The trend toward dealer consolidation is reshaping our industry. Several large dealerships are expanding, creating significant opportunities and challenges for manufacturers and their representatives. To understand the scope and implications of this trend, it’s essential to look at the factors driving dealership expansion.
A Few Key Factors Driving Dealership Expansion
1. Recovery from the COVID era
Many dealerships barely survived the COVID era. Pair a few poor years of sales revenue and a potential lack of succession planning, there are plenty of dealerships looking for a buyout (estimated 50% of dealerships are currently for sale).
2. Margin depletion
According to a recent article posted in the MMQB by the Solomon Coyle organization, many dealerships are facing operating profit margins as low as 2%. There is an immediate need to evolve and drive more sales revenue and profitability by the dealership community. It’s adapt or die time for many industry distributors.
3. Financial backing
There is a dramatic influx of capital coming into the dealer channel by private equity firms and other entities. One of the top criteria for PE firms is investing in GROWTH. In our industry, where are significant growth opportunities found? Consolidation at the distribution level is apparently at the top of the list (see the latest Paric/I3 Group acquisitions as an example).
4. Entrepreneurial ambition
The conditions are now aligning for growth and acquisition by aggressive dealerships. A reminder, dealerships for the most part are led by entrepreneurs — many of whom have big ambitions!
As the tidal wave of dealership expansions progresses, manufacturers must re-evaluate their traditional territorial boundaries. There is an inherent issue for most (if not all) open-line manufacturers and their representatives: the geographic boundaries established for their representatives, which have determined the dealerships and specifiers within a sales territory for decades.
Conclusion
Understanding these factors is crucial for manufacturers who want to stay ahead in this rapidly evolving landscape. Dealerships are looking for help from open-line brands to support their growth goals, and those that deliver a solution will have a tremendous head start against their competition.
