The Wall Street Journal this morning has a story about how “small to mid-size dealer groups are selling their businesses to auto-retail giants or investment firms at a robust clip even as auto sales remain strong. The trend - highlighted by Warren Buffett’s entry into the dealership business in 2014 - has gathered momentum as electric, shared and autonomous vehicles threaten to reshape the car business.”
Essentially, the deal is this. The profit margins on car sales have been narrowing as consumers gain control of the process - they are able to use the internet to gather enormous amounts of information and pit retailers from all over the country against each other. At the same time, Tesla has engineered a sales process that eschews traditional dealerships and instead sells direct to consumers. And, making things even worse, the existence of services like Uber and Lyft means that not as many people need to own cars. All of which add up to a lot of pain for small and mid-sized dealership groups, which now are willing to sell their businesses to entities that have the capital needed to survive and compete.
Essentially, the deal is this. The profit margins on car sales have been narrowing as consumers gain control of the process - they are able to use the internet to gather enormous amounts of information and pit retailers from all over the country against each other. At the same time, Tesla has engineered a sales process that eschews traditional dealerships and instead sells direct to consumers. And, making things even worse, the existence of services like Uber and Lyft means that not as many people need to own cars. All of which add up to a lot of pain for small and mid-sized dealership groups, which now are willing to sell their businesses to entities that have the capital needed to survive and compete.
- KC's View:
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A great object lesson in how technology, consumer preferences, and disruptive competitors can up-end an industry. Every business has to pay attention, lest they be caught napping.
