Tough Times No More: Auto Dealers Are Doing Pretty Well These Days
The auto industry may have had a few tough years, but the dip in sales that accompanied the recession has brought in a new era for auto dealers, the National Automobile Dealers Association says. Part of the reason? More consolidation and an evolution in the customer experience.
The auto dealership is by no means dead, though the secret to its future success may involve fully embracing the tactics used to sell laptops.
In the past decade, the number of auto dealers has shrunk by nearly 20 percent—and by more than two-thirds since its peak in the 1950s. But while their ranks may have thinned, the survivors are fairly strong, and the experience of buying a car is far different than a generation ago.
Recent estimates from both the National Automobile Dealers Association (NADA) and TrueCar suggest that sales of new vehicles may reach 17 million for the first time in a decade. If those estimations hold, it would be the first six-year period of growth in new-car sales in more than 50 years. TrueCar, an online platform that connects car buyers with certified dealers, notes that auto sales are once again nearing peaks last seen around the turn of the century.
The result is that the surviving dealers are having a greater level of success because they’re selling more cars. And a close examination of these operations reveals that they look much less like the high-pressure dealerships of yore.
A recent New York Times story discussing the shifts in the auto market suggests that these changes are due to a few factors: consolidation within the industry; changes to the dealership atmosphere that are starting to give them the feel of Apple Stores; and customers becoming more knowledgeable by using car-research websites.
(TrueCar, which, through mobile apps and a network of approved dealers, provides people with precise car pricing data, is a good example of what’s contributing to smarter consumers.)
“What you’re seeing now is the culmination of lots of changes that have been building in recent years,” NADA’s chief economist, Steven Szakaly, told the Times.
The Rise of Dealership Chains
The decrease in dealerships has coincided with the decline of independent shops, but chains are leveraging the benefits of scale.
For example, AutoNation, the country’s largest dealership chain, is listed on the New York Stock Exchange and has been using its size to its advantage, outsourcing tasks that would be handled onsite at a smaller chain. It’s also forging partnerships.
And last year, Warren Buffett’s Berkshire Hathaway Inc. purchased another major player, Van Tuyl Group, which it recently renamed Berkshire Hathaway Automotive. The company already owns the nation’s second-largest auto insurance firm, Geico.
While dealerships have tight margins, Szakaly explained to the Times, the companies’ large size helps make those margins go further.
“It’s not an easy business, and so if you can reduce overhead expenses, you’re talking about a big impact,” Szakaly said.