2018 Planning Priorities for Automotive Retail Technology Providers

2018 Planning Priorities for Automotive Retail Technology Providers

As the annual dealership show wraps up, we wanted to outline our general strategy framework for our clients in automotive retail technology. While each situation and company are different, several important themes weave throughout all of their growth strategies.

1. We remain in an unsustainable sales environment.

17 million + new units per year just does not make sense longer term. While we are far from gloom and doom forecasts, our pessimism has been proven wrong again and again. Yet, it still feels right to emphasize the high probability of lower new car volume. Dealers LOVE to sell cars, and solutions providers remain correct to emphasize that draw. But, dependence on super-high new car volume to validate an investment hypothesis is more risky now than in the past.

2. Dealers are great customers for solutions providers.

They remain receptive to new and better ideas and are among the most thoughtful purchasers of technology. Their expectations are realistic; they take the time to become familiar with existing and new solutions; they are quick to provide recommendations and referrals for systems that exceed expectations.

3. Fixed ops and F&I continue to drive dealership profitability.

On the margin (see point 1 for our perspective on this importance), great dealers do a great job in fixed ops and F&I. It is hard to deliver a compelling investment return here, and even harder to get people to pay attention to a sales pitch that is absorption or cost-avoidance-heavy. Yet, the the long-term returns for solutions providers and their dealer customers are the best bets.

4. New meta business models will take longer than expected to make a difference.

In particular, the transitions to a) autonomous vehicles and b) short-term or flexible ownership models are among the most important and exciting advances of the past several years. Positioning for these changes is important; but there is still a fair amount of time between here and there.

5. There is real advancement on the transition to on-line transactions.

Take a look at the number of product and press releases at this show that are related to a full transition to an on-line car buying experience, and you will be impressed with the acceleration and progress of this move. This capability has been the holy grail for many organizations for many years: This is a big year in actual progress.

6. Data access and integration remain hot buttons.

In the past 6 months, we have seen great progress — such as the introduction of API-based marketplaces — and tremendous reminders of the historic and present challenges — such as a continuation of court-based approaches to granting access. Data access remains expensive and tricky, and needs to be part of any comprehensive cost structure. There are few shortcuts, and, fortunately, many advantages to a well-considered and well-executed approach to data.

Automotive retailing technology players are lucky to have this annual showcase for new ideas and competition, combined with a physical, real-time sense for dealer interest and enthusiasm for new ideas. The market for high-growth, high-impact companies should continue to be strong, as we see strategic investors and interested financial players place long-term bets on the continued transformation of this critical market.

Want to learn more about Cape Fear Advisors’ focus on automotive retail technology practice? Please be in touch with us.