The Future of the Showroom; How Car Ownership May be Dying in Canada
Car ownership as we know it is facing a dilemma in our country. History has not shown a true competitor to fossil fuel vehicle ownership across the world until now, as new problems are creating real difficulties for car dealers.
These complications have come in the form of emerging markets for electric automobiles, as well as group car share companies taking hold in major cities. In addition, these factors combine with the possibility of completely online car purchasing to present a bleak future for car dealers and vehicle ownership in Canada. These influences are part of what has led an independent think tank, “RethinkX”, to predict that car dealerships will altogether cease to exist in the very near future. More specifically, the prediction states that the entire automotive dealership industry will reach redundancy in a mere 7 years. That means within the next decade, the time-honored tradition of heading to the showroom to pick out a new car could very well disappear. But how does the combination of electric cars, increased car share opportunities, and online vehicle shopping directly threaten traditional car buying?
Electric Vehicles and the Decline of Service Departments
The most immediate hurdle for car dealers in Canada is the emergence of the electric car. Compared to the roughly 2,000 moving parts in a gasoline vehicle, electric automobiles top out at around 20. This means that there is far less opportunity for things to go wrong mechanically, and therefore the need for service will decline greatly. As a result, maintenance costs plummet, and dealership service departments become increasingly unnecessary. The National Automobile Dealers Association reports that roughly 44 percent of dealership income is drawn from service departments, which means losing this source of revenue would be disastrous. With the automotive world barreling headfirst toward electric power, a huge portion of dealership revenue might be severed in the near future. But with this comes the question of specialty service. Do these parts not demand more expertise and specialized care? a service that could only be reliably offered, at least initially, through licensed dealers? This possible caveat may be a saving grace if dealerships can transition to electronic specialized service departments, but only time will tell if this is a possibility. Even if such a transition is possible, service demand would still see significant decline as electric cars become the norm, which reinforces the predicted problems.
The Growing Car Share Market
To compound the issue, the decline of service departments in an electric world can be coupled with the challenge brought forth by the emerging car share market. Car share companies like ZipCar offer a service that allows you to become a member and book vehicles for an hourly or daily rate. With such programs, you are not required to pay service and maintenance costs, and you can often simply pick up the car and drop it off as needed. As of January, Canada had around 20 car share services with over 300,000 members and 5,200 vehicles, all numbers that are growing rapidly. RethinkX believes that car sharing costs for a family will be roughly 6,000 dollars cheaper annually than vehicle ownership. This number is drawn from the prediction that, as they grow, the use of transport sharing companies will be up to ten times cheaper monthly than the average financing agreement, as well as 2 to 4 times cheaper than maintaining a paid off car. In an increasingly urbanized Canada, these cost benefits combine with the convenient model of “use it when you need it” cars placed across the city. For many Canadians, the possibility of simply sharing a vehicle for those times you need it is growing in appeal, and presents a real alternative to car ownership.
The Future of Online Car Shopping
When you combine the rise of electric cars with the growing car share options throughout Canadian cities, the impact on car dealerships is already significant. But what about the future of online car shopping? Accenture, a management consulting firm, surveyed 10,000 individuals across the USA, Germany, China, and more regarding their stance on in person vs online car shopping. The results were staggering, with roughly three quarters of those surveyed suggested that if they could, they would complete the entire car buying process online. What's more, while buying a car today still demands in person meetings, well over half of those surveyed utilize online channels in some area of the process. This paints a vivid picture of the market trend toward total automation and electronic accessibility, a fact that once again suggests a bleak future for the car dealership as we know it.
The combination of expanding electric car technology, the growing presence of car share companies, and the demand for online vehicle purchasing creates a three-tiered challenge for car dealerships and traditional car ownership in Canada. With electric cars cutting the need for service, car share companies offering convenient short term vehicle use, and online shopping taking the salesman out of the buying equation, the future does not look bright. But will this combination prove potent enough to eliminate the need for car dealerships altogether? If so, will the longstanding practice of car ownership itself soon be a thing of the past?
Cole writes for Shrader Canada.