August 16th, 2023

The unquestioned data advantage in the dealership buy/sell equation

Changes in the dealership buy/sell landscape are ever evolving. The economy, dealership performance, geographical differences, and new bills, laws and regulations all factor into the equation. That’s true whether you’re a single-point dealership, part of a large dealership group, or a mergers and acquisition firm looking to get into the vehicle-selling-and-servicing game.

How do dealers who are already “in the game” feel about these changes? Over 8 in 10 dealers in a recent Harris Poll,1 commissioned by Urban Science, see dealership consolidation as beneficial. More than half of the dealers polled (56%) are part of a larger dealer group (with an average of 14.3 dealerships). It’s important to note that the dealers we polled were significantly more likely to describe the path for future growth as “harder”. The top three areas they cite to back up that opinion are 1) competition from non-traditional dealers; 2) electric vehicles; and 3) digital retailing – all of which they see as having the most immediate impact on business operations.

Inescapable factors to consider when deciding whether to buy or sell

If you’re a dealer or part of a large dealer group, are you on a buying or selling track? If you’re with a group looking to acquire dealerships, how can you be certain what constitutes a good investment? The reality is that no two markets and no two dealers, however apparently similar, are ever identical. Even more challenging is the fact that patterns and problems aren’t easy to spot with the naked eye. The objective lens of data adds the clarity and understanding necessary to make smart investment decisions.

In any evaluation process, there are a number of key factors to consider.

The question of dealership value. Rising dealership prices may (or may not) have plateaued. It is often dependent on the brand or brands the dealership group represents. Other factors then come into play, including the specific geographic market, past performance and future outlook. An experienced data partner can help analyze these factors and more to ensure every variable is given the consideration it deserves.

Bigger isn’t always better. Major dealership groups often get the press, but they aren’t the only groups creating attractive acquisitions. In fact, most acquisitions are made by small-to-mid-size groups buying one-to-two stores. Without expert guidance, some dealers sell for too little, while others fail to get a buyer; the right data can better inform buyers and sellers. Looking to grow? The key is in knowing how and where to strategically grow – and the best way to do that is by having access to timely market data.

Study the competitive landscape. Designated Market Area (DMA) data can provide invaluable competitive insights. DMA data provides a “big picture” view that aids in accurately assessing performance potential. It also can help identify which new markets are prime targets for expansion opportunities.

What outside investors need to know

The automotive market is strong and getting stronger – but it varies greatly across brands, geographies and DMAs. It also offers its share of surprises. On the plus side, a report by the U.S. Commerce Department showed U.S. retail sales unexpectedly rose in May,2 and first-quarter sales got an unanticipated boost from fleet business.3

On the other hand, bills to eliminate right of first refusal on dealership buy/sells have been introduced in West Virginia and California,4 with the potential to impact dealers and the communities they serve in those areas.

Still, 38% of dealers polled said they are at least somewhat likely to consider acquiring another dealership in the next six months. More stores are expected to come up for sale in the next 12-24 months … but at what price? All the more reason to have an experienced guide with the knowledge, processes and tools to aid in the proper valuation of any potential acquisitions.

38% of dealers polled said they are at least somewhat likely to consider acquiring another dealership in the next six months.

Data is the difference.

To make an informed decision, dealers and M&A groups need data and tools that provide a new lens to look through. A lens that allows them to understand the performance of the dealer group they’re a part of (or one they’re considering acquiring), AND the insights to assess new markets for expansion opportunities.

All data, however, isn’t equal. There is a clear advantage to dealers and M&A groups who have a partner with access to rich, historical data (especially data that can be used to understand pre/post COVID comparisons) that can help them see the big picture of the markets they are evaluating. Matching that data with current and prospective market performance provides a “big picture” of the opportunity.

Dealership groups and M&A firms should seek out partners who can deliver on following four key steps:

  1. Seek out hot spots of underperformance across all brands in their group (or one they’re considering acquiring) in near real time. It’s important they pick challenging benchmarks to measure against, and to look beyond a dealership’s actual sales to their benchmark sales to really understand their percent of benchmark.
  2. Watch for trends occurring both at the overall industry level as well as drilling down into their markets to look at market share and changes by segment, model or geography. Remember, you can’t manage what you can’t measure.
  3. Flag sales patterns and potential weaknesses compared to their competition, both within the brand and outside of it.
  4. Constantly assess new markets for expansion opportunities – find the growth brands by market share and volume and understand their brand effectiveness over time.

In other words, let science guide you to the best buy/sell or acquisition strategy – don’t rely on gut decisions.

Science as a solution

Since our founding over 45 years ago, our proven, scientific approach to dealership planning has continued to improve and evolve. It’s an approach that stays ahead of the technological curve to help improve the performance of dealership networks – and it continues to be the industry standard.

We now offer our clients the advantages of MarketGrowth™, a precise, industry-grade tool created especially for dealership groups and M&A firms by the professionals at Urban Science.

Let us show you how we can apply the power of science to your challenges. If you’d like to talk to someone at Urban Science about how MarketGrowth can help analyze the many factors impacting your buy/sell dealership decisions, call or email me.

Monica Roberts
+1 313-259-9900

1. This survey was conducted online by The Harris Poll on behalf of Urban Science among 3,022 US adults aged 18+ who currently own or lease or plan to purchase or lease a new or used vehicle in the next 12 months (referred to in this report as “auto-buyers” or “auto-buying public”), and 250 U.S. OEM automotive dealers, whose titles were Sales Manager, General Manager, or Principal/VP/Owner. The auto-buying public survey was conducted from January 26 to February 15, 2023. Data are weighted where necessary by age by gender, race/ethnicity, region, education, marital status, household size, household income, and propensity to be online to bring them in line with their actual proportions in the population. The dealer survey was conducted January 26 to February 17, 2023. Results were not weighted and are only representative of those who completed the survey. Respondents for this survey were selected from among those who have agreed to participate in our surveys. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +2.6 percentage points for auto-buyers and +6.2 percentage points for dealers using a 95% confidence level. This credible interval will be wider among subsets of the surveyed population of interest.

All sample surveys and polls, whether or not they use probability sampling, are subject to other multiple sources of error which are most often not possible to quantify or estimate, including, but not limited to coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments.

2. “Ford, GM See Strong U.S. Consumer Demand for Vehicles,”

3. “Q1 Sales Get Boost from Fleet Business,”

4. “Automakers Rights to Reassign Buy/Sell Deals Targeted,”

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