Why the retail revolution will change the auto industry - Editorial

Automotive Industries, Jan, 1998 by John McElroy

Last year a survey came out showing what Americans like to do. It was illustrated with a bar chart with the bars running in descending order from favorite activities to least favorite. At the top of the chart, with the biggest bar, was "going out to eat." Americans love to go out to breakfast, lunch or dinner with their friends or family.

Their second favorite activity is simply "going out." Whether it's to a movie, the opera or the local bowling alley, Americans like to get out of the house.

At the bottom of the list, with the smallest bar, was the least favorite activity. Americans dislike going to the dentist, especially to have their teeth drilled. And right next to that, they dislike going to car dealerships. They love having a new car, but they hate going through the process of buying it.

Interestingly, even Lexus buyers complain about the purchase process. While Lexus dealers score at or near the top in sales satisfaction, you have to ask, "Compared to what?" They're at the top of the list compared to other car dealers, which isn't a good comparison. When Lexus queried buyers about the "Lexus experience" it got an earful of how long it takes to buy their cars. Even though Lexus dealers pamper their customers, it still takes hours of paperwork to process a car, and buyers hate waiting that long. So even the best in the business isn't satisfying the customer.

Car dealers have left the door wide open for an onslaught of new competitors. When Wayne Huizenga, the billionaire, was looking for a new venture to invest in, he stumbled onto the automotive retail scene. From Atlantic to Pacific, and Canada to Mexico, he saw tens of thousands of retail outlets, with little co-ordination between them, and with customers who hate going there. Most investors wouldn't touch that with a 10-foot pole, but Huizenga saw a fantastic opportunity. After little more than a year, he's emerged as the single largest automotive retailer in the United States, and is three times larger than his second place competitor. Want to know what Huizenga's going do to the automotive retail network? Just look at what Wal-Mart did to mom-and-pop shops across the country.

Auto-By-Tel represents a greater threat to the status quo. It's an Internet service where consumers can buy, lease, finance and insure new vehicles. It's already booked its one millionth purchase request and is estimated to handle 2% of all automotive purchases. Some experts estimate the Internet will account for 9% of car purchases within five years.

There have always been two Major barriers facing anyone trying to get into the automotive business. The first is the billions of dollars it takes to tool up a product line. The second is having a distribution network. The Internet and the megadealers are battering down that second barrier, opening the doors to hungry competitors from developing countries.

Automakers already know the retail revolution is well underway. That's why they're figuring out how to consolidate their dealer base. Here's what they've got to worry about: When the industry truly becomes retail driven, the tail is going to wag the dog. Independent retailers with coast-to-coast clout are not going to let manufacturers dictate what they have to sell. Like retailers anywhere, they win refuse to stock their shelves with slowselling products. Imagine being an automaker with shareholder money invested in products that no one will put in their store.