Joseph White

DETROIT (Reuters – The U.S. auto dealer community is buying one another at a record speed, yet they’re not closing down stores.

Contrary to predictions that Tesla (NASDAQ) Inc’s direct sales strategy would destroy traditional dealerships, last year saw record-breaking acquisitions of the sector. According to Kerrigan Advisors data which monitors transactions among largely privately owned auto dealers groups, that company, $8 billion was achieved in 2018. This is nearly triple the amount expected to be spent on 2020’s $2.5 billion.

Large public and private automotive retail chains such as Asbury Automotive Group Inc or Lithia Motors Inc were the majority of buyers. Kerrigan Advisors founder Erin Kerrigan said that many of the sellers were small, family-owned businesses.

Kerrigan stated that there were 338 transactions unique to the industry. The prior peak of 288 transactions was reached in 2020. She said that 250 dealers were bought by publicly traded group of dealer last year.

Urban Science, an independent consultancy, found that despite the increase in car sales, there has been a steady number of shops where buyers can shop for their cars over the last decade.

Urban Science reported that there were 18,157 “rooftops” or dealerships in America as of July 1, 2021. This is 46 more than six months ago. Urban Science observed no change in the numbers of dealerships within 98% American local markets.

In other words, while ownership may have consolidated in the United States, its auto retail infrastructure is not.

Urban Science Global Director for Data Mitch Phillips stated that “as far as public opinion goes, it seems like the same amount of dealers are out there.”

In the short-term, consolidation in auto dealer ownership might not be visible to the consumer. However, the industry experts believe larger dealers groups will have better technology and be able to offer faster financing and online shopping. This will allow customers to pick from a greater variety of cars at different stores, and also make repairs more convenient.

Starting March 10, car dealers across America will be gathering in Las Vegas for the National Auto Dealers Association’s annual convention. The Strip is packed with auto dealers after one the most lucrative years for this sector.

Despite the fact that auto dealers thrived in times of pandemics, they have continued to prosper.

Techno-driven disruptors, such as the online retailer of used cars, pose challenges Carvana Co (NYSE:). The new-vehicle dealer enjoys unusually strong protection under state franchise laws. These laws prevent automobile manufacturers from selling directly to consumers, unlike the Amazon.com Inc. (NASDAQ:) attack on department stores.

However, customers shop online more often and dealers will lose sales due to recalls or warranty repairs. Also, software updates make it easier for more people to fix their problems.

DIFFERENT BETTING

Brick-and-mortar dealers are facing different futures, according to buyers and sellers.

Family-owned businesses are more likely to become sellers. They have to make substantial investments in technology and equipment to service and sell electric cars. According to George Karolis (Prezidio Group LLC), a dealer transaction advisor, they are worried that the automakers will try to reduce dealers’ profit margins in order to recover their huge investments in electrification.

Karolis explained that the owners of smaller businesses will need to make large investments to support digitization. He said that smaller dealers are now considering exiting because they have strong valuations and high profits.

Public chains like Sonic Automotive (NYSE 🙂 Inc and AutoNation Inc (NYSE 🙂 Inc are buying. They use cheap capital, cash from the recession to grow their businesses.

Lithia’s size allows it to borrow money at a lower interest rate and obtain products and services at 20%-30% less than small dealers.

Lithia can also double the sales of vehicles older than five years by refurbishing them and then selling them. It uses its own replacement parts so that customers don’t have to go elsewhere.

Asbury Automotive Chief Executive David Hult said that whether the franchise model is able to survive depends on how well dealers adapt. Asbury launched two of the biggest deals in the current M&A boom, acquiring Park Place Dealerships for $735 million and spending $3.2 billion last year for the Larry H. Miller Group, then the eighth-largest U.S. auto retail group.

Hult stated that Asbury requires a larger scale to invest in technology for online sales, create systems that allow customers to track their vehicles through repair, and thinks about reorganizing its sales and service departments.

“If you know the world is going to be electric … you don’t need stores to be as big as they are. He suggested a smaller showroom and smaller service centres in larger locations. “You’ll have fewer owners, owning more stores.”

DeBoer from Lithia stated that he is open to the possibility of a “agency model”, where dealers get set prices for their services, and there’s no need to haggle over pricing.

“A lot of our SG&A costs are negotiation costs,” he said. We could do a lot better.

According to auto retail executives, consumers who shop online for vehicles still need places where they can be inspected and repaired.

“If you have a footprint in a market, you don’t have a plan of closing” stores, said AutoNation Executive Vice President Marc Cannon. Our plan is to expand them and maximize them.

AutoNation announced that it has raised $700 Million through a debt sales. This money could be used to acquire other businesses.

“We have an active interest in M&A,” said AutoNation Chief Executive Mike Manley.