Car dealerships could be out of business within a decade, says report

The time-honoured tradition of buying a shiny new sports car or a chrome-lined pickup truck from a lot may no longer exist a decade from now, according to a new report that paints a bleak future for auto dealerships in North America.

Report comes as car and truck sales are booming in Canada

A new report suggests people will be willing to part with their vehicles if it saves them thousands of dollars a year. That could spell disaster for car dealerships across the continent. (Jason Alden/Bloomberg)

The time-honoured tradition of buying a shiny new sports car or a chrome-lined pickup truck from a lot may no longer exist a decade from now, according to a new report that paints a bleak future for auto dealerships in North America.

According to a study from RethinkX, an independent think-tank in San Francisco, greater demand for electric cars, coupled with increased demand for ride sharing, will eventually eliminate the need for dealerships altogether.

It's the radically lower cost that we think really drives the speed and the adoption scale of this disruption we're forecasting.- James Arbib, RethinkX

The authors of the report — technology investor James Arbib and Stanford University economist Tony Seba — aren't the first to prognosticate the death of dealerships, but it is the speed with which they think it will happen that is notable.

They believe it will occur in the next seven years.

It's the "radically lower cost" of ride-sharing and electric vehicles that "really drives the speed and the adoption scale of this disruption we're forecasting," said Arbib.

A simpler power train

Electric cars may be comparatively expensive right now, but Arbib and Seba believe in the long run, they will be cheaper to operate than their gas-powered equivalents.

They estimate the tipping point will occur once the electric vehicle battery range surpasses 320 kilometres and electric car prices drop to the $20,000-dollar range. Currently, a low-end electric vehicle costs somewhere in the $30,000 range.

According to the Canadian Automobile Association, the average cost of maintenance and repair on a gas or diesel car is just over $1,000 per year. (David Goldman/Associated Press)

Arbib and Seba believe that due to the composition of an electric engine, people will spend less time bringing in their cars to dealerships for repairs and servicing.

"You only have 20 moving parts in the power train of an electric vehicle, but 2,000 in the power train of a gasoline vehicle, so there is far less to go wrong," said Arbib.

According to the Canadian Automobile Association, the average cost of maintenance and repair on a gas-powered car is just over $1,000 per year, or seven cents per kilometre. This number goes up depending on the age of the vehicle and distance travelled. 

Electric vehicles could last longer. Right now, Tesla is offering infinite kilometre warranties. Arbib expects the lifetime of these vehicles to be about 800,000 kilometres in the early 2020s, and potentially more than 1.5 million by the end of that decade.

Industry thriving

The RethinkX report comes at a time when auto sales in Canada have been booming and employment at dealerships is climbing. Dealership jobs surpassed 150,000 during the first quarter of this year. 

Doug Heeney, fleet sales manager at Campbell Ford in Ottawa, says business has never been better.

Tesla shipped 25,000 vehicles in the first quarter of 2017, its best three-month period ever. (Stephen Lam/Reuters)

While he believes electric vehicles are the natural progression of the auto industry, he doesn't see them taking over. "It's going to be a percentage of our industry, but I don't think the electric vehicle, especially in Canada, is going to overtake or eliminate the current vehicles we've got for sale," he said.

Automotive experts agree that all roads lead to electric, but the road there could be long and winding.

"There are some serious question marks and a lot of assumptions in the report," said Dennis DesRosiers, an Ontario-based auto industry analyst. 

His main problem with RethinkX's forecast is the assumption about massive cost reductions in the building and operation of electric vehicles. That hasn't happened yet.

Other bold predictions

DesRosiers likens this report to the mass optimism around hybrid vehicles. When they were introduced 17 years ago, the thinking was they would account for half of the cars sold by 2020.

"The reality is, after 17 years, they account for less than one per cent, with sales in the last four years going down,"  DesRosiers said.

That's why he doesn't think dealerships will soon join the list of businesses lost to advancing technology, like video rental stores.

Many wild predictions have been made in recent decades about how the auto industry would change overnight. 

Remember Priceline? Originally known for its Name-Your-Own-Price system with regard to travel, it tried to apply the same model to buying gasoline back in 2000, at the height of the dot-com bubble.

Customers were going to be able to save up to 10 cents per gallon off the pump price. This U.S. experiment ran out of gas in less than two months, because consumers weren't willing to spend the time it took to look online for meagre cost savings.

You may also recall General Motors betting big on Saturn. Originally marketed as a different kind of car, with no-haggle pricing, the brand was set up to beat back foreign competition. 

GM stopped building them 2010, after the line was plagued by cost and production issues.

Confident about change

Arbib and Seba are nonetheless confident of their forecast, and believe that changing attitudes to car ownership will ultimately imperil dealerships.

Again, it all comes down to economics. According to their report, "Using transport as a service will be four to 10 times cheaper per mile than buying a new car, and two to four times cheaper than operating an existing paid-off vehicle by 2020." 

It will basically be cheaper to ride-share than keep a car (or two) in your garage. 

"The cost of savings for an average American family is likely to be about $6,000 a year, a substantial increase in disposable income," said Arbib. 

RethinkX's seven-year timeline for the extinction of dealerships may feel a bit too soon for those who can't comprehend not owning their own car, but Arbib insists the change is coming quicker than you might expect. 

"You only have to speak to Nokia or Kodak to see examples of companies that have fallen by the wayside, taken by surprise by the scale and speed of these disruptions."


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