The biggest challenges facing automotive retail in 2024 (and how to tackle them)

However, manufacturers were thrown a lifeline of sorts in late December when the UK government and EU postponed the controversial Rules of Origin (RoO) legislation to 31 December 2026. Initially due to come into force from 1 January 2024, RoO mandates that 45% of components for electric vehicles must be locally sourced. If not, a 10% tariff will be applied to each and every vehicle.

Although RoO has been in play for petrol and diesel-engined cars since 2021, it will  present particular problems for electric vehicles due to their more complex, still-evolving supply chain. “Battery manufacturing in the UK is still in its infancy,” says the Cox Automotive report. “It’s thought that up to five years is needed to construct the gigafactories needed, as well as a fully functioning distribution and supply chain.”

This will not only affect the cost of vehicles for manufacturers, dealers and consumers alike, but some manufacturers could even be forced to exclude certain models from certain markets.

Above all, the main challenges posed by new legislation boil down to consumer confidence and cost – both of which, unfortunately, are out of the control of dealers. “More needs to be done for EVs to truly become the dominant mode of transport,” says the Cox Automotive report. “Significant investment is still needed in charging infrastructure to support a growing EV parc. The cost of EVs also remains a barrier to entry for many people, despite the price of both new and old vehicles softening.”

So, how to answer these challenges? Well, fleet sales offer one clear opportunity, with electric vehicles having particular appeal to fleet managers, decision makers and user-choosers looking to cut running costs while also meeting broader corporate sustainability goals for their business.

Consumer education is another opportunity, creating a richer, more trusting, more valued relationship between dealer and buyer. This could range from EV jargon and myth busting to even helping consumers pick the right level of electrification for them – whether it’s going all-electric or picking a hybrid. It certainly helps in an EV market that is more turbulent than ever, with challenger and value brands – especially new  brands from China – turning traditional hierarchies on their head.

“Bear in mind that [with EVs] brand loyalty is an anachronism,” says the Cox Automotive report. “The case for nurturing [consumers] makes a lot of economic sense. The time for dealers to become an authoritative voice in the EV space – experts, essentially – is now.”

The changing role of dealers

All of this comes at a time when consumer behaviour and the role of dealers is changing dramatically. First, the long-term shift towards online buying over bricks-and-mortar footfall.

“According to recent research, the majority of consumers – more than 80% – want to combine online steps in the buying journey with those taken at a physical outlet,” says the Cox Automotive report. “The same study suggests that not all buyers share the same view as to which stages should be online and which face-to-face. So, flexibility is important.”

Dealers need to be increasingly ‘omnichannel’: integrating all customer routes to the dealers physical or virtual front door, so that consumers get a seamless experience whichever digital or physical channel they’re using.

“With brand and customer loyalty at a historic low, and with cars being regarded by many as ‘white goods’, there has never been a better time to explore the possibilities of omnichannel, especially where EVs are concerned,” says the Cox Automotive report. “A quality website, including video walkarounds, quality photography and part-exchange functionality are necessary to do omnichannel properly. The customer must have all the tools to conduct almost every part of their journey from the comfort of their sofa.”

For dealers, an ‘omnichannel’ approach should help them lower costs, and garner better customer data, enhancing the opportunities for improved customer retention.

Shifting to the ‘agency model’

Heading into 2024, dealers are also facing the challenge of the ‘agency model’: essentially manufacturers setting national pricing, managing the customer sales relationship and assuming responsibility for inventory and administration.

It offers customers consistent, transparent ‘no-haggle’ pricing and a more straightforward buying process. For manufacturers, it means increased customer data, increased customer satisfaction and reduced distribution costs and financial risk.

“The agency model seemingly has several advantages for manufacturers and consumers alike,” says the Cox Automotive report. “For the former, acquired data will no doubt aid consumer retention. It could also more sharply focus marketing strategies. And, for the consumer, at the outset at least, it means transparent pricing and, allegedly, a more hassle-free buying experience.”

The agency model has already been adopted by Mercedes throughout Europe. Brands like BMW, MINI, Ford, Skoda, Smart, Genesis, Jaguar Land Rover and Alfa Romeo are also investigating the rollout of this model.

But what is the dealer’s role in this new retail chain, and what benefits could it offer? Depending on the specifics of the agency model adopted by the manufacturer and how it evolves, it could mean potentially reduced financial risk and improved cashflow. This could free up additional revenue for dealers to invest in used cars and aftersales, or investing in customer touchpoints – especially digital.

Questions remain over who will bear certain brand costs, such as the cost of demo vehicles, training and gross margins. Equally, the significant capital cost of the agency model could discourage manufacturers, and make them think again.

“Privately, many dealer groups worry that the pure model won’t work, because many of the aspects of the traditional arrangement, in their view are essential to their everyday working,” says the Cox Automotive report. “It’s feared that such aspects, which could be upended by agency model implementation, may render the new system impractical. Indeed, if manufacturers fail to comprehend the work dealers are already doing on the ground, introducing agency – in many cases – will prove to be painful and costly.”

Many in the industry believe the pure agency model will evolve over time to a more blended approach of franchised and agency, allowing manufactures to capitalise on the expertise of their dealers, especially when it comes to part-exchange, used vehicle management and aspects of finance – all of which require an experienced, enthusiastic and adept dealer to execute.

But whatever happens, it’s certain that working more closely with manufacturers to establish and reinforce long-lasting partnerships is key to planning ahead for this shift to agency.

“As manufacturers gain new business, it’s clear that they will value dealers who do a great job of representing their brand in the market,” says the Cox Automotive report. “That could mean a closer alignment of business strategies for both the manufacturer and the dealer. The upshot being that any new dealer strategy will see them adopt a more operational role in the sales process and associated activity.”

This shift to the agency model is expected to encourage some dealers to swap out legacy brands in favour of younger manufactures looking to get a foothold in the European market. BYD, for example, recently overtook Tesla as the world’s largest EV manufacture and is now establishing a physical dealer network with the likes of Pendragon, Arnold Clark and LSH Auto in a bid to establish a 100-strong UK dealer roster.

“There’s no doubt that manufacturers and dealers alike will continue to consolidate as revenues fall and market dynamics shift. It may well be that dealers have, in some sense, an even greater say in the dealer’s future. Dealers will need to decide which manufacturer best suits their outlook. New entrants to the market may prove to be a better draw for many dealers who choose to swap legacy brands for younger manufacturers hoping to get a foothold in European markets.”

Artificial intelligence

Finally, we come to today’s hottest topic: AI. The exponential rise of artificial intelligence models such as ChatGPT and Google’s Bard over the past year has captured the imagination of all industries and demonstrated the sheer power of AI technologies – tools that will certainly shape the future of automotive retail.

Indeed, both virtual and augmented reality systems are already being used by dealerships to enhance customer experiences, optimise day-to-day operations and drive innovation. And then there’s the sheer amount of data these systems generate, allowing dealerships to better personalise their offerings and help their businesses run more effectively, whether through better inventory management or data-based decision making.