New Study Outlines Best Practices to Improve Automotive Dealership Performance in the Digital Age



NEW YORK (March 31, 2015) - U.S. new-car dealers have tremendous opportunities to expand their businesses and improve profitability, despite challenges to current retailing models, consultants from McKinsey & Company said today at the 2015 National Automobile Dealers Association / J.D. Power Automotive Forum in New York City.

During the Forum, McKinsey & Company's Stefan Knupfer, a senior partner and 20-year veteran in the auto industry, and Robert Mathis, a partner within the firm's Automotive & Assembly Practice, unveiled Fast forward: How US auto dealers can drive sustainable economic performance in the digital age, a new study that provides a strategic perspective on opportunities and challenges in the U.S. retail-auto sector.  

Among their key findings, McKinsey and NADA found that if carmakers and dealers make the necessary investments to achieve operational excellence and streamline marketing expenses, dealer profitability, on average, could hit the levels of today's top quartile performing dealers. These benefits could include increased returns on marketing investments and higher customer satisfaction.

"A top industry priority should involve encouraging and creating high-performing auto dealerships," says Knupfer. "Our research busts the myth that most of the factors that effectively drive dealer success, such as sufficient scale and brand strength, remain beyond the industry's control. Instead, we discovered that internal operating practices differentiate highly-profitable retailers from their peers today even more than in 2006 when NADA and McKinsey conducted a similar analysis."

The research shows that while dealerships are still the preferred place for making the final buying decision, today's car shoppers are spending more time online on dealer and third-party websites to kick the digital tires of cars and light trucks. Simultaneously, new players with other business models are entering the retail-auto space with an eye toward profiting from sales and service revenue.

"More than 16.4 million new cars and light trucks were sold last year, but this recovery in sales has not translated to consistently increasing profits," said Mathis. "While profits have risen from post-recession lows, they have plateaued over the last two years and have failed to keep pace with growing volumes."

"To attract and retain today's digital car buyers, dealers and automakers need to collaborate more to achieve better returns on their marketing dollars," said Michael Regan, NADA vice president of industry affairs, in separate remarks at the Automotive Forum, which is hosted by the Greater New York International Auto Show.

Steven Szakaly, NADA chief economist, added: "While dealership profits are under attack from multiple fronts, such as Internet-based third parties and the hyper-competitive nature of auto retailing, this study provides a guide for how dealers and car manufacturers can work together to improve business performance and increase customer satisfaction."

The study, conducted by McKinsey & Company in cooperation with NADA, included surveys of more than 750 new-car dealers, analysis of more than 2,000 dealer financial metrics, as well as consumer research conducted by McKinsey & Company last year.

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