By on November 12, 2018

Dealership advisory firm Presidio Group has painted a very bleak picture for its clients. With analysts predicting a downturn in auto sales, the company recommends dealers establish a robust 20-year plan that will enable them to perform in the new climate or get out of the business entirely.

Brodie Cobb, founder of Presidio Group, cites a glut of studies claiming dealerships will struggle as manufacturers shift into mobility companies and alternative modes of transportation are more broadly encouraged.

“We’re not particularly pleased that the world is changing the way it is. We would rather have it stay the same, because owning dealerships is a very nice return and profitable business that we enjoy very much,” Cobb told Automotive News in an interview. “So when we talk about this, it hurts us, too. We, too, need to understand the future, form a plan and not just put our head in the sand and hope it goes away.”

However, we’re of the mind that the situation’s direness may be overhyped. For most Americans, ride-hailing simply isn’t an option. A recent AAA Foundation for Traffic Safety study showed that using ride-hailing services exclusively is often more expensive than owning a modestly priced vehicle for most individuals. It’s a situation that’s unlikely to change any time soon and, even if it does, there’s still the question of convenience for those living outside the metropolitan hubs where ride-sharing vehicles typically reside.

National Automobile Dealers Association Chairman Wes Lutz, president of Extreme Chrysler-Dodge-Jeep-Ram in Jackson, Michigan, noted the AAA research during a speech at last month’s Automotive Press Association in Detroit. “People are going to continue doing exactly what they’re doing now: owning a car or truck for day-in and day-out personal transportation and using ride-hailing services when it makes more sense than driving,” Lutz said. “That’s not a revolution. That’s an evolution.”

NADA’s figures presume the number of physical shops in North America will still decline, though. The association figures the number of U.S. dealerships would drop to about 16,500 in 2025 from 18,000 in 2016.

Presidio is less optimistic, operating under the assumption that vehicle ownership will be largely replaced by mobility-based alternatives in the coming years.

From Automotive News:

Presidio relied on several forecasters in its annual market report published in September.

Morgan Stanley analyst Adam Jonas said in November 2017 that he thinks the 10,000 North American dealers could eventually be reduced to “as few as 10 monolithic mega-fleet managers” amid technology disruption, regulatory changes and a future of shared autonomous vehicles. Jonas put the number of U.S. dealerships down to about 10,000 by 2035.

Global audit firm KPMG said in January that more than half of auto and tech executives surveyed around the world expect the number of dealerships to decline 30 to 50 percent by 2025.

Dale Pollak, executive vice president of Cox Automotive, suggested this year at a conference that the number of U.S. dealerships could fall to just 30 owners. Today he calls that figure “too extreme” though it’s unclear why he adjusted his prediction. Pollak now says he could see the number of owners in 2034 dropping to 200 to 300 for maybe 9,000 dealerships.

Presidio is basically asking clients to get out of the business or rework their model to account for a future where service, finance, and insurance profits will be much less robust. Cobb believes the future will revolve around large fleets of corporate-owned autonomous vehicles that customers will perpetually rent, rather than purchase, for themselves. “And you just don’t need the big, huge auto retail channel that we have today with dealerships and consumers purchasing and trading and servicing cars because they’re not going to own them,” he said.

That kind of work would leave smaller businesses at a major disadvantage, leaving Presidio to recommend selling. While this would likely benefit the firm financially, since it oversees dealership transactions on the regular, fewer dealerships in existence would give it less business in the automotive sector in the long term.

“The rest we think should consider monetizing, selling these really valuable assets that in many cases, in most cases, have been built up over decades, sometimes generations,” Cobb continued. “Because at some point, when autonomy is more broadly accepted, the value of those businesses will decline sharply, because it will be a shrinking business and investors don’t typically like to invest in shrinking businesses.”

While dealerships will have to adapt to the changing landscape and should modernize, it’s hard to commit to any obvious timeline for their demise. Autonomous vehicles have yet to prove themselves as an effective replacement for ownership, yet Cobb talks about how they’ll soon turn brick-and-mortar car stores into the next Blockbuster Video. That might be the case, but we’d like to see more supporting evidence. Right now, it seems highly speculative and primarily dependent upon the industry’s own narrative.

You’d be a fool to not pay attention, however, especially if you own a dealership.

[Image: Alden Jewell/Flickr (CC BY 2.0)]

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36 Comments on “Dealer Advisor: Prepare for the Worst or Be Destroyed Over the Next Two Decades...”

  • avatar

    So, Presidio is saying that if you’re a small dealership, you either do radical changes or (preferably) just get out of the business, because the big dealerships are going to eat you alive.

    And, in the real world, what kind of dealerships would hire an ‘auto consulting’ firm to give them advice on how to handle the future? Large dealerships, of course. In the first place, they can afford the luxury of hiring a consultant to tell them how to run their business.

    So, it would seem that Presidio is giving just the kind of advice that the larger (read: potential customers) dealerships would want to hear: Quit while you’re already and just let us take over – because it’s all preordained, anyway.

    • 0 avatar
      Matt Posky

      This is not an unreasonable assumption.

    • 0 avatar

      Syke, what Presidio is saying is not something new. This is exactly what happened in 2012 with my brothers and their business partners who owned their dealerships for over 30 years.

      They sold out to the biggest of the big.

      And for a VERY handsome amount of money. With no debt.

      For consumers the problem is the increase in transaction prices since monoliths allow no haggling, like smaller dealers can. With monoliths it is all about moving iron.

      There may be “Specials” at special prices but who wants left-over stock nobody bought?

      • 0 avatar

        I think larger dealers rely more on volume and are more willing to negotiate which makes it tougher on smaller dealers who don’t sell as many units thus they want to most profit per vehicle sold.

    • 0 avatar

      Every industry goes through a phase of rapid growth (through small and individual starters), maturity and consolidation, then finally 3-10 major players, decline and obsolete (if ever).

      This is the trend, it is long overdue.

    • 0 avatar
      87 Morgan

      Presidio is the in buy/sell business. Essentially they are realtors for car dealerships, they are not looking to operate the stores. They want to represent all of the small mom and pop shops to sell the store to one of the mega groups.

      • 0 avatar
        87 Morgan

        Correction/edit to what I typed above: I just read the article on Automotive News. Presidio also holds equity stakes in an unstated number of dealerships. So along with selling dealerships, they own shares of them as well. What is not said is if their holdings are large enough to have a say in how the enterprise is operated.

  • avatar

    Rising land costs have also forced many Los Angeles dealer to sell. They can make more selling the land for high rises than by actually selling cars. We can all look at the on line pricing of new vehicles. There just isn’t that much profit left in selling new cars. Unfortunately, fewer new car sales means fewer trade ins, and thus having to buy inventory at auction, which raises the acquisition costs and lowers profit.

  • avatar

    Re ride hailing: It’s essentially replaced a structured system (with dedicated cars and drivers and in some cases an inspection regime) with a huge variety of vehicles of some doubtful provenance and contractors who may or may not who they claim they are. I’ve not quite understood the appeal of being a part-time hack. One reads stories about intoxicated customers and occasionally unhinged drivers I wonder where the promise of these services went.

    This is a very dour forecast, to say the least. I think there will be a contraction in car sales also, but unless it’s another Great Financial Crisis they’re predicting, I think the vast majority of dealers will survive. The vast majority survived the last crisis. Folks in the US need cars, with rare exceptions. Ride hailing and sharing will only be popular in areas that can support a public transit bus system (at a minimum) and still will be priced well above what a person (who can only afford to take the bus) will pay. There are the suburban and exurban areas that will not support a ride hailing/sharing system because of the sparse population.

    Additionally, I think we’re seeing the full extent of the capability of the autonomous car as it exists with current technology. In as much as I would love to see fleets of those things taking distracted drivers to their destinations, I think there is not enough computing power available to get them to work in all situations. Human drivers are already the low bar of achievement, but reading reports for many months noting how badly some of these autonomous cars are performing, I’m having a hard time imagining this will work out as proposed. Who knows, maybe the next big computing idea is around the corner and will make it all work. But I’ve got my doubts.

    • 0 avatar

      My experience with Lyft/Uber versus cabs in Indy is that the ride-share cars are almost always newer and less clapped out, the drivers better, and a chance of getting ripped off lower (non-existent basically). My wife ended up with an $80 cab fare coming back from the airport when her phone was low on battery and she couldn’t call a Lyft/uber. I was beyond livid. With the apps you have recourse and can report discrepancies.

    • 0 avatar

      “Additionally, I think we’re seeing the full extent of the capability of the autonomous car as it exists with current technology.”

      I think you’re right on here. I’ll be satisfied when all cars come with just good automatic braking, as I don’t see the cell-phone problem getting any better ANY time soon. Most of the drivers behind me in traffic never seem to look up long enough to even see their eyes in the mirror. It’s making me jumpy. The lack of constant accidents has numbed most of them to the need to actually LOOK at the road. I will be perfectly happy when the brains of the SUV behind me can override the Candy Crush-obsessed driver in my six.

    • 0 avatar

      “One reads stories about intoxicated customers…”

      There’s only a few things more irritating than being around drunk people. The last thing I’d want to do is be on the hook for driving them from the bar back home especially with the very real chance of them puking.

      No thanks.

  • avatar

    Car dealers are the scum of the earth. I’ve been putting off buying a new car for 2 years now, simply because of the dealers.

  • avatar

    May I please have the entire front row of Capris?

  • avatar
    CKNSLS Sierra SLT

    Yes people will STILL need cars. However-ride sharing, autonomous vehicles will definitely put a dent in households having second cars.

    Many 2nd cars sit the vast majority of the day-and are not worth the expense (acquisition, insurance, maintenance) if there is a viable, easy alternative.

    • 0 avatar

      I doubt that. IMO ride sharing, autonomous et al. will be a factor in denser urban environments. I don’t know the percentage of second cars that are hardly used but I do know that people enjoy the freedom of having that car and I don’t think they’re willing to give that up.

    • 0 avatar

      Maybe so, but the peace of mind in having a 2nd vehicle is enormous.

      • 0 avatar

        I used to think so too. But my wife and I spend so much time out of the country or otherwise away from home now that keeping cars parked baking in the sun while we are away just makes no sense to me.

        There will come a time when my DD 1989 Camry V6 will eventually kick the bucket and I’ll cross that “replacement” bridge when I come to it.

        I now find that a Hybrid PEV SUV makes more sense in my circumstances.

        It’s just too damn bad that in NM my elec cost is 17+ cents per KWh. Takes away all the incentive for a PEV of any sort.

      • 0 avatar

        It probably wouldn’t be so peaceful if people actually broke down what the cost of owning and running that car actually is.

  • avatar

    The industry is a relic of a time when consumers didn’t care or know better….built more on monumental greed than public need, dealerships are destined to be posterity’s armpit. It is not surprising that a sector that neither produced nor provided is being replaced by one that does…

  • avatar
    SCE to AUX

    I think the biggest threat to dealerships are:

    1. The internet and free flow of information. (already happening)
    2. Overhead and non-value-add costs. Eventually, dealership protection laws will be overturned, allowing mfr-owned stores to exist (Tesla), lowering costs in the system and lowering prices for consumers.

    • 0 avatar

      This. It is not Uber or Lyft that threaten the industry (or the consolidation of them into mega dealers), but the online negotiation, increased repair cost, longer durability (15 years then trade in), electrification, etc that do them in.

      How many dealers do you need when all you need to do is to shop online, then swap a new pack of battery every 10 years? Many mega dealers can probably move their online sales dept to Wyoming and have a delivery + repair department in the suburb, and do only online sales.

  • avatar
    Arthur Dailey

    1) Dealerships as others have noted are a relic of another era. The consumer now has far more choices and greater access to knowledge.

    2) The cost of land in many urban areas is now so great that the existence of large dealerships is not cost effective. In Toronto there used to be car dealerships on Bay Street, near Yorkville Avenue, etc. Replaced by condos.

    3) The demographic shift to larger urban centres (or megacities) which North America has been experiencing since the turn of this century will result in greater density and therefore increase the cost (and time) effectiveness of mass public transit. In effect North America is undergoing the same type of population shift as occurred in Europe. And North American cities will increasingly become Europeanized in their lifestyles.

    68% of the world population projected to live in urban areas by 2050 …

    This trend is more mature in the United States, specific cities are still growing. Today, 82% of North Americans live in urban areas and are increasingly concentrating in mid-sized and large cities. In 2010 41 urban areas in the United States housed more than 1 million people, up from 12 areas in 1950 and projected to grow to 53 by 2030.

    About 46 million Americans live in the nation’s rural counties, 175 million in its suburbs and small metros and about 98 million in its urban core counties.

    • 0 avatar

      More Americans are moving to suburban areas of cities than the city core. Despite significant spending on light rail, American transit ridership has been declining since 2014, with some systems like LA bus seeing a loss of ridership of more than 20% in just 4 years.

      The future of public transit in America is bleak while cars look as dominant as ever.

      And even if America becomes Europe like, so what? Cars still dominate ground transport, accounting for 83% of all passenger-km in the EU-28.

  • avatar
    87 Morgan

    KPMG has stated, per the AN article, their surveys show that dealership counts could drop 30%-50% by 2025. What? If you use NADA’s count of 16,802 franchise dealerships as of 2017 that would be a closure of 5,040 on the low end to 8,401 on the high in the next 6 years.

    The only way I can see this kind of drop is if we see major seismic change comes to the number of brands in the next 72 months. The trivial brands would need to throw in the towel first to rid of us the low hanging fruit to hit the 5k in dealer closings: Fiat, Volvo, Infiniti, Acura, Buick/GMC, Mini, Jaguar, Mazda. BMW has already signaled this is coming, and soon as according to them >50% of the stand alone Mini stores are do not make a profit. I know of several involved with Nissan and they have also indicated that profitability is an issue, especially with Infinity, one group gave back their Infiniti franchise in October. Stating that they were tired of the lose 100k for two months and make 200k the third; rinse and repeat.

    Even if this does happen (the store closures) the Chinese (so I read) are chomping at the bit to bring their automotive wares to our shores, so I would not be surprised if a brand was sold off to them to keep the retail distribution channel.

  • avatar
    Jeff S

    Agree about the Chinese I can see GM being sold off to the Chinese and maybe even Ford.

  • avatar
    Art Vandelay

    Can someone tell me what exactly a mobility company is? The closest thing I keep coming up with is Delta Air Lines.

  • avatar

    The electric car revolution will speed things up. EVs are basically like big household appliances, that could be bought (ordered) at your electronics shop, a Pep Boys or a retailer like for instance IKEA.

  • avatar

    Anyone claiming autonomous vehicles will be here any time soon also has oceanfront property in Montana to sell you. It’s a complete joke

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