A big concern among many dealers is whether or not the manufacturers will pursue a factory direct model. While there are pros and cons to this model, it’s important to recognize that dealers fulfill many roles that the OEMs probably don’t want to undertake.
What are some of the pros of factory direct
- OEM controls the purchasing experience
- Factory has better tools in place to allow consumers to customize purchases
- Price haggling and negotiations that exist on many showrooms typically don’t happen with ecommerce purchases
And some of the cons
- Manufacturer must coordinate for service repairs and updates
- OEM now has to staff up for retail sales and other customer support roles
- Buying a powersports vehicle involves emotions, and it can be tough for a customer to fall in love with a photo (of an inanimate object – you and your filthy mind)
One of the most commonly overlooked issues is that once we had moved past the great recession of 08/09, manufacturers all de-risked. Where they used to stock vehicles in warehouses, now all of that inventory typically sits in dealer warehouses and showrooms. Dealers insure all that inventory, and if the economy goes south it’s dealers who have to figure out how to find new homes for all those vehicles.
The other key point is that most OEMs are public companies, and manufacturers typically care more about shareholders than they do anyone else (this includes their employees, dealers, and customers). Wall Street likes consistent quarterly earnings, and in a discretionary industry, maintaining consistency isn’t always easy. While dealers view a vehicle as “sold” when the customer takes possession, the OEM looks at the vehicle as “sold” when the floor plan lender pays for it. By recognizing wholesale sales instead of retail, an OEM’s profits are not as impacted by the seasonal trends.
And, don’t forget that very few manufacturers have a lineup where 100% of the models they produce are in high demand (outside of a global pandemic). I won’t call them out, but one OEM has traditionally only had about 30% of their models seeing strong market demand. For dealers to get these “hot” models, they are required to order a full lineup of the slow movers. While dealers make decent margins on the good models, many of the others are sold either at break-even, or a loss. If an OEM goes factory direct, they’ll need to have a strong lineup. Currently, there is no OEM who fits the bill.
Don’t be mistaken, manufacturers will not be able to go direct and suddenly recognize massive increases in profitability. They’ll have to build out retail sales teams, manage product delivery, take care of customer issues, complete recall work, handle titling/registration, handle trades, remit taxes, and take on many of the risks that dealers currently shoulder. While I think there are some opportunities for factory direct in the powersports industry, I still strongly believe that dealerships will continue to be an integral part of the process.
While this YouTube video from FortNine contains a few mistakes (and business is a little different up in Canada), it also brings up some good points.
#Powersports #RV #Marine #FactoryDirect #ECommerce #Manufacturer #Dealer #Dealership #FortNine