Smiling salesperson congratulating customer on car purchase

Why automotive OEMs need to adapt – and how dealers can benefit

As technology continues to expand what’s possible, the original automotive franchise model has remained largely unchanged.

In brief

  • Auto original equipment manufacturers (OEMs) are pursuing changes to the franchised retail model in an attempt to nurture connections with end consumers.
  • Electric vehicle (EV) OEMs are using direct-to-consumer (D2C) models enabled by e-commerce but have struggled to scale service networks as sales volume grows.
  • OEMs and dealers can work collaboratively to innovate, shape shared profit pools of the future and deliver a holistic customer experience.

Key takeaways:

  1. New sales models must facilitate seamless omnichannel experiences. They need to allow customers to easily experience vehicles and switch from physical to digital for other steps of the purchasing journey at their convenience, independent of who owns the respective channel.
  2. OEMs need to be transparent with their dealer partners. Bring them along the transformation journey, by working collaboratively to evolve a mutually beneficial economic structure and provide them assurance that they will continue to be the face of the brand in local markets. At the same time, dealers must be open to change and actively engage OEMs to meet or exceed customer expectations.
  3. There will not be a sudden change to a completely new way of doing business. We are entering a journey of continuous change with many iterations and changes along the way, driven by vehicle technologies, shifts in customer behavior and evolving regulatory environments.

Dealerships have served as the foundation of the automotive industry since its beginning. Entrepreneurs have forged lucrative brands selling and servicing vehicles and establishing themselves as economic pillars of the communities they serve. They made it possible for automakers to reach the masses, distributing financial risk, connecting with consumers on a more personal level and building brand loyalty.

But the world is changing. Digital technology is empowering consumers and altering the dynamics of the vehicle-buying experience. Consumers now arrive at the dealership armed with much more information, and often with the intent of doing nothing more than test-driving and experiencing a vehicle firsthand, and then returning home to complete their purchase. A growing number of consumers are bypassing the dealership altogether in favor of one of the D2C digital platforms that has emerged in recent years. Consistent with other product segments that have gone digital, the percentage of vehicles purchased online is expected to continue to expand. The latest EY Mobility Consumer Index (MCI) indicates that up to two-thirds of all car buyers now use digital channels (apps, websites and social media) to gather information about their prospective purchases.¹

Vehicles also continue to evolve. As EVs gain traction in the market, and are increasingly connected, there will continue to be a proliferation of new products and services available to consumers. EVs are of particular interest to digital car buyers. The MCI found that 71% of all EV buyers rely on digital means to make their purchase. These new products and services, the growth of alternative buying options, and other changes to the existing automotive retail model will further complicate the relationship between the consumer, dealers and OEMs. It’s a relationship that will be increasingly lucrative for dealers and OEMs, but will also require a different and evolving level of service.

These shifts are having a ripple effect on the automotive industry, which has invested a great deal in building the current retail ecosystem of dealerships, OEMs, lenders and a litany of various services that work through this model. The result of these shifts will be financial and operational transformations to meet the demands of next-generation vehicles and consumers, evolving consumer expectations, and allocation of capital across evolving profit pools. The door has been opened to transformative change, but what will it ultimately look like? The challenge for retail industry players is to have a good understanding of how their business functions, the opportunities that could be created by moving to a new model and what the best strategy is to move toward achieving a successful outcome.

Consumer expectations are driving change

OEMs have always been intrigued by the opportunity to build a more robust D2C sales model and gain a more direct relationship with customers. But they have been flummoxed in how to do so with limited digital tools and the legally restrictive US franchise laws. There is also the fact that customer data is owned by the dealers. Now, however, OEMs have a new motivation to consider changing their business model. 

In the digital age, it’s much easier to quickly establish brand awareness and potentially cut into the previously defensible market share held by legacy OEMs. The flood of new OEMs that have emerged in recent years are betting on just that, despite the lack of an established network of dealers at the ready to help sell and service their vehicles. While they are still somewhat constrained by the franchise laws of each individual state, the D2C digital mediums provide immediate sales scalability. The lack of dedicated physical space is a concern, however. Building out a network to service those vehicles is not as easily scalable, and often these OEMs are stitching together a patchwork of partners to provide service for their vehicles.

For legacy OEMs, US franchise law is a significant constraint on their ability to make significant changes to either their sales or service model. While dealers generally recognize the need to transform the customer experience and are willing to experiment with new tools, they are reluctant to cede control of the customer relationship, viewing this as an increasingly slippery slope.  

Vehicles are a particularly personal and complex purchase. On the personal front, the purchase is impacted by many factors: some practical such as how easy it is to load and unload children and some unpractical such as top speed. In terms of complexity, there are a growing number of options on vehicles and the easy substitution of used vehicles makes for a unique SKU environment that is seemingly unmatched in the retail world. 

New tools need to work seamlessly across the customer journey, allowing for consumers to have easy “on-ramps and off-ramps” between the digital and physical experience. Processes and operating models across the journey also need to be restructured to align with evolving customer expectations. An example of this might be rather than turning a customer over to a finance and insurance (F&I) manager when they finish a test drive and decide to go ahead with their purchase, just hand them a tablet and allow them to complete the transaction, picking up where they had left off at home.

As OEMs and dealers work to evolve their model, there will not be a one-size-fits-all approach to solve this challenge. What is known is that to drive change, it will be critical to build a culture and ecosystem that fosters collaborative innovation and enables these partners to rapidly iterate and test new models. Is it reimagining relationships with dealerships to use locations as sales hubs for D2C transactions? Is it moving away from the dealership model altogether? 

Emile Korkor, Acura’s assistant vice president of sales, recently spoke with Automotive News about the important role dealers play in the function of the automotive industry, and how Acura is working to develop a more integrated business model.² Volvo’s new CEO Jim Rowan had a different take when he spoke to Automotive News. Rowan said the traditional way of selling high-end vehicles is “flawed,” adding that he supports developing a D2C sales model that he says could increase access to customer data and support stronger consumer engagement.³

These differing opinions are part of the back and forth that will shape future sales models for the automotive industry. OEMs, dealers and other industry stakeholders will need to evaluate their business model, their customer base, and other unique factors to inform their decision and arrive at the best pathway forward for that particular entity. There isn’t a one-size-fits-all solution.

Effective change management to any function of the automotive industry will take innovative, forward-thinking leadership to create a strategy that can effectively shift the industry’s retail ecosystem to meet current needs and demands that continue to evolve. Every dealership is different, every OEM is different, every new digital platform that comes online to sell vehicles is different. Thus, there is no quick fix that will work for everyone. Models will need to be tested, refined, retested and then refined for unique market nuances. 

Dealerships could be a framework for the future

Some OEMs have already taken the first steps toward a hybrid model between the traditional and D2C models where they control the initial consumer commitment toward buying a vehicle. This is often referred to as the agency model, and there are many permutations of the agency model. In such a model, consumers typically put a deposit down on the vehicle they want, paid directly to the OEM. Then, based on their location, the OEM directs them to a dealer where they can go to complete the purchase. Importantly, a large portion of the dealer’s profit is protected in this model. At the same time, there is a much lower cost of sale as some sales capabilities are being taken over by the OEM and the roles of the sales team are redefined. It’s an example of how the dealers and their physical locations can continue to play an important role in the car-buying process. 

The biggest hurdle to shifting from dealerships to an agency model in the US is the regulatory barrier. State franchise laws have been in place for decades, enabling dealers to strengthen their businesses and gain influence, both economically and politically. Many auto dealers are among the largest generators of sales tax revenue in their communities. But where dealers see a business legacy, OEMs see expenses that no longer add up. 

As the retail model evolves to support an increasingly digital shopping experience, the holistic ownership experience must also be considered. While the shift from internal combustion engines to EVs will reduce the service burden and enable more mobile service, there is still a logistical challenge in servicing a highly distributed set of vehicles that are important tools in the daily lives of their owners. 

Of course, the relationship between the seller and the consumer doesn’t end with the sale, and aftersales is an area where D2C models have had their share of struggles as they seek to match the reach of OEMs that have dealerships in every state and metropolitan region across the country. The new players have momentum, the shine of new technology and intriguing brand potential. OEMs have a legacy of providing vehicles to generations of consumers, and physical locations that enable their reach. Those brick-and-mortar sites typically have trained service personnel and their own parts supply chain to meet the needs of their consumers. It’s also worth noting that there will be fewer opportunities for automotive self-service. As vehicles continue to become more digital and more computerized, the ability for consumers to make repairs in their garage will be a thing of the past. That will change the dynamics for retail stores that sell automotive parts and accessories.

As the model continues to evolve, OEMs need to foster the business of their dealer partners to help deliver the desired ownership experience for their customers. Buying a vehicle is not like buying a TV or even an expensive piece of furniture. In some ways, it’s a complex being that is critical to daily life routines. OEMs have a role to play supporting the ownership experience across the lifecycle of the vehicle. They’ll need partners to deliver the experience and strategies to maintain strong relationships with those partners.

Additionally, OEMs need to evaluate how change will affect their business from the perspective of tax, finance, capital, legal and other key segments. 


There are still more questions to consider as the automotive retail model continues to evolve. 

  • Dealership profit pools will continue to evolve, but what does that look like and how do OEMs include dealers in the process of transforming the model? 
  • How does the way dealers are renumerated for parts, warranty work, warranty labor, warranty parts, retail parts, retail labor, etc. change? 
  • Does the agency model remove the financing and insurance opportunities that drive a significant portion of the profits for dealers in the US? 

There are many different companies that are stakeholders in the industry, and as profit pools within the dealership change and revenue pools change, everything around that will also change. 

New models are going to run concurrent with the old models. When there is a scale decline in the current profit model at a certain point, it’s going to reach its breakeven and potentially move differently. In the meantime, there will be challenges in the transition period, operational improvement opportunities that everyone is going to face because it won’t be a snap of the fingers to get to the new model. The industry is changing. Industry players that can get ahead of change and develop strategies to shape their world will position themselves to have greater influence on what the future looks like.  

Bold predictions:

  • Customers embrace fixed-price car buying — More than 80% of customers would rather see a fixed price and a buying process that matches their e-commerce experience, according to Automotive News.4 Over the next five to 10 years, this will become standard practice.
  • Let’s make a deal — Emerging EV OEMs will establish partnerships with traditional dealerships, parts retailers, and vehicle service providers to expand their physical presence and improve the aftersales experience.  
  • End of an era — The sales team as it has been known over a century as the heart of every dealership will be reinvented along the hybrid customer journey.

Annunciata Pelzer also contributed to this article.


New models are going to run concurrent with the old models. When there’s a scale decline in the current profit model at a certain point, it’s going to reach its breakeven and potentially move differently. For now, there will be challenges in the transition period, operational improvement opportunities that everyone’s going to face because it won’t be a snap of the fingers to get to the new model. The industry is changing. Industry players that can get ahead of change and develop strategies to shape their world will position themselves to have greater influence on what the future looks like.

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