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Car dealership: hit or leave

Car dealerships: facial puzzles: get big or go out – WSJ









































































In the era of Uber and Tesla, locally owned dealerships are becoming a thing of the past. passed [19659009] April 8, 2018 9:00 a.m. ET

Americans who have been buying cars from the same dealer for generations could receive a new type of sales signal the next time they visit.

Groups of small-to-medium-sized merchants are sold to automotive giants or investment firms in a robust clip even when car sales remain strong. The trend, highlighted by the entry of Warren Buffett into the dealership business in 2014, has gained momentum as electric, shared and autonomous vehicles threaten to reshape the automotive business.

Enessa Carbone, for example, recently sold family stores in New York to

Lithia Motors
Inc.,

a publicly traded company with a market capitalization of $ 2.5 billion. Its stores are among the roughly 1,000 dealerships that are expected to have changed hands between 2014 and 2018, according to Kerrigan Advisors, sales counselor at the California-based dealership.

"He is not his father's dealer," Carbone said after selling a business founded by his grandfather in the 1920s. "Given the changes in the industry, we were not sure that this was the challenge We wanted him to take on one of our children. "

Distributors say they need to triple revenue in the next half decade to compensate for shrinking margins and increased competition from companies that did not exist a decade ago.

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Manufacturer of electric cars

Tesla
Inc.

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
Inc.

He entered the sector four years ago, according to the Automotive News industry publication.

Erin Kerrigan,

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

David Rosenberg

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

AutoNation
Inc.

Y

Automotive Group 1
Inc.

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

Porsche
AG

, 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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