Franchise Automotive Retail Trend Accelerates
This year’s upheaval Automotive News The list of top 150 dealer groups in the United States is dramatic, and the reason for that is a buy-sell market among dealers so frothy it would seem at home atop even the fanciest coffee drinks.
From the mega-deals that have dominated these pages over the past year to the acquisitions of stand-alone family stores, the trend of industry consolidation is now both unmistakable and accelerating.
But it’s worth pausing for a moment to ask why all these dealerships are changing hands right now, and what these deals say in a broader sense about the health of franchised auto retail.
It’s no surprise that long-established retailers are considering selling their stores: they’re seeing higher valuations than they have been for years and that, for some brands, would have been inconceivable a few years ago. barely years.
The past two tumultuous years have also produced record profits, perhaps leaving some dealers feeling that their operations may have peaked. Add to that the unknowns of a transition over the next few years to selling and servicing large numbers of electric vehicles – and the expected impact this will have on both their sales and stationary operations – and it’s easy to see why dealers might consider cashing in.
But that’s the sell side. The best question to ask when looking at this list is, why do so many people seem so eager to buy? If the franchise dealer sales model is in trouble or even in jeopardy – as some have postulated – there is certainly no evidence of that here.
If the future of automotive distribution belongs exclusively to direct-selling automakers, then all those buyers must be crazy.
The same is true of the push towards an agency model, which would pay dealers a certain level of premium for the sale and delivery of a vehicle, but give them no control over the price of it. this.
In this future world, manufacturers would suck up profits like giant vacuum cleaners, leaving dealers little more than contract employees: the company decides the price and delivery allowance and, to the extent that it can obtain parts , it determines the supply level. and where it is stored. (See Tesla’s recent price adjustments for proof.)
An agency model would leave crumbs for local retailers and destroy the value of franchises. If that was on the horizon, I think there would be a shortage of interested buyers for existing dealerships right now, not a crowd of them.
Let’s cut to the chase: if the principles of capitalism are correct and if the dealers are really in danger, the value of their businesses should go down. But they are not: they rise.
It’s because smart investors are realizing that the impending and inevitable death of traditional auto retailing has been greatly exaggerated, and state franchise laws – though perhaps weakened by direct sales in some places – remain politically powerful.