Question Of The Day: Will Big Box Auto Retailers Survive?

Steven Lang
by Steven Lang

Car dealerships.

Auto parts stores.

Repair shops.

Tire centers.

How many of these places will be needed 10 years from now?

Car dealerships have a triple whammy coming straight at their bottom line.

An adversary in the form of Tesla, who has the monetary means to fight a legal war with the strong support of the general public.

A move toward car-sharing services at all levels of society. Right now this is at its early stages. However, in the long run, these services will continue to drive down the value proposition of buying and maintaining a new car.

Finally, the times are a-changin’. It’s no secret that young consumers in particular would strongly prefer to buy a new vehicle online instead of going through the four-square game and the interminable waits at a new car dealership.

If an automaker can legally offer direct sales and convenient test drive facilities without the traditional hassles of buying a car, they would likely get a big chunk of this market. Tesla is now the sole pursuer of this sales channel. But, if they manage to break through the litigious minefield, a lot of overseas manufacturers may decide that direct sales to the American public offers a far better business model than the dealer as an intermediary. If that happens, you will start to see some of the smaller manufacturers band together and offer direct sales channels in parts of the country where a stand-alone dealership doesn’t make sense.

The big box model of retailing is already experiencing a consolidation throughout many industries. Toys, office supplies and books have already become the domain of online stores. Inevitably, the auto franchise dealer model will become one of those casualties if the manufacturers can’t co-develop new retail models that better serve the consumer.

Brick and mortar auto parts stores will also find their traditional markets in a tailspin. It will likely happen in a far shorter period of time than the legally protected franchise dealer. The big issue for auto parts stores is that they can only differentiate themselves based on convenience.

If you need the part right now, you go to the parts store. But if you can wait, there is Rockauto, Partsgeek, Car-part, and countless other online merchants on Ebay and beyond who will get you what you need for a far lower price.

Someday soon, these evolving online auto parts entities, along with Amazon, will offer you the same convenience as a big box store. They probably won’t be open to walk-in public traffic. But in a world where online orders are discounted 30% to 40%, the need to have expensive real estate in a well-traveled area is becoming far harder to justify. There will be a shakeout in this industry that will be akin to what office supply stores are experiencing right now. If Amazon and everyone else can fulfill the delivery of a car part to you within 24 hours, the value of that big box in a retail setting goes down considerably.

Repair shops and tire centers have a different issue. Their customer’s financial resources. I contract out nearly all of my work to independent shops these days, and nearly all of them are having to locate financial institutions to help pay for the repair cost of their poorest customers. Title pawns are becoming the monetary source for financing these repair costs with interest rates that are between 10% and 25%… a month. For the struggling consumer with decent credit, auto repair franchises such as Firestone or Pep Boys are pushing credit cards whenever possible. The local manager of one of these shops recently told me that a little over 1 in 10 of their transactions requires a brand new company credit card to complete. Two years ago that was barely three percent of their business.

I am going to be brutally blunt. In the next 10 years the online world will overtake the big box model. This will not only change what you buy, but also how you use cars in your daily life. Like many of you, I can easily see a time when automakers will use subsidiaries and partners to become providers of automotive transportation services in those places where the population can sustain it. Auto parts stores, tire centers, repair shops, new car dealerships, and even insurance companies will not be needed by the majority of the population. The car will be able to drive itself and the maintenance will be done in-house. The driving regimen will be designed primarily for long-term cost savings, and most folks will simply use an app that allows them to pick whatever transportation service best suits them at a price that will vary depending on demand and their willingness to let other consumers share the cost of transportation.

Consumers will win. Manufacturers will use other companies to become transportation service providers, and no one will miss those big boxes.

Nobody.

Steven Lang
Steven Lang

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  • Ponchoman49 Ponchoman49 on May 27, 2014

    The last thing we need is more businesses folding up. We have already suffered so many loses that have put people on the streets and have lowered tax revenue for cities making property and school taxes unbearable. When is this lunacy going to stop? We need more businesses opening up, more jobs and more tax revenue not less. Online sites do not contribute to your local tax revenue or employee local people. This massive problem seems to have escaped today's younger generation who seem only interested in saving a couple of dollars. On the other side of the coin some of these box store retailers need to get a grip on there pricing and be a bit more competitive. There is no reason for a can of R 134 Freon to be priced at $18.99 when Walmart can sell it for 9 bucks as an example.

    • See 1 previous
    • Steven Lang Steven Lang on May 27, 2014

      Commercial cost for freon right now is about $3 a pound. At least if you have a small business. I just ordered a small 30 lb. tank last week.

  • Tobiasfunkemd Tobiasfunkemd on May 28, 2014

    Having worked for one of the big box auto parts stores in the Bay Area (anybody remember Kragen?) in high school and college, I have a pretty detailed, but admittedly limited, insight into the average auto parts store customer. I can confidently say the majority of these people are not going online for parts. The commercial guys want same day parts, and they want the salesman on the other end of the line to be knowledgeable enough to get them the right part the first time. The shade tree mechanics usually will bring in the broken component (starter, alternator, water pump) and want to physically compare it to the new part before purchasing. For large sales, the vast majority of these went to people at the lowest end of the socioeconomic ladder: undocumented workers, chronically unemployed people, workers right at the poverty line. They purchased 98% the engines, transmissions, and radiators we sold, often in cash, and had friends or family provide the labor. These people are likely to be unbanked and unable to make transactions over the internet without a credit card. The customers auto parts stores will lose are the semi-knowledgeable DIYers who will order the new headlight, oil and air filter, and spark plugs directly off the internet, and go to WalMart for oil. I wonder if these guys will eventually stop perusing the weekly flyers for deals, as they were a regular source of foot traffic in my branch, especially on the weekends.

  • Canam23 My old boss had a Seville STS with the Northstar that he would lend me when I wanted to drive from LA to Vegas. I have to admit that I loved it. Compared to my father-in-laws FWD Deville with the 4.1, the Seville was smooth, fast, comfortable and nice handling. It also was stingy on gas. Fortunately he never had a problem with his Northstar motor and I still think fondly of that car today.
  • V16 I'm sure you could copy and paste most of the "NO" responses to 1960's Japanese sourced vehicles.
  • Canam23 I believe the Chinese are entirely capable of building good cars, BYD has shown that they are very forward thinking and their battery technology is very good, BUT, I won't buy one because I don't believe in close to slave labor conditions, their animosity to the west, the lack of safety conditions for their workers and also the tremendous amount of pollution their factories produce. It's not an equal playing field and when I buy a car I want it made with as little pollution as possible in decent working conditions and paying a livable wage. I find it curious that people are taking swipes at the UAW in this thread because you can clearly see what horrific labor conditions exist in China, no union to protect them. I also don't own an iphone, I prefer my phones made where there aren't nets around to catch possible suicide jumpers. I am currently living in France, Citroen makes their top model in China, but you see very few. BYD has yet to make an impression here and the French government has recently imposed huge tariffs on Chinese autos. Currently the ones I see the most are the new MG's, mostly electric cars that remind me of early Korean cars, but they are progressing. In fact, the French buy very little Chinese goods, they are very protective of their industries.
  • Jerry Haan I have these same lights, and the light output, color, and coverage is amazing!Be aware, these lights interfere with AM and FM radio reception with the stereoreceiver I have in my garage. When the lights are on, I all the AM stations havelots of static, and there are only a couple of FM stations that are clear. When Iturn the lights off, all the radio stations work fine. I have tried magnetic cores on the power cords of the lights, that did not makeany change. The next thing I am going to try is mounting an antenna in my atticto get them away from the lights. I contacted the company for support, they never responded.
  • Lou_BC Are Hot Wheels cars made in China?
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