File picture: Thomas Peter

Johannesburg - The retail automotive industry is facing major future challenges, according to Deloitte.

Karthi Pillay, the Africa Automotive Leader at Deloitte, said the implications of these challenges were that the product orientated approach still prevalent in car retailing operations would have to change and ultimately have to go while dealer showrooms filled with stockpiled vehicles on display could become a thing of the past.

The model using commission incentivised salespeople in showrooms and making them responsible for maximising the bottom line would also be challenged, he said.

Pillay’s comments follow the release by Deloitte of a new report titled The future of auto retailing: Preparing for the evolving mobility ecosystem.

The report said the retail landscape across industries was in flux, driven largely by the change from product focused to customer centric value models. It said consumers had been empowered by technological advancements and public policy liberalisation and enjoyed lower switching costs, greater access than ever to information and higher standards.

These all posed challenges for companies operating with scale based, efficiency driven, product centric models, it said.

The report added that when it came to making car purchase decisions, Generation Y drivers, who were born during the 1980s and 1990s, valued customer experience three times as much as vehicle design.

“Retailers need to redouble their efforts to create memorable and painless customer experiences to retain today’s customers and appeal to new ones,” it said.

The report said hardly anyone found today’s automotive retail experience, involving researching, contacting the dealership, test driving, financing and closing the deal, efficient and satisfying. A recent survey revealed that only 17 out of 4 002 car shoppers indicated that they were happy with the well established process of buying a car.

The report said the most immediate and pressing challenge for car makers and dealers came from the rise of pay-per-use transportation, which when mature could undermine the century old business model built on selling cars to individuals and families.

Pillay said although South Africans still favoured cars above the limited public transport services available, there was no doubt that car sharing and services such as Uber would increasingly attract people away from car ownership.

One of the signs of things to come in South Africa was the launch of Locomute, a car sharing scheme designed to bring flexibility to the car rental industry, aimed at users who needed a car for short trips or even one-way trips, he said.

Pillay said the onus was on retail dealerships to innovate, introduce new business models and engage customers, because of the number of changes in the retail automotive market increasing steadily through technological advances in the digital space and more empowered customers.

This would ultimately involve introducing new retail models and a distribution channel to a sales operation that had remained unchanged for decades, he said.

“We foresee a move towards an omni-channel retail positioning where customers can interact through an integrated seamless shopping experience. They will be able to shop for a car, buy and take ownership of a vehicle regardless of how they interact with a dealership.

“Car retailers, like other retailers, must realise the sale of their product is not simply a once-off transaction. They need to track customers as they travel through the different channels and enable the consumer to use physical dealerships as a supplement to increasing digitisation of the car retail space,” he said.

Pillay said there was no doubt that long-term market forces would change the industry but those who adapted early would undoubtedly be winners.