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Manufacturer of electric cars
It is circumventing dealers with online orders, for example, while Uber Technologies Inc. foresees a world in which more people will rely on their applications instead of having a car.
This has led to the consolidation of the 16,800 US concessionaires in the hands of fewer owners. The top 50 dealer groups are ready to book more than $ 175 billion in revenue this year, compared to $ 144 billion when Mr.
Buffett & # 39; s Berkshire Hathaway
He entered the sector four years ago, according to the Automotive News industry publication.
Founder of Kerrigan's advisory, he said that nearly 200 dealerships changed hands in 2017, close to an all-time high with a similar level of transactions that will take place this year. Sellers are struggling to profit while commercial real estate prices are high, or are associated with an investor with a lot of money, he said.
Car manufacturers, which may block a sale, historically resisted transactions with private equity owners or family offices. But they have been enthusiastic about the idea as the company has become more capital intensive, thanks to the need to invest in new technologies and offers, such as subscription services, as a way to diversify their businesses, according to Cliff Banks, founder of The Banks. Report, which tracks the retail sale of automobiles.
Prime Motor Group of New England is not a small company, but its previous owner
He realized that he was not big enough to compete in this new era. He sold the company – which generated $ 1.5 billion in auto sales, financing and service annually at 25 dealers – to Capstone Automotive Group in September.
Capstone retained Mr. Rosenberg as executive director. It is responsible for expanding into new markets and raising annual revenues to $ 4.5 billion in five years.
"To survive and prosper you need scale and scope and access to capital," he said.
For many years, analysts said that the distributors' business was too fragmented and localized for owners to obtain serious consolidation benefits. But now, large groups of dealerships like
Automotive Group 1
see potential for economies of scale.
Mr. Rosenberg, for example, is using investments from the new owner of its Prime dealership to develop proprietary software for the concession group, launch a financial company and potentially offer subscription services. Such a strategy could reflect Cadillac or
, which charge a fixed monthly fee to buyers for the practically unrestricted use of a variety of vehicles.
Annual car sales have hovered around 17 million for several years and are expected to remain in that range, and dealers of all sizes are benefiting from a resurgence in higher-priced truck and SUV sales thanks to the fall in gas prices.
Even so, dealer margins are reduced in the midst of tough competition and greater price transparency enabled by the Internet. The dealers took home around 2.5% of the sale price of the new average car in 2017, a drop of around 4.7% in 2009, according to data from the National Association of Automobile Dealers; The margins of used cars fell to 6.9% from 10.7% in 2009 during that period.
More winds are coming against potentials. An example: electric cars, which are expected to represent an increasing share of US sales. UU In the next few years, they need less maintenance than their gasoline counterparts because they have no engine or transmission. That could reduce the revenue that dealers get from their service bays.
In the future, many analysts foresee a time when many Americans will choose not to own a car, relying on a fleet of autonomous, available electric vehicles. that could give dealers a new purpose as a place to load and accommodate vehicles after hours.
As the profit margins have decreased, a greater part of the value in each concessionaire is in the land in which it is located. In the past, owners often chose to keep their real estate and rent it to the person who bought the dealer. But commercial real estate values in the US UU They have risen more than 25% above the levels prior to the recession, according to the real estate research firm Green Street Advisors, and this has owners who increasingly want to sell everything.
Write to Adrienne Roberts at Adrienne.Roberts@wsj.com
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