Kerrigan Advisors’ first annual OEM Survey was designed to gauge OEM executives’ perspectives on the franchise system, dealer profitability and expected changes to the retail model with the rollout of new drivetrains. Please contact us if you have any questions about The Kerrigan OEM Survey.
Our firm believes this survey is an important window into the perspectives of OEM executives whose views are not often shared publicly in the industry. Survey results demonstrate the value OEM executives place in their dealer networks, even as the auto retail model evolves. OEM executives surveyed largely view their dealers as partners in managing through the industry’s evolution and the majority appreciate the dealer’s critical customer-facing role to the automotive industry’s future success.
The results of our first annual survey found that the majority of OEM executives (69%) expect dealership profitability to decline in the next 12 months, while 31% project profits will stay the same or increase. Interestingly, these declines are not driven by a reversion to pre-Covid new car margins. A slim minority (10%) of executives surveyed believe margins will return to pre-Covid levels, while the vast majority (74%) expect new car margins to settle between pre-Covid and current levels in the next 12 months, and 16% project high margins will continue through 2023.
The continuation of higher new car margins is likely a byproduct of new vehicle inventory expectations. Over the next 12 months, OEM executives surveyed expect higher inventory turn rates on dealers’ lots resulting in lower new vehicle days’ supply. 59% of surveyed executives project days’ supply to be 30 days in the next 12 months and just 3% project a rate of 90 days or more. The majority of executives surveyed (61%) expect the “new normal” for new vehicle days’ supply to settle in at 30 to 60 days, below the pre-Covid average of 60 to 90 days.
In addition to questions regarding inventory expectations, Kerrigan Advisors also queried OEM executives regarding key issues impacting the OEM/dealer relationship as the auto retail business model evolves. Specifically, our firm surveyed executives about how they expect electric vehicles will be priced in the future and whether an agency model will be introduced in the US. Interestingly, 68% of respondents believe some form of non-negotiable pricing will be a part of the retail model of the future, with a full 20% expecting non-negotiable pricing to be the exclusive means for selling electric vehicles in the future. Only 32% of OEM executives surveyed believe the traditional MSRP pricing model will continue for electric vehicles.
By contrast, only 22% of executives surveyed believe an agency model will come to the US auto retail marketplace, while 43% remain unsure and 35% do not believe the agency model will materialize in the US. These divergent responses may be a reflection of the legal barriers the OEMs face due to protections provided by robust state franchise laws, which limit OEMs’ ability to sell directly to consumers.
Another key topic related to the evolving retail model is customer data and relationship retention. Kerrigan Advisors asked OEM executives who will own the primary customer relationship and data in five years. Most OEM executives (66%) believe the customer relationship/data will be owned both by the OEM and dealer, though 16% expect the OEM to have exclusive ownership, while 17% believe the dealer will.
As it relates to facilities, the majority (52%) of OEM executives surveyed believe facility requirements will largely remain the same over the next five years. That said, 32% believe facility requirements will increase. These results are notable, as they contrast with OEM expectations that dealers maintain less inventory and the potential for dealerships to have fewer staff with non-negotiable pricing, thus needing smaller physical footprints. Kerrigan Advisors believes these survey results are indicative of a business model that is in transition, with OEM views that are not always internally consistent and are evolving with the market.
The results of the 2023 Kerrigan OEM Survey demonstrate that the majority of OEM executives recognize the critical role of the dealer in the auto retail marketplace. While OEMs and dealers certainly have differing perspectives on the path forward for electric vehicles, customer data, and facility requirements, for the most part, OEMs expect the dealer to remain a profitable piece of the auto retail puzzle. The OEM/dealer relationship will continue to evolve as electric vehicles gain market share and alternative retailing models are tested; however, the Kerrigan OEM Survey demonstrates the relationship is on solid ground and well positioned to manage the evolution of US auto retail.
The data for The Kerrigan OEM Survey was gathered from Kerrigan Advisors’ annual survey of automotive OEM executives in conjunction with the issuance of The Blue Sky Report®. The Kerrigan OEM Survey is based on over 115 responses from OEM executives in Kerrigan Advisors’ proprietary database. Responses were collected from December 2022 to May 2023.