq to go into production in late 2022.

GM could move production of vehicles to other plants, resulting in new investments in other locations. AutoForecast Solutions said it expects some electric vehicle production will also be announced for a factory in Mexico.

This comes on the heels of GM rechristening the Detroit-Hamtramck Assembly Center “Factory ZERO,” for some reason.

4th Gear: The Batteries Are On Fire

Fires in EVs are a danger, but probably not more than in internal-combustion-engine cars, according to the National Highway Traffic Safety Administration. Still, EVs are new and fires are newsworthy, so they get talked about. It’s no surprise, then, that EVs have garnered a bit of a reputation for being prone to spontaneous combustion or something.

Automakers are very worried about that, according to The Wall Street Journal.

Researchers have said the risks of fire in an electric vehicle are comparable to those of gas-powered cars. Additionally, analysts say these kinds of battery-related fires are relatively rare, with an uptick to be expected from the growing numbers of battery-powered cars on the road.

Still, the incidents illustrate the hurdles auto manufacturers face with electric technology, particularly in managing energy-dense and flammable lithium-ion batteries that have previously caused fires in laptops, tablets and other applications.

Global car companies are racing to increase their electric-vehicle offerings in the midst of tougher regulations that aim to reduce greenhouse-gas emissions from transportation. Ford F -1.04% has said its recall means the company must join with another auto maker to avoid fines in Europe this year.

To meet the more-stringent requirements, the auto industry has placed big bets on an electrified future, committing roughly $200 billion to electrification over the next four years, according to consulting firm AlixPartners LLP.

The lithium-ion batteries in electric cars are similar to those found in consumer electronics, which store large amounts of energy relative to their size. But to power an automobile, there needs to be more of them, and the demands are higher, creating a unique risk.

“When they do fail, they bring a lot more to the party, so to speak,” said Nick Warner, principal at Energy Storage Response Group LLC, an energy safety and testing firm in Columbus, Ohio.

5th Gear: Investors Are Mad At Hyundai

The company is still (basically) doing just fine but its stock is down because it has had a decent share of recalls lately.

From the Financial Times:

Hyundai and its affiliate group Kia Motors said they plan to allocate Won3.4tn ($3bn) for product recalls and quality control problems in the third quarter.

The new provisions came after Hyundai said it would recall 77,000 of its Kona electric vehicles due to problems with its battery cells. They also follow the company’s decision last year to earmark about $760m for a settlement and compensation linked to faults with millions of cars with the group’s Theta II engines.

The problems have cast a pall over one of the world’s biggest carmakers as it lines up investments of more than $35bn to shift away from traditional car manufacturing and into new sectors including EVs, hydrogen fuel cells and driverless cars over the next five years.

For investors, Hyundai’s third consecutive year of vehicle recalls over engine-related issues raises a series of questions. These include whether the group’s “next-generation engines are free from quality issues”, said Nomura analysts Angela Hong and Akash Gupta.

Reverse: RIP

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