Shifting consumer preferences and technology advancements have disrupted traditional automotive business models, to a point where automakers and dealers must re-think their revenue sources to stay competitive in the long term.
Let’s start with stating the obvious: the automotive customer journey has changed. The increasing digitalisation of the business is dictating new game rules: thanks to digital channels, automotive players can reach a wider audience but, at the same time, they also encounter new challenges and new competition.
In today’s automotive experience, the visit to the physical showroom tends to happen at a later stage, more often than not after a thorough online research and when a purchase decision has already been formed; the dealership visit has therefore turned into a reassurance step or a necessary passage just for delivery and trade-in. This means that dealers should not only work ahead to capture demand, but also diversify their offer and include ancillary services not to lose appeal and to be able to generate ongoing and even additional revenues.
There are four macro areas which currently offer the best growth potential for automotive retailers:
- Used vehicles
- After-sale services
- Connectivity
- Mobility services
The increasing charm of pre-owned
If restricted car production and chip shortage determined an inevitable shift of interest towards used vehicles during the Covid period, this trend hasn’t lost vigour even afterwards. From a demand perspective, pre-owned vehicles can attract a wider range of customers with varying budgets and preferences. According to a YouGov research, 51% of European automotive customers would consider going second hand for their next car.
For dealers, this means focusing on the diversification of their inventory and offering a trade-in service when upselling to a different model, new or otherwise. Selling used vehicles also opens up opportunities for dealerships to offer aftermarket services such as certified pre-owned (CPO) programmes, warranties, maintenance plans, financing, and insurance. Such services not only enhance the customer experience but also generate additional revenue streams, by addressing specific needs which might have been overlooked in the past despite offering interesting markup margins for dealers as well as upsell and cross-sell opportunities.
To ensure long-term success, dealers must pursue fast and efficient stock rotation. Generative AI capabilities embedded in digital solutions for stock management can have a transformative impact to ensure effective promotion of used vehicles in owned media as well as online marketplaces and advertising platforms, to maximise reach and extend it beyond the local area.
The big money is not just in sales
Nevertheless, a business model solely based on vehicle sales is intrinsically limited in the present automotive scenario. Dealers should not only take the entire vehicle life cycle into account but also start thinking in terms of customers’ lifetime value rather than one-shot sales and identify additional moments in which mutual value can be created and monetised.
A still underestimated segment which can offer significant opportunities to build customer loyalty and maximise revenues is the aftermarket. What happens after a vehicle sale takes place, whether new or used? To ensure the longevity of the vehicle as well as its ongoing safety, after-sale servicing, maintenance and repairs must come into the picture; this is particularly important for BEVs and PHEVs, which require regular check-ups to maintain the highest performance levels.
In an area that exceeded 78 billion USD in turnover in 2023 and is expected to grow at +6% CAGR in the next five years, dealers can leverage artificial intelligence to devise targeted sales and marketing actions with the best ROI. As a matter of fact, one-to-one campaigns mean relevance and therefore better satisfaction for customers, leading to repeat purchase and longer-lasting loyalty.
Of course, this requires a data-driven strategy: predictive marketing should be part of a more comprehensive CRM approach, in which customer and vehicle information is stored and processed to generate insights for successful business planning and execution.
Connected vehicles and service bundles
Speaking of data, one of the largest sources in today’s automotive industry is represented by connectivity and software-defined vehicles (SDVs), which interact with both users and the surrounding environment to enable a better and safer driving experience as well as the highest levels of in-vehicle comfort and entertainment.
Here annual revenues are expected to exceed more than 700 billion USD by 2034 globally, with a forecasted CAGR of 34%. Even though the initial investment for automakers is huge, services associated with connectivity are practically limitless and in the long run they will secure strong revenues for all the players involved, at all stages. Similarly to the telco industry with the rise of smartphones, basic connectivity will likely become a commodity but premium service bundles will ensure high profit margins and brand-new mobility services will be developed to meet a more and more diversified demand.
From private mobility to MaaS
Finally, there is another relevant shift happening in the mobility space which is the transition from an individual ownership model to alternative ownership forms such as rental (short or long-term) and those based on shared ownership, mainly micro-mobility in urban contexts as well as car-sharing and ride-hailing. This is opening up a whole new competitive ground, which we can summarise as MaaS, Mobility as a Service. While reliance on private vehicles still persists, especially among older generations and outside of urban areas, mobility is increasingly becoming multimodal, with 58% of under30 Europeans choosing alternative modes of transport than privately owned vehicles, according to McKinsey Mobility Consumer Pulse Survey. The challenge for OEMs and dealers is to be able to effectively meet such demand, by differentiating their value proposition to cater for different segments of the automotive audience. It also means having a more service-oriented approach and generating revenues by building a well-rounded customer experience which truly meets client needs rather than solely focusing on traditional lead generation and sales.
What should be clear by now is that the automotive industry has changed. The mobility experience has become more complex and more sophisticated and only those who are willing to embrace digitalisation, data-driven insights, and collaborative partnerships are likely to succeed in this fast-evolving scenario.
