Entities in the dealership industry form a bridge between automakers and their consumers, selling both new and used cars. The dealership industry in the U.S. includes around 50,000 outlets that generate about $1 trillion in annual revenue (First Research, 2022). Demand for cars is primarily driven by interest rates and consumer spending and profitability depends on the sold mix and volume of cars and services. Large companies have advantages in finance, purchasing, and marketing and can provide customers with a larger selection of cars. Small companies have an advantage in the quality of customer service offered and dominance in the small geographic areas they serve. The automotive dealership industry is on the verge of significant changes but the long-term future looks bright.
Ford is one manufacturer that relies on its dealership network to reach consumers and has explicitly stated intentions of continuing this relationship for the foreseeable future. The company controls over 2,900 dealerships in the United States and around 10,000 worldwide (Beard et al., 2021). Key U.S. players in the industry include AutoNation and Lithia Motors. The two are the biggest firms in the country and control around 16,000 dealerships (Autonation, Inc., 2021; Lithia Motors, Inc., 2021). However, there is a lot of room for growth as they are actively purchasing smaller dealerships and investing significant resources into online retail architecture, acquisitions, and buying back stock.
The automotive dealership industry has a life cycle similar to that of the automotive industry: introduction, growth, maturity, and decline. Automakers and dealers introduce a new product, it grows in popularity; the popularity matures and then declines as it is replaced by new products (Sabadka et al., 2019). However, cycle times have seen a rapid acceleration over the last two decades, which is an issue Ford dealerships and other players in the industry have to deal with. The average vehicle platform life cycle has dropped by about half over the last ten years (Sabadka et al., 2019). This will continue to decrease amidst the shift towards Electric Vehicles and the entrance of new players in the automobile industry.
Given the rapid evolution in the industry, the following BCG matrix will provide insight on how entities like Ford can proceed. The matrix will address the stages: question marks, stars, cash cows, and dogs for Ford and the industry as a whole.
Question Marks
Sedans – Ford cut most of its sedans given massive losses and should do the same with the entire line because reviving it will require significant investments (Ford Motor Company, 2019). The same is true for the industry, given the ever-increasing introduction of better alternatives.
Stars
Electric Vehicles – The demand for traditional cars is drying up and the market is shifting to electric vehicles.
Cash Cows
- Ford: Truck and SUV – These are already profitable and its market share in the U.S rose from 21% to 24% between 2018 and 2021 (Ford Motor Company, 2021).
- Industry – Passenger cars. There is still a high demand for passenger vehicles even as the world shifts to zero-emission options.
Dogs
- Hybrid Vehicles – Hybrid cars have the smallest market share, which is continuing to dwindle as the market shifts to fully electric vehicles.
The automotive dealership industry’s value chain involves collecting cars form manufacturers, handling, storing and distributing them to customers. Competitive success lies in how well this process is handled. This is especially crucial if dealership companies are to compete effectively against the direct sales model as used by giants like Tesla (Voigt et al., 2017). Another reason is that optimizing each stage will translate to a better-asking price and bigger profit margins.
Overall, the automotive dealership industry is very attractive and bound to experience significant growth over the long term. This is because the model of directly dealing with customers is facing significant challenges in terms of quality service delivery. Soon, the companies that follow this convention will need dealers to increase efficiency and customer satisfaction. Another reason is that automakers are shifting to electric vehicle manufacturing and are set to produce large inventories that will need dealers to effectively reach the market.
References
Autonation, Inc. (2021). Form 10-K. Web.
First Research. (2022). Automobile Dealers Industry Profile from First Research. www.firstresearch.com. Web.
Ford Motor Company. (2019). Form 10-K. Web.
Ford Motor Company (2021). Form 10-K. Web.
Lithia Motors, Inc. (2021) Form 10-K. Web.
Sabadka, D., Molnár, V., & Fedorko, G. (2019). Shortening of life cycle and complexity impact on the automotive industry. TEM journal, 8(4), 1295. Web.
Voigt, K. I., Buliga, O., & Michl, K. (2017). Driving against the tide: The case of Tesla Motors. In Business Model Pioneers (pp. 187-198). Springer, Cham.