Car dealerships trouble: Shifting gears to digital

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  Quantumrun Foresight
• January 31, 2025

Insight summary

Car dealerships are facing major changes as economic pressures and a shift to electric vehicles (EVs) challenge their traditional business models. The closure of many dealerships, alongside a push toward online sales and EV infrastructure, means consumers may soon experience fewer in-person options but more digital convenience in car buying. Meanwhile, governments and local economies could feel the impact, as decreased dealership presence affects tax revenue and drives new policies to support EV adoption and infrastructure.

Car dealerships trouble context

Car dealerships are facing an increasingly challenging market marked by economic challenges and evolving consumer preferences. According to Cox Automotive’s 2024 forecast, the US auto market may experience a “return to normalcy,” yet this normalization does not necessarily favor dealerships. Dealerships that enjoyed exceptional profits over recent years may now encounter hurdles as economic conditions, such as slow growth and elevated interest rates, dampen consumer purchasing power. Additionally, rising inventory levels have exerted downward pressure on vehicle prices, reducing profitability. As consumers grow more inclined toward EVs and online purchasing options, dealerships need to reimagine their strategies to remain competitive in a transforming industry.

Luxury and heritage brands are also experiencing significant changes as they adapt to market demands. For instance, Lincoln, owned by Ford, is in the process of closing nearly 100 dealerships in 2024 to focus on regions with a stronger luxury market presence. Following a similar pattern, General Motors (GM) is reshaping its dealership network, with Buick facing a significant downsizing in the US market. GM's approach includes encouraging dealers to drop their Buick franchises in favor of high-demand brands like GMC, which offers popular models like the Hummer EV. In response, Buick plans to shift toward an all-electric lineup by 2030, but recent models such as the 2024 Envista indicate the brand's gradual rather than immediate transition toward electrification.

Dealerships are navigating the dual challenge of managing traditional models while preparing for an electric future. The evolving EV market is encouraging brands to invest in EV infrastructure. However, some (like Buick) continue to rely on international production, with most US models imported from South Korea and China. In certain areas, Buick dealers are accepting buyouts from GM as they realign their focus toward more profitable brands within the GM portfolio. At the same time, Lincoln is developing tech-forward dealership experiences, including features like a full-windshield display in the new 2024 Nautilus. 

Disruptive impact

As car brands close physical locations, consumers may find it more challenging to access local dealerships, particularly in rural areas. For individuals, this means fewer options for in-person vehicle purchases, pushing them to increasingly rely on digital showrooms and virtual consultations. Additionally, as brands shift toward EVs, the availability of EV service centers will become essential for consumers, potentially raising maintenance costs if specialized services are not widely accessible. Furthermore, with fewer dealerships and increased reliance on online sales, consumers may find it more difficult to negotiate prices, potentially leading to higher overall costs for buyers who prefer in-person transactions.

Car companies may allocate more resources to digital platforms, offering virtual test drives and online customer support to compensate for the fewer physical locations. Furthermore, businesses that traditionally benefited from partnerships with dealerships, such as local car maintenance shops, may experience a shift as automakers bring maintenance services in-house for EV models, reducing third-party service opportunities. Additionally, the focus on fewer but more specialized locations could mean that luxury brands target affluent urban markets, potentially excluding smaller, less profitable regions. This trend also encourages businesses to explore how EV transitions impact their long-term supply chain, from battery production to recycling, which may increase initial investments but reduce environmental costs over time.

Meanwhile, governments could face new regulatory and infrastructure challenges as dealerships adapt to changing market demands. As dealerships consolidate, municipalities may experience decreased tax revenue from car sales and property taxes if large dealership lots close, potentially impacting local economies. Additionally, governments may need to increase investment in EV infrastructure, such as charging stations, to support the growing number of EVs while ensuring rural areas are not left behind. Furthermore, policies regarding importing and exporting car parts and EV components could shift as automakers increasingly focus on international supply chains for EV production. 

Implications of car dealerships trouble

Wider implications of car dealerships' troubles may include: 

• Car manufacturers focusing on direct online sales channels, which could decrease dependency on traditional dealerships and give consumers more flexibility in purchasing.  
• Local economies in areas with dealership closures seeing reduced tax revenue, which may impact funding for community projects and infrastructure.  
• Automakers offering more digital training programs for EV technicians, creating new job pathways in battery maintenance and software diagnostics.  
• Fewer dealership locations possibly increasing demand for remote car service technologies, such as mobile mechanics and remote diagnostics.  
• EV adoption potentially reducing greenhouse gas emissions in urban areas, leading to improved public health and air quality.  
• New job training programs for traditional auto workers adapting to EV-focused skills, supporting long-term employment as the industry changes.  
• Politicians and local governments creating policies to support EV adoption, which may include incentives for installing at-home charging stations.  
• Automakers increasing investments in smart manufacturing technologies to reduce production costs, which could make EVs more affordable for a wider demographic.  
• Remote test drives and virtual car shopping potentially making car buying accessible to a broader audience, particularly in underserved or rural areas.

Questions to consider

• How could changes in car dealership locations impact your access to car purchasing and service options?
• How could a shift toward online car shopping affect the way you make major purchasing decisions?