Economies of Scale Boost Megadealer Fortunes

As they get larger due to super-sized mergers and acquisitions, megadealer groups also have gotten better at finding economies of scale and delivering customer value with services like pickup and delivery, according to panelists at Automotive Tech Week.

That’s a key advantage, as franchised dealers compete with direct-to-consumer models from certain OEMs.

Those include new EV makers such as Tesla, Rivian and Lucid, and potentially also established brands with “agency” models in other global markets, such as Volvo and Daimler. That’s where dealers perform final delivery only, for a vehicle that’s sold entirely online.

“They’re never easy,” but acquisitions are worth it, provided they’re a good fit, says Bill Cariss, president and CEO of Holman Strategic Ventures, a subsidiary of megadealer group Holman Automotive in Maple Shade, NJ.

In a panel discussion today called, “Facing Down the Disruptors: How to Compete and Win Against New Retail Challengers,” panelists cite recent blockbuster mergers, such as Sonic Automotive from Charlotte, NC, acquiring RFJ Auto Partners in Plano, TX. That $700 million deal, announced in September, is expected to close by year’s end.

Today’s panel was part of the Focus: Future Dealer virtual conference held as part of Informa’s Automotive Tech Week. Wards Automotive is owned by Informa.

Another example is Asbury Automotive Group from Duluth, GA, acquiring the Larry H. Miller Dealerships, based in Sandy, UT, for about $3.1 billion, including some related companies. That deal, also announced in September, is expected to close in the fourth quarter, as well.

“There’s a lot of work, for those companies to do, to assimilate those acquisitions,” Cariss says. “The reason you do those, obviously, is to get more scale, and centralize your processes — central Business Development Center, centralized accounting, used-car wholesale remarketing, a central marketing team, all of that.”

Cariss recalls that Holman Automotive, with 19 dealerships at the time, acquired Kuni Automotive of Vancouver, WA, with 33 dealerships, in 2016. Terms were not disclosed.

“Economically, do those transactions make sense?  Yes, they do,” Cariss says.

John Possumato 2019 Italy - Copy_3

If customers find significantly more value in buying direct from the OEM, then state laws eventually would allow that, more than the limited exceptions already made for Tesla, says John Possumato (pictured, left), founder and CEO of DriveItAway Inc.

He says, “If you don’t provide value, you can’t hide behind the franchise laws.”