The Uncertain Fate of Local Dealerships in the Age of Consolidation

Can “Mom & Pop” dealerships survive in today’s era of auto retail consolidation, or are they facing the ultimatum of “grow, or die”? It’s a question that industry experts have been pondering at the recent Auto Team America conference. The answer, as it turns out, is not a simple yes or no. The future of these small-scale operations depends on various factors, including the brand, the market, the existence of a succession plan, and the owners’ desires to remain in business or cash in on the current sky-high seller’s market.

Brand and Market Dynamics

According to Alan Haig, a prominent dealership broker and president of Haig Partners in Fort Lauderdale, FL, a Toyota store in any part of the country is likely to thrive. Likewise, high-volume, single-point stores possess the resilience to withstand market challenges. However, for a typical dealership in a typical town without a strong brand or local competition, survival becomes a slow and uphill battle. In such cases, these small businesses are likely to gradually lose business to larger competitors.

Erin Kerrigan, founder and managing director of Kerrigan Advisors in Irvine, CA, echoes this sentiment. When asked if small dealerships can endure, she suggests that their chances are more favorable if they are affiliated with strong brands like Toyota.

The Power of Franchise Laws

Despite the advantages that consolidators enjoy, small-scale dealerships do have some leverage over their larger counterparts, as franchise laws require automakers to sell new vehicles to mom-and-pop dealerships at the same dealer invoice price as megadealer groups. In other words, there are no economies of scale when it comes to purchasing vehicles. Every Ford dealer, for instance, pays the same price for an F-150 pickup, regardless of their dealership’s size. This level playing field ensures that small dealerships are not at a disadvantage in terms of procurement costs.

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The Role of Online Retail and Inventory

The pandemic has led to a significant increase in the volume of buy-sell transactions. One of the most notable changes in recent years, apart from the scarcity of new vehicles, is the growing acceptance of e-commerce in auto retail. Today, consumers are more willing than ever to shop online for cars and trucks, even if the dealership is located far away. This shift in consumer behavior has been partly influenced by Carvana, which has shown that customers are open to buying a vehicle “sight unseen” if the convenience and trust are there.

To remain competitive in this changing landscape, some dealership chains are focusing on having the largest online inventory. For example, Lithia & Driveway Motors in Medford, OR, recently listed around 48,000 new and used cars and trucks on its Driveway e-commerce platform. This extensive selection gives them a significant edge, especially during the ongoing inventory shortage. By offering a vast range of vehicles online, they can attract customers from all over the country, compensating for the lack of local buyers for specific models.

The Role of Relationships and Customer Experience

While e-commerce is gaining traction, not all industry leaders fully endorse it. Tom Doll, president and CEO of Subaru of America, believes that one-on-one relationships at the dealership foster brand and dealership loyalty. For brands like Subaru, where the experience is vital, Doll emphasizes the importance of customers visiting the store to personally interact with the product, engage their senses, and develop an emotional connection with the car.

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Ultimately, in Doll’s view, there is still a crucial place for mom-and-pop dealerships. He believes that these small businesses can continue to hold their own and thrive, relying on the enduring value of personal relationships and tailored customer experiences.

As the landscape of auto retail continues to evolve, the future of “Mom & Pop” dealerships remains uncertain. While some may struggle to compete against larger consolidators, others will find success by leveraging brand strength, franchise laws, and the possibilities offered by online retail. The ability to adapt to changing consumer behaviors and provide exceptional customer experiences will be crucial for these local dealerships to thrive in the years to come.

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