How automotive dealers in the Gulf can navigate a changing market
The GCC’s automotive market is in a state of flux, and dealers must adapt to remain competitive. Ilias Ghiyati, General Manager for the Gulf region at global automotive group Autorola, outlines some of the strategies dealers can implement to navigate these changes effectively.
The automotive market in the Gulf Cooperation Council (GCC) is undergoing significant transformation, presenting new challenges for industry players across the value chain – including dealers.
Dealers are a crucial contributor to the automotive sector, driving new car sales and used car transactions. However, the landscape is changing rapidly. New models of doing business, the rise of online channels, growing competition, and greater demand for accountability, among others, are pushing dealers to change.
Emerging trends and their impact
Several trends are reshaping the automotive value chain, impacting OEMs, distributors, dealers, and the broader car ecosystem:
Electrification
The rise of electric vehicles and the expected faster-than-anticipated transition to BEVs in the Gulf.
Software-Defined Vehicles and Connectivity
Innovations in vehicle software and connectivity are changing consumer expectations.
Artificial Intelligence
AI is revolutionizing various aspects of both cars and automotive operations.
New Mobility Solutions
Emerging mobility solutions are altering traditional vehicle ownership models.
Changing Consumer Behavior
Shifts in consumer behavior are affecting how vehicles are bought and sold.
Chinese OEMs
Introducing new innovations with efficient cost and value, Chinese players are disrupting the status quo. This brings uncertainty in residual value, as rapid technology and software upgrades challenge existing assumptions on how to forecast residual values.
Challenges in the used car market
The used car market is an important line of business for dealers. Benchmarks in the industry show that the used car retail market is multiple times larger than the size of the new car market, meaning it offers dealers a bigger commercial opportunity. In the Gulf region, Autorola estimates the ratio of used car to new car sales between 5:1.
On top of that, used cars come with a larger opportunity to cross-sell in other verticals, such as financing, insurance, and aftermarket.
Yet, in the Gulf, the used car market today is increasingly competitive and margin-compressed, a trend that shows no signs of slowing down. More wholesale and retail volumes will be transacted through organized online channels and marketplaces as the market matures, leading to market consolidation.
Dealers are not only competing with peers but also facing pressure from classified websites, online platforms, disorganized peer-to-peer transactions, professional used car exporters, and freelance traders exploiting market fragmentation.
Strategies for success
To thrive in this evolving market, dealers need to make smart bets on future growth drivers, including financial services partnerships and flexible mobility solutions. Four strategies for success:
1) Optimize used car management processes
Dealers must rethink their used car management processes, including sourcing, appraisal, reconditioning, pricing, and aftersales handling. Moving away from a transactional process to managing the entire customer and vehicle life cycle is crucial. This requires used car centralization.
2) Enhance inventory turn
A quick inventory turn mindset eliminates depreciation and wholesale loss risks while generating sales and profits in other departments across the dealership. Focus on increasing inventory turn and emphasizing volume and total gross to leverage more opportunities for acquiring fresh used cars.
3) Addressing the silo effect
Used cars cut across the entire dealership, unlike anything else, and synergy between the dealership’s departments is key. The “silo effect” breeds inefficiencies and undermines the intra-department collaboration and cooperation that is now necessary for dealers in the Gulf region to maximize investment potential and profitability.
4) Top management support
Top management must actively support the used car department by influencing price setting and residual value forecasts on new vehicles and leasing terms. They should also help by charging less than retail rates for reconditioning labor and parts, driving the dealer’s ability to make more deals and transactions.
Accountability for reconditioning delays and mistakes is essential, along with providing the used car department with the resources to increase inventory through various channels.
Leveraging Autorola’s solutions
Technology plays an integral role in modernizing the operations of dealers, including for the used car segment.
Some of the perceived obstacles to modernizing technology are that legacy systems, including ERP and bespoke CRM, are inflexible to work with, a concern that manual process flows can’t be automated or digitized, and customer journeys that are too complex (DMS, CRM, brand websites, apps, retail activities, calls, Whatsapp, Excel and paper).
The perception is that a complete overhaul of IT systems is needed for a state-of-the-art technology footprint, and that the transition is (very) expensive. That does not have to be the case, as standard industry-specific software is available and can be deployed quickly and cost-effectively.
Autorola is one such example. Our platforms and tools help streamline appraisals, acquisitions, reconditioning, sales, and aftersales of used vehicles, reducing lead time and improving process efficiency. The cloud-based tools can be seamlessly integrated into existing IT systems and processes, enabling quick and cost-efficient digital transformation.
Autorola’s standard software is used by automotive car dealers worldwide, including Emil Frey and Al Futtaim Automotive in the Gulf.
Meanwhile, Autorola’s team of consultants delivers software implementation projects and helps digitize and improve operational processes. We challenge our customers throughout the process, ensuring that the solutions implemented are not only effective but also future-proof.