Amazon announced this week that its E-commerce platform will allow users to buy cars directly from dealers. While it certainly is news that the world’s largest E-commerce platform will allow users to buy new cars from dealerships, this is not a new business model. Websites exist that allow you to get new car quotes from dealerships. Yes, the process does not get executed entirely online on these websites. But then, during the COVID pandemic, many dealerships allowed buyers to execute the entire buying process online. So, while the news is interesting, it is not exciting. But this is still a big first step, which will, hopefully, eventually lead to a dealership-free online sales model.

What would be exciting is if the dealership model could be eliminated entirely, allowing customers to buy directly from manufacturers. Tesla tried doing this and (obviously) ran into many challenges. Many states have franchise laws preventing direct sales of new cars. Why these laws exist in today’s age is a mystery to many. To me, the answer seems to be political lobbying by dealership associations. The truth that those in the industry dare not say because of these dealership lobbies’ clout is that having dealerships in the sales process benefits only one entity- the dealership. Both manufacturers as well as customers will benefit from a direct sales model.

Whether it is a new or used car dealership, these dealerships are known to be difficult experiences for buyers. From misinformation to deceptive financing practices, horror stories of dealership experiences abound. For many customers, a bad experience at a dealership is akin to a bad experience at that automotive brand. Even though they are separate businesses.

But it is more than that. I firmly believe that many automotive makers will benefit from direct customer interactions. Like every other industry, automotive is bound to evolve. A critical piece of information needed for this evolution is the answer to the question, “What do customers want”. Direct interactions and sales to customers will allow automakers to capture data points that can help answer this question more precisely.

And analytics can play a key role. Let us try to understand how. Let us try to analyze three key areas of benefit:

Controlling customer experience: Cox automotive estimates that a buyer visits an average of 2.5 dealerships to buy a new car. One of the drivers is the pricing. Large dealerships, because of their volume, can provide significant savings. But no matter what the saving is, there is a margin for these dealers. A margin that is not relevant in today’s age.

Assuming that as an automotive manufacturer, you are working on building a future state business plan for the “Golden Age” where there will be no dealership. Analytics comes into play in almost every facet of your plan. You obviously want your showrooms in strategic locations where customers can walk in, experience the cars, and ask questions. Leveraging historical data, evolving demographics, and emerging trends in automotive buyer preferences, you can build models to help you decide these optimal locations.

Then comes the staffing analytics. One thing you definitely want to avoid is the sales commission model that makes dealership visits a nightmare and eats into customers’ savings. Simulation-based models can help you hone your process into one that enhances customer experience while improving conversions of weak-ins. Remember that a customer will seldom buy a car online without having experienced that car. And most likely, that experience will come from walk-ins into your showroom.

Assortment planning in the showrooms is another example area. While you will definitely carry all models, the placement of these models should vary based on demographics, trends, and recent phenomena. Analytics can help you here, as well, to optimize a dynamic shop floor product placement approach.

To enhance walk-in experiences, augmented reality will be a significant tool. If a customer likes a model but with specific features, an AR theater can help them experience their model, both externally and in the cockpit view. In fact, some dealerships in the country are already trying similar features (though rudimentary).

The list can go on. For example, analytics will help carry optimal inventory if showrooms decide to carry inventory. However, I would say a better model would be online sales with fulfillment. In this case, analytics can also help build the optimal fulfillment model.

Product enhancement: This, I believe, is the most important. Carrying the voice of the customer all the way back to automotive companies is not exactly a forte of many dealerships. An online sales model and direct interactions will allow automakers to capture data about those interactions robustly and precisely. This data can be leveraged across various analytics models, like attribution modeling and product design. Aspects of this data will also feed into the analytics examples covered under the customer experience section above.

Pricing: A direct pricing approach benefits the customers and will also benefit automakers primarily by leveraging pricing analytics. A transparent pricing approach, enabled by analytics, will allow automakers to maximize their profits and take control of their margins much better while providing the satisfaction of a “good deal” to the buyers.

Above are just examples of how analytics can help build a non-dealership fulfillment model in automotive. While the lobby is strong and resistant, eventually, this is where the automotive world will end. All they can do is delay the inevitable. However, given their experience and expertise, these dealerships can transform to become entities that make more money post-sales. Much more than they make being part of the current fulfillment chain. Enabled by digital. More to come on that in a separate article.