The US automotive retail and aftermarket landscape is changing quickly: customers are more likely to use digital buying channels; our analysis suggests that electric vehicles (EVs) could make up 40 to 50 percent of new-car sales by 2030; and new competitors are rapidly entering the market with disruptive strategies such as direct-to-consumer business models or dealer partnerships.
These trends and disruptions are informative. But zoom in a bit and we see significant variations at the local level. Cities that seem comparable on the surface may be affected differently by these disruptions because of differences between micromarkets—small areas represented by a single zip code or designated market area (DMA)—within each city.
We will use this article to show how micromarket insights can create value for stakeholders in the automotive ecosystem. Auto dealerships, OEMs, parts retailers, collision and mechanic shops, financing and insurance providers, and private equity investors interested in the automotive value chain can use these micromarket insights to create value. A five-step approach can help decision makers execute their strategies:
- Set goals for specific micromarkets.
- Integrate micromarket data into performance management and incentives.
- Tailor plans to each micromarket.
- Set up an execution engine to drive the portfolio of initiatives.
- Continuously refresh and refine the strategy using micromarket insights.
These insights lend themselves to actions that can support go-to-market strategies, enhanced local performance, and, of course, a better understanding of customers.
Confounding—and actionable—insights from micromarket data
Hypergranular local data reveal distinctive (and sometimes confounding) insights about micromarkets. We believe the possibility of uncovering nonobvious insights is a solid argument for looking at micromarkets to develop strategies for companies in the automotive ecosystem (for more on the analysis, see sidebar “About the research”).
Affordability in car purchasing varies significantly by micromarket. Median household incomes in DMAs with the lowest new-to-used-car sales ratio are almost 50 percent lower than those in DMAs where the new-to-used-car sales ratio is highest.
A handful of markets currently account for most of the EV adoption in the United States. Our research shows that only ten out of 210 DMAs accounted for 54 percent of all EV sales in 2021. All these markets are major metropolitan areas, and most of them are in the western United States. According to our projections, 20 out of 210 DMAs will account for 55 percent of EV sales by 2030 (exhibit).
Dealer concentration varies drastically by market. DMAs with the highest dealer concentration (defined as the number of dealers per 10,000 cars sold) have 25 to 30 dealer locations per 10,000 cars sold on average. DMAs with the lowest dealer concentration have eight to ten dealers per 10,000 cars sold.
Higher demand for new cars does not necessarily imply high EV adoption. Intuitively, areas with high volumes of new-car sales may seem to be obvious targets for EV adoption, but the reality is more complex, hinging on considerations such as local economic and regulatory conditions, access to charging infrastructure, and consumer preferences. For example, Tulsa, Oklahoma, has one of the highest new-to-used-car sales ratios but a low EV adoption rate: about 1 percent of new-car sales in Tulsa in 2022 were EVs.
A tale of two cities: Micromarkets in Cincinnati and Pittsburgh
Cincinnati and Pittsburgh have surface similarities. Both are midsize metropolitan areas with household incomes near the national average. Cincinnati counted 2.26 million residents in 2021,1 with a median household income of $68,000 per year. Pittsburgh had 2.35 million residents2 and a median household income of $64,000 per year. The two cities even have similar rates of electric-vehicle (EV) adoption: about 0.25 percent of vehicles in operation are EVs.
But the cities diverge in significant ways. Used cars represented a greater share of car sales in Cincinnati than in Pittsburgh: three used cars are sold for every new car in Cincinnati, while two used cars are sold for every new car in Pittsburgh. Furthermore, Pittsburgh had higher online parts sales compared to Cincinnati.
Micromarkets within a single city can also differ significantly. For instance, the two Cincinnati zip codes that sell the most used cars sell 8,000 to 12,000 used cars a year, while some other zip codes in the city sell fewer than 500 used cars per year (exhibit).
In light of these differences, sales strategies in Cincinnati—and in each city’s micromarkets that are more likely to buy used cars—might emphasize aftermarket parts, extended warranties, and prepaid maintenance plans because cars are more likely to need them. Meanwhile, the Pittsburgh metro area may be well served by a holistic offering, which spans from new-car sales to aftermarket parts and services.
Dealer concentration is not always correlated with population growth. Markets with the highest population growth do not necessarily have the highest dealer concentration. For example, the population of the Fort Myers–Naples, Florida, metro area grew by more than 20 percent from 2010 to 2020, but the region has below-average dealer concentration (12 dealers per 10,000 cars sold). On the other hand, the population of El Paso, Texas, was fairly stable in the same period but has one of the highest dealer concentrations in the data set (22 dealers per 10,000 cars sold). (For a deep dive comparing two cities, see sidebar “A tale of two cities: Micromarkets in Cincinnati and Pittsburgh.”)
Micromarkets, macro impact
Done right, micromarket-level insights—at the DMA level or at the zip code level—can complement and boost the impact of existing strategic moves. Decision makers can set micromarket-specific goals and integrate micromarket data into performance management. They can then set plans for each micromarket, build an execution engine to implement those plans, and continuously refresh and refine their strategies (see sidebar “Micromarket insights’ use cases throughout the automotive ecosystem”).
Set goals for specific micromarkets
Setting performance goals at the micromarket level means using the insights to determine the goals for each micromarket. Using this system, a market that has outsize growth potential would set a loftier goal than a market whose realistic growth potential may be below average. For many organizations, this approach would be a departure from setting goals based on historical performance or even competitor performance.
The point of this exercise is not to get extremely precise outputs but rather to address smaller markets better. Many organizations in auto retail and aftermarket already have the capabilities to do this analysis, but it can be data-intensive. Other B2C industries that have sizable retail footprints already do similar work, breaking down markets by zip code.
Integrate micromarket data into performance management and incentives
Similar to goal setting, micromarket data can be a tool to measure and manage performance based on market-specific potential instead of other measures, such as the performance of previous years.
The key is to choose meaningful metrics at the micromarket level and relate them to incentives for the relevant teams. For instance, an auto-parts retailer that wants to cultivate customer loyalty in a micromarket might realize that only rewarding store managers based on revenue and profits at their stores may not accurately reflect their goals. Managers who are motivated to maximize store revenue and profit may prioritize customers with large purchases over those who make smaller purchases now but whose spending may grow with their loyalty to the retailer.
Tailor plans to each micromarket
Creating as many plans as there are micromarkets may sound daunting. The task can be simplified using technology to analyze the requisite data.
The output—hypergranular insights and diagnosis of opportunities—is another tool in local-market managers’ belt. It’s not necessarily a big change for local-market managers, who are often already primed to seek the right combination of initiatives (at national, regional, and local levels) to reach their goals. Managers may decide to make changes as small as increasing online marketing or as big as building a new store.
Set up an execution engine to drive the portfolio of initiatives
The basics of this execution engine are intuitive: KPIs and targets for each initiative, defined incentives for retail outlets, dedicated owners and sponsors for each initiative, and a central office to direct the execution.
What sets it apart is the focus on micromarkets, which requires customization, including tailored marketing, offerings, pricing, and distribution. This level of customization can be time consuming and often needs to be supported by additional resources and expertise in areas such as data analysis, market research, and strategy. And because micromarkets change more quickly than larger markets, decision makers may need to adjust their strategies more often than they would otherwise.
Continuously refresh and refine the strategy using micromarket insights
Micromarkets are more dynamic than larger ones, and decision makers could test their strategies frequently using updated data.
A team may update their inputs monthly or quarterly and rerun analyses to identify any trends, changes, or unexpected outcomes that may inform their strategies. After that, they could compare their existing strategy with the updated insights to identify opportunities, strengths, and weaknesses before adjusting their market-specific strategies. Automotive OEMs may use micromarket data to, for example, merchandise EV-specific products in DMAs where EV adoption is high or growing quickly. Crucially, decision makers could consider events in the macro environment in each strategy update. Regional, national, and global events; developments in the financial system; and even natural disasters can help refine teams’ insights and thinking.
Automotive stakeholders could look to the telecommunications industry as a model of proactively refining market strategies. Telecommunications customers have many opportunities to switch providers—and at a low cost or even no cost. To compete, telecommunications providers have long harnessed granular data on demographics, location, and usage patterns to optimize their network coverage, pricing, and marketing.
Micromarket insights can create significant impact if they are combined with decision makers’ existing knowledge and practices to create distinctive strategies. Macro impact requires strategizing and winning in the micro level.
