DALLAS – Can “Mom & Pop” dealerships survive in the current era of auto retail consolidation, or has every local market reached the point of “grow, or die?”
The answer, naturally, is that “it depends,” according to panelists at a recent Auto Team America conference.
It depends on the brand, it depends on the market, it depends on whether ownership has a succession plan, and it depends on whether the owners even want to stay in business or sell out to take advantage of today’s sky-high seller’s market, say industry insiders.
“A Toyota store anywhere in the country is probably going to be fine. A high-volume, single-point store is probably going to be fine,” says dealership broker Alan Haig, president of Haig Partners, Fort Lauderdale, FL. But the outlook is different for “a typical store in a typical town,” he says. Without a strong brand, or without a market that somehow lacks much local competition, he says the typical small operation is likely to slowly “bleed away” its business to bigger competitors.
In a separate talk with Wards, a Haig competitor says something similar: “Sure, if it’s a Toyota store,” dealership broker Erin Kerrigan says when asked whether small dealerships can survive. Kerrigan is founder and managing director of Kerrigan Advisors, Irvine, CA.
In a recent report, Haig Partners rates Toyota No.1 among mass-market brands, after luxury brands Porsche, Lexus, Mercedes-Benz and BMW, in terms of the multiple which buyers are willing to pay, times earnings, to purchase a franchise. Honda and Subaru also rank highly.
Still, Haig says small dealership operations have some advantages over large consolidators. A big one is that franchise laws require automakers to sell new vehicles to mom-and-pop dealerships at the same dealer invoice price as megadealer groups, he says.
In that sense, “there are almost no economies of scale in this business,” Haig says. Every Ford dealer pays the same for an F-150 pickup, he points out. “Having a big (dealership) group doesn’t help me buy those at better prices,” he says.
Automaker framework agreements, which limit the number of franchises a single ownership structure can own, have also slowed consolidation.
Nevertheless, buy-sell volume has greatly increased since the pandemic. A major change in the past few years, besides the new-vehicle shortage, is the widespread consumer acceptance of e-commerce in auto retail, and the willingness to shop online for cars and trucks at dealerships a long distance away, Haig says.
“Carvana made it possible,” he says, despite Carvana’s present financial woes. That’s because Carvana demonstrates consumers are willing to buy a car or truck “sight unseen, if the convenience was there,” he says.
“The shortage has jacked up our profits, but it’s also changed consumer behavior,” Haig says.
As a result, chains such as Lithia & Driveway Motors, Medford, OR, are competing on the strength of having the biggest online inventory. That’s a huge competitive advantage, especially amid the current inventory shortage.
“This is how public companies are going to differentiate themselves,” Haig says. He says Lithia recently listed around 48,000 new and used cars and trucks on its Driveway e-commerce platform. “I don’t know if there’s another dealership group in the country that can offer all that online,” Haig says.
In a separate conference “fireside chat”-style presentation between Haig and Bryan DeBoer, president and CEO of Lithia & Driveway, DeBoer says Driveway customers had their purchases shipped an average of 911 miles (1,467 km) (shipping is free over shorter distances).
“Within 40 miles (64 km), you might have one or two buyers for a particular car,” DeBoer says. “But there are hundreds of buyers if you make it available all over the country.”
Not everybody subscribes to e-commerce as fully as Lithia & Driveway. Another conference speaker, Tom Doll, president and CEO of Subaru of America, says he believes one-on-one relationships at the dealership encourage brand loyalty and dealership loyalty.
“I would say that I think e-commerce has a place, but that for a brand like Subaru, we want to stress the importance of the relationship the retailer develops with the customer,” Doll says. “Therefore, it is important to have the customer come into the store to experience the product and also where they can see, feel, smell and otherwise fall in love with the car.”
As for small dealership operations? Doll says, “I do think there is a role for the mom-and-pop dealership and they should be able to hold their own as they always have done.”