Study: New Showrooms Spur Market Gains

Although some dealers beef about the costs associated with auto makers insisting on them updating facilities, an analysis indicates newer showrooms are major factors in market share gains and losses.

“We believe that the replacement rate drives showroom age, which drives market share, which in turn drives capacity utilization, profitability and stock price,” says the Merrill Lynch report. “OEMs with the highest replacement rate and youngest relative showroom age have gained market share from 1996 to 2006. We expect this relationship to continue.”

The “Car Wars” analysis says that, all else being equal, dealers with exposure to auto makers with the highest replacement rates and lowest average age are best off.

“This should translate into better new- car sales and earnings growth in the short term and importantly feed into the recurring parts and service profit stream in the long term as units in operation grow,” says the report.