Future of Mobility, Part III: The Role Dealerships Will Play

Auto dealerships have purportedly been around for well over a century, and have become an integral part of the car shopping experience.

But with the advent of autonomous vehicles — and current OEMs like Tesla doing away with dealerships in favor of showrooms — the traditional dealership and its financing arm will have to pivot into new areas in order to survive the changing tide, according to a study from Deloitte Consulting.

As part of a larger discussion on what’s taking place within mobility and auto finance (view Part I and Part II here), co-author of the study, Cameron Krueger, spoke with Mobility Finance about the expanding role of dealerships, the idea of software as collateral, and the rise of fleet management.

Dealers are an important part of the ecosystem, Krueger said. Dealerships are not going away, but instead expanding into different areas of mobility consumption, he added. Today, roughly 80% of cars are financed via a dealer, according to the report. Captives’ relationships with dealers and OEMs are critical for access to customers and for loan/lease aid. But with a steady evolution of OEMs getting into fleet management (as seen with General MotorsMaven and Ford Motor Co.‘s Chariot), individual dealerships may want to also get into the game, according to Krueger.

“The dealer sells and finances, but they also have the space, and knowledge, so why not become a fleet operator?” he said. “They easily could in the new mobility ecosystem. The cars have a place to park and be repaired and [dealerships] have brand loyalty.”

The physical dealership may evolve into fleet management, but dealerships could also look into financing other aspects of a vehicle — like software if dealerships are willing to finance non-OEM products. There are parallel industries that do this already, including IBM Global Financing — IBM’s own captive organization — which also finances non-IBM products.

Software is set to be a huge player in mobility, Krueger said, adding that it’s a serious opportunity for dealerships to consider for the future and that dealerships could offer software subscriptions to various products. But that’s only if dealerships are willing to take the bet on financing a non-physical item.

“Sure, it becomes my collateral [if I’m a captive], but the collateral needs to be viewed differently because it’s so mobile,” he said. “Financing software is really challenging,” because there’s not a physical item that can be repossessed like a car.”

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