The Enduring Strength of Brick-and-Mortar Auto Dealerships
In an era of digital transformation, many predicted the demise of traditional car dealerships, envisioning a future where vehicles would be bought and sold entirely online. However, a recent study by Urban Science reveals a surprising trend: not only have physical dealerships survived, but they’ve also shown signs of growth.
The 2023 Automotive Franchise Activity Report (FAR) found that the number of U.S. auto dealerships increased slightly in 2023, from 18,257 to 18,347. This modest increase may seem insignificant, but it bucks the trend of declining dealerships predicted by many industry experts.
While the number of dealerships grew, the number of franchises, or brands offered by those dealerships, decreased slightly from 31,554 in 2022 to 30,504 in 2023. This consolidation may reflect a shift towards larger dealerships offering a wider range of brands under one roof.
Despite these fluctuations, the overall picture is one of stability in the auto dealership landscape. Mitch Phillips, director of global data at Urban Science, attributes this stability to the adaptability of dealers, who have weathered economic downturns, supply chain disruptions, and the COVID-19 pandemic.
One of the most remarkable findings of the study is the increase in throughput, or the number of vehicles sold by each dealership per year. After a dip during the pandemic, throughput has rebounded, reaching 851 vehicles sold per dealership in 2023. This increase in sales volume is a testament to the resilience and adaptability of dealers, who have embraced digital tools and innovative sales strategies to meet the changing needs of consumers.
However, increased volume does not necessarily translate to increased profits. A report by J.D. Power indicates that retailer profit per unit has declined in recent months due to rising inventory and fewer vehicles selling above the manufacturer’s suggested retail price (MSRP).
As the automotive industry transitions towards electrification, dealerships face a new challenge: adapting their operations to sell and service electrified vehicles. Phillips advises dealers to carefully analyze sales data trends before making major investments in EV infrastructure, but emphasizes the importance of being prepared to meet the growing demand for electric vehicles.
Despite the rise of online car sales platforms, brick-and-mortar dealerships remain the preferred choice for many consumers, especially Millennials. According to Phillips, Millennials value the in-person experience of visiting a dealership, test-driving vehicles, and interacting with knowledgeable sales staff.
In conclusion, the auto dealership industry has proven to be more resilient than many predicted. Dealers have adapted to economic challenges, technological advancements, and changing consumer preferences, demonstrating their ability to thrive even in uncertain times. As the industry continues to evolve, dealerships will need to continue embracing innovation and adapting to new trends to maintain their relevance and success.