Bailout or Not, Nothing Will Be the Same for Drivers or Detroit

The dreaded apocalypse has come. Auto sales were down 36.7% in November. (Chrysler was down 47%!) Buyers can't get credit. Dealers are failing left, right and center. Car salespeople are lonelier than a Big Three CEO on his private plane.

Is this the end of the American love affair with cars? Will the auto industry cease to exist? Could a new "Car Czar" bearing billions in loans possibly sort things out?

While it is difficult to predict exactly what is going to happen, I think that two trends are emerging.

For the industry, it's clear that, if the U.S. manufacturers and car dealers can't make money by selling new cars, they will have to adapt to make money in different ways -- or not survive.

For drivers, the recent habit of getting new cars every three or so years has been broken. People will own cars (not lease) much longer than they have in the past and will think differently about maintaining them.

What are the implications?

The first reality is that the old ways of selling cars are over -- particularly for the U.S. brands. This year the prediction was over 16 million new cars would be sold. In actuality, there may be 12.5 million sold. Next year could be even worse. By contrast, there are well over 200 million cars on the road. Exploring more opportunities with these 200+ million automobiles makes sense -- especially considering that the average household spends/loses well over $15,000 a year in repairs, gas and depreciation on existing vehicles. The smart car companies will find new ways to engage owners with products and services.

In the past, dealers just leased out a car and then sent a few periodic postcards. How often do you hear from your car company or dealer? I think the Shiites and the Sunnis communicate more than the typical dealer does with its customers.

Vehicle manufacturers must re-engage their owners and offer them innovative services. What if GM gave away every car and then charged $500 a month for OnStar and satellite entertainment? What if they included ads in exchange for lower pricing? What if they developed an in-dash system with Google or Apple? There are plenty of ideas out there.

Car dealers and service providers should also be getting cozier with drivers. I was talking to a chain of repair stores recently where 3 out of every 4 customers never return. What is the value of those lost people? Huge! If dealers can't make money on car sales they will have to do it by servicing existing cars or selling more parts and accessories.

The parts market is already worth billions of dollars. Visit the parts and accessories section of eBay Motors and you will see they offer 2,848,269 items. There is a lot of business to be had in parts. With the rise of "do it for me" consumers, parts or accessories are often purchased directly at a retailer and then professionally installed locally. Think about DVD players, new wheels, etc; each transaction can be hundreds of dollars. Someone should be going after that market more aggressively. The point here is that you can still make money in cars. The dealers that embrace this new world will be the ones that make it.

The second reality is that car ownership will never be the same. Leasing is dead. People will not be turning in their cars every two or three years. This change has lots of implications. Most cars start to encounter troubles around the four- or five-year mark. If drivers want to get 100,000+ miles out of their vehicles, they will have to start servicing religiously and performing more preventative maintenance. If you aren't sure when your next service is or what it entails, see where you can find every service schedule for every car and set email reminder alerts. There's a lot of data to support that drivers who change fluids, rotate tires, and maintain their cars get much more out of them.

Another effective way to extend the life of a car is through an extended warranty. In the past, people turned in their car before the original warranty expired and didn't need an extended one. Today, nobody hoping to own a car for more than five years will want to be without one. Any of a dozen common major repairs can end up costing more than the entire warranty that would have covered it.

Better habits for drivers help too. It is more than just checking tire pressure. Avoiding start and stop driving, going easier on the engine and transmission and treating a car like the complicated instrument it is will pay off.

There is already a huge industry around oil changes and tire rotation. These and other services could be better packaged and marketed to drivers as "longevity" clinics where savvy consumers go to tune their vehicles for the long run. Resourceful people within the industry will figure out how to harness this trend and profit from it.

There is no reason why people can't drive their cars much longer and farther and, in the coming years, they will have to. They will just need a little help. And, whenever consumers need something, there is profit to be made.

Comments

[imacsweb]

MattInVA, while your points are correct on the surface, they may be missing some of what Trevor is trying to point out. Many dealers would absolutely be dying without service today, but they are not effective at all in retaining service or parts and accessories. Not to say they want to sell 1,200 cherry air fresheners a month, they just don't connect with consumers.

One item Trevor was hitting on is the connection between dealership and client could be better. While many dealers use CRM and other methods to keep in touch with customers, most of that is on the car purchase side and it's not managed well.

Working as an Interactive/online marketing consultant with dealers daily, it's one of the biggest pain points. If more were done to promote the virtues of the dealerships, more business would be done. On average car dealerships do poorly compared with other industries that fetch significantly less of people's money.

Fact is dealers can do much, much more to drive business. And in today's market, most principals and management have not done well with the web or email...the only areas people today really want to engage in.

Now to the smaller point: outside of Ford with Sync, GM with OnStar (and the few imports that have tried half hearted to piggy-back) as well as some other "coming soon" technology, the engagement to consumers with car-based technology is painfully (if not pitifully) behind the times for a $20,000-$200,000 vehicle.

[MattInVA]

Trevor, I don't mean to be rude, but do you know very much about the auto industry? I ask because must of what you mention here is already being done by all major automakers.

"What if they developed an in-dash system with Google or Apple?" - Ford has been offering an in-dash system developed by microsoft for over a year now. It's called Sync. It offers complete, voice-activated, integration of your cellphone and ipod, and offers real time traffic updates, weather, movie times, sports scores... Other manufactures offer similar systems.

"If dealers can't make money on car sales they will have to do it by servicing existing cars or selling more parts and accessories." - Most dealerships have been operating this way for years. Most, if not all the their profits comes from the service department. And all dealerships sell after-market parts for their cars, and will install all of them for you, all while not affecting the warranty. Also, I can't think of any modern dealership that won't send you e-mails about your cars maintenance.

As for extended warranties: AVOID THEM!! Chances are they'll cost you more than repairs would cost. Especially with inflation factored in to the upfront cost of an extended warranty.

[0emissions]

Next they'll be giving out tax breaks to anyone driving a big 3 automobile..
Those who drive anything else will be looked upon as "UNPATRIOTIC"!

[shamaniceconomist]

Rentals could become more important. If people will be driving souped-up golf carts around town, they may want a convenient way to rent a fuel-burning car for a road trip.