The perennial question of whether to adopt a direct-to-consumer (D2C) model has been a subject of much debate and experimentation among OEMs worldwide. Some OEMs, like Mercedes-Benz and BMW with its MINI brand, have firmly committed to D2C, but others have decided against it. While the outcomes of these experiments vary across brands, regions and vehicle types, a common theme emerges: the need for agility in a rapidly evolving market to ensure customer satisfaction and business success.

Beyond the initial purchase, the focus should be on providing a comprehensive and enriching customer experience throughout the ownership lifecycle. This not only fosters loyalty but also strengthens the brand-customer relationship.

So where are Dealers in all this ?

The shift to a D2C model might look fatal for dealerships. However, in actual fact dealerships are the crucial link in providing customers with the opportunity to experience the complete car lifecycle —  from the sales process to after-sales service, trade-in purchases and test drives, among other things. In short, in the world of car sales, dealerships will play an important role in making it possible for OEMs to offer customers seamless and omnichannel seamless journeys.

The role of dealerships is also evolving alongside the market. Some OEMs are starting to introduce an agency model for certain segments of their business (e.g. VW for commercial vehicles or BMW Mini), where dealers sell vehicles on the OEM’s behalf. Other dealerships are becoming close partners with OEMs over the lifecycle of a car and reaping even bigger benefits.

Why should OEMs consider joining hands with dealers?

Many OEMs are becoming aware that beyond vehicle sales, there are numerous touchpoints to consider within the customer journey. Given these factors, a hybrid approach appears to be the most promising strategy for OEMs. This model involves designing and delivering highly personalized customer experiences while maintaining a consistent brand identity and value proposition. To achieve this, a modular tech architecture is essential. It will enable seamless integration with various systems and facilitating rapid adaptation to changing business needs.

Alignment challenges

Moving to an effective sales model in the automotive industry, especially for legacy OEMs, who have a larger dealer network, isn’t straightforward. There are some significant alignment challenges. Although it’s highly likely OEMs will depend on dealerships to embed relationships with customers and provide touchpoints for new brand interactions, this will only be possible if there are clear benefits for all parties.

Ultimately, success will be down to OEMs driving the changes necessary. Key to this will be identifying new opportunities for delivering the best overall brand experience possible — essentially, helping other stakeholders to understand how they can win in this new world. Dealerships can make a very high impact, given their retail expertise, the trustful personal relationships and ability to impress the customer. But the availability of the right data at the right time to the right set of empowered people is critical. OEMs have the ability to support the dealer’s activities with data-driven insights. 

The role of DMS in the future of automotive retail

The crucial technology in all of this is the dealer management systems (DMS). These are platforms that manage various aspects of dealerships’ business operations, from sales management to inventory control, to customer relationship management.

DMS pose an obstacle in some cases  — as many older existing systems are hard to scale and lack standardization, which makes data exchange difficult at best. Indeed, many of these platforms are primarily built for internal dealerships; they are not built to easily integrate with any system - let alone the OEM systems. This is a problem because many existing DMS are going too slow or even prevent change in the industry, even if it's best for all parties concerned. 

There are the following possibilities today with respect to DMS systems: 

1. Dealers (usually small / single outlets) working on MS excel or Google sheets 

2. Dealers (usually medium to large) who have invested in COTS systems

3. NSCs or National Sales Centres / Distributors who import the vehicles from the OEMs and sell them to the dealers could have their own systems  

4. Some OEMs have also developed their own in house DMS systems or recommended some specific COTS DMS solutions

As you can see, the solution to bring this all together is not easy in the case of OEMs that have been at the top of their game for 100 years or so.

So, what are the options: 

1. Build your own DMS - OEMs like Toyota have had a long, fruitful relationship with their dealers and have home grown systems that seamlessly transfer information between the two parties which enables not just great customer experience but also great inventory planning, thereby helping save costs and increase sales. While the obvious pro is that custom experiences can be designed easily as the systems are linked and data flows seamlessly and in time to enable better decisions, this is a long journey in terms of both time and money especially if the foundation for the systems are not in place. This strategy may not succeed with multi-brand dealers. OEMs may find it difficult to meet the requirements of dealerships, which possess significant retail expertise.
2. Find a way to integrate the systems so that the information flow is seamless - Many OEMs today are going with the approach that it would be best to build an integration between OEM systems and Dealer systems. This is a great idea and seems to be a fast solution as well. However, the following points must be kept in mind.

• User need based designing - It's important to build a great experience for the end customer. What’s also critical is to enable the dealer or the sales agent to sell more, possibly at better efficiencies. This will help create an ecosystem that will help each other grow. 
• Autonomy - Central systems offer efficiency and help turnaround the changes in the product or add new features as demanded by the customers quickly, systems  must also be built for providing autonomy to the dealers as they know their customers best.
• Value exchange - Defining value exchange at every point for every actor in the system is very critical too. One way is designing incentives, but it is really about offering both tangible and intangible benefits along the journey. For eg. Some OEMs offer a free super fast charging EV station at their dealers, as this will bring in many customers / leads to the dealer.       
• Build the systems right:  Domain based composable architecture that promotes platform and product thinking, designing for capabilities and scaling as needed   

Building a DMS fit for the future

But what does that actually look like in practice technically speaking? The fundamental characteristic of a DMS that’s fit for the future is composability. A composable architecture is one composed of small, interlocking parts that can be assembled or disconnected. 

This is done through the use of APIs (for making the connections and getting different elements to ‘talk’ to one another), microservices (for running each of the independent components) and cloud (which makes it easier in terms of both integration and managing scale).

Where DMS are typically monolithic, developed specifically for the needs of a given dealership, a composable approach immediately offers increased interoperability and greater dynamism. This is precisely what an increasingly “phygital” world, where physical and digital experiences are seamlessly integrated — with a new, more dynamic relationship between OEMs and dealerships — needs.

There are benefits for everyone. It allows organizations to better serve customers because it allows those organizations to better adapt and optimize the services customers demand. Also, from a more operational perspective it means product-led teams can assume greater ownership over different parts of the system. That should mean they can move faster and innovate in ways that actually deliver tangible value.

The benefits of a composable DMS, then, include:

• Agility and flexibility: This means you can swap or add components according to the needs of customers and the business

• Scalability: A cloud-based composable system makes it easier for you to optimize resource allocation based on how individual components are being leveraged

• Faster time to market for features: Smaller mean teams can implement new features and functionality faster

• Data security: A composable approach also enables improved data access, particularly if it's informed by data mesh principles. Data mesh platforms provide the required layer of security and compliance, based on the geography of operation.

• Technical independence from retail solutions: Developing a solution using commodity software and components gives you freedom that you’d lack if you invested in a comprehensive DMS platform.

This isn’t a one-size-fits-all approach. In fact, it’s very much the opposite: composability makes it easier to tailor a system to the specifics of an OEM's sales strategy. The investment in a composable architecture for a DMS is not necessarily tied to the D2C model. The OEM can still pursue a traditional model in parts of the business. It brings flexibility to adapt to the shifts in the retail ecosystem.

Standards and certification

Designing a complete DMS strategy can take time and effort. OEMs and dealers already have invested in reasonable systems. 

Although API integration forms the foundations of a DMS that supports a D2C model, if OEMs and dealerships want to create a truly seamless customer experience there are still a few additional measures required. This means OEMs need to set standards: one of the ways of implementing this is by establishing a certification process whereby DMS providers demonstrate that they meet the standards and requirements to be integrated inside a sales ecosystem. 

Adoption: act fast, but be patient

Integrating certified DMS providers will take time; this means a composable strategy should be launched as early as possible to make adoption smooth for everyone — dealerships and providers.

Later in the adoption process, OEMs may seek to make dealerships champions and evangelists for the new D2C approach: in other words, if a dealership is successful that demonstrates to other dealerships that this model can work for them too. 

Composable enables seamless experiences across the digital and physical

We are beginning to see a blurring of the digital and physical — customers don’t think in terms of two different things but instead expect their purchasing experiences to be seamless across both. Typically the journey starts online with exploring and configuring a vehicle, followed by a test drive, consultation and an offer at a dealer. Dealers have the information about their customers, but are not finding the value in sharing the same with the OEMs. OEMs want to be able to stay relevant in the future. All of this and more can be achieved when all the parties along the car sales and overall life journey partner together.

Value for the automobile dealer will be very different from how value is defined by a Truck dealer. While car sales are about the individual customer, truck sales are about the fleet operators who own the vehicles. Thus the experiences or value exchange will need to be adjusted accordingly.

While adapting to these new expectations may cause tensions and stress to different parts of the automotive industry, a composable approach to technology — particularly in terms of DMS — offers an effective way forward.