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21st of November 2018

Automotive



Keeping disruption in perspective

Jackson on disruption: "You've got to think about it. You've got to have a plan." Photo credit: JOE WILSSENS

CHICAGO — Big shifts are coming to the auto retail world, and dealers say they're getting ready for them.

But don't fall for all the fantastical forecasts you hear, they caution.

Emerging transportation models, with autonomous and electric vehicles, ride-hailing services and subscriptions will indeed help shape the market, and demand attention, they acknowledge. But they won't turn the industry on its head, and they're not killing the personal-ownership model either.

"I'm not afraid of disruption," AutoNation CEO Mike Jackson said at the Automotive News Retail Forum here. "I don't worry about it, but you've got to think about it. You've got to have a plan. You've got to realize how you're going to take your company and position it to thrive in this dynamically changing environment."

Claims that people will no longer buy personal vehicles, that autonomous vehicles will eliminate traffic fatalities and that dealers have to be dragged into the electric vehicle revolution might "sound right," Wes Lutz, president of Extreme Chrysler-Dodge-Jeep-Ram in Jackson, Mich., said in Detroit last week. "But the truth is that each one is built on false or unproven pretense. And these narratives are put out there by stakeholders that have an obvious incentive for them to be true — even if they aren't."

Jackson points, for example, to the development of autonomous vehicles as an area where expectations need to be tempered.

Autonomous vehicles that leave the driver responsible — Levels 1, 2 and 3 — are coming. But drivers must "trust the system but be prepared to intervene on a moment's notice," Jackson said.

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Transitioning to autonomous vehicles that don't need a driver's supervision — Levels 4 and 5 — "is exponentially [more] complex and expensive," Jackson said. "The step up to Level 4 is the difference between putting a man on Mars and a man on the moon. We've put a man on the moon, but we haven't gotten anybody on Mars yet."

The cost of a Level 4 system could be between $100,000 and $200,000 per unit, he said. "No consumer is ever going to pay that kind of money for personal use of a Level 4 or Level 5 system."

Electric autonomous vehicles are a good fit for the sharing economy, he said. AutoNation has invested in that slice of the market by partnering with Waymo to service its autonomous fleet in Phoenix.

"We have several hundred of them on the road already and sometime this year those vehicles will be operating without a supervisor from Waymo," Jackson said. "We'll be part of that and we hope to grow with Waymo."

Subscription bet

Bill Cariss, CEO of Holman Strategic Services, believes the future of auto retail will include more delivery and fulfillment operations, mobility centers and subscriptions services, and more people will be doing transactions totally online. But traditional dealers will still be operating alongside it all.

"Those dealerships that are still there … I believe they will be some of the most valuable, EBITDA cash-flow enterprises in this business," he said at the retail forum.

Although franchised dealerships will exist in 2030, he said, there will certainly be fewer of them — maybe not as few as 5,000, but definitely not the 17,000 that exist today.

Holman, for its part, has made several investments in disruptive and forward-looking automotive ventures, such as a partnership with Fraser McCombs Capital. With Cox Automotive, Holman jointly funds Flexdrive, a vehicle subscription service.

"We love the subscription business," Cariss said. "We have spent a lot of time on this business … not only for a retail play, but also in the fleet space."

Holman's empire includes ARI, a fleet management business that manages or leases some 1.8 million vehicles. That's in addition to the 34 rooftops that are part of Holman Automotive.

Uncharted territory

Other dealers are taking a wait-and-see approach, looking to their peers and researching the disrupters before they decide whether to place their bets on subscriptions.

Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., says dealerships such as hers will be looking to larger automotive groups to explore uncharted territory.

"I don't know if we'll be doing what Holman's doing," she said, "but I'm going to be watching very carefully what they're doing and let them make some mistakes that we can learn from."

LaFontaine: For now he'll "wait for the right time."

Ryan LaFontaine, CEO of LaFontaine Automotive Group with 20 dealerships in Southeast Michigan, has been studying dealership-run subscription models and has met with Mobiliti and Clutch Technologies. But given the Detroit market's 80 percent leasing rate, the group is in no rush to launch its own program.

In a different market, "I would have been in two years ago," LaFontaine said.

For now, he's taking his time, studying subscription program issues such as residual values of the vehicles, costs of managing the fleet and rising interest rates.

"There's a lot of pieces that are moving faster than we can control," he said. "So I'm just trying to be smart right now and wait for the right time."

Jackson said he's confident that even the proverbial tortoises will be able to adjust and stay competitive.

"I think 10 years from now, we'll all be proudly selling electric vehicles, autonomous vehicles with greater capabilities," Jackson said. If they're anything, he said, "auto retailers are resilient and we're adaptable."

David Muller, Jackie Charniga and Melissa Burden contributed to this report.

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