Issue: May 2014


Arthur D. Little identifies strategy to help automotive dealers enhance business profitability



How can automotive retailers survive the crisis?

by Esther Francis

Over the last six years the Western European automotive industry has faced an unprecedented downturn that has dramatically impacted sales volumes at OEMs (Original Equipment Manufacturers) and automotive retailer’s putting profitability under great pressure. Despite analysts forecasting a rebound in 2014, sales volumes are not expected to rise to the pre-crisis level in the years to come.  Arthur D. Little’s (ADL) latest viewpoint, ‘The Struggle for Survival,’ explains why the automotive retail business should implement Operational Excellence Programs to enhance dealer profitability in the short-term which will ultimately reshape the car distribution model in the future.

“Until now, OEMs and their NSCs (National Sales Companies) have reacted to the crisis by undertaking short-term tactical actions while waiting year after year for a market recovery that has never come about,” says Fabrizio Arena, Partner of ADL’s Automotive and Manufacturing Group. ”Instead they should be investing in more structural measures such as the rethinking of the distribution model and the restructuring of their retail network.”

In the previous years, car dealers have struggled to survive not only due to their competence gaps in envisioning the future, but also in understanding their weaknesses and identifying the recovery actions needed to recover profitability. Car retailers' profitability erosion and connected business continuity issues represent a high-priority risk for OEMs in terms of maintaining market share and upholding brand reputation towards customers and possible new investors.

“To bounce back to profitability in the short-term, OEMs have to efficiently plan and manage their operations and achieve business continuity without compromising the quality of service provided to the customer,” says Thomas Becker, Associate Director of ADL’s Automotive and Manufacturing Group. “Dealers will face a tough road ahead and the OEMs and their NSCs have to plan and launch contingency plans to support them.”

Arthur D. Little can support authorized dealers in achieving operational best practices, enhance economic and financial performances and lay the foundation for long term business sustainability.

To download the full report, please visit: www.adl.com/dealer_profitability



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