Modern Times Spell Trouble for Mom-and-pop Auto Dealers

When I was a lad, there were two family-owned and operated dealerships within walking distance of my home. Upon reaching driving age, one had already closed while the other began adding storefronts in different towns. It now has three locations, ensuring a meaty inheritance and lifelong job security for several members of my graduating class.

It’s the nature of the free market and a familiar story. According to an assessment from the National Automobile Dealers Association, singular showrooms have gone from 7,514 strong to just 4,904 between 2008 and 2018. That’s a 35-percent decline, whereas the number of dealers with 10 or more stores increased 62 percent over the same period. 

While the number of multi-store owners is comparatively low, with only 177 individuals owning dealer chains comprised of 10 or more stores, it still represents a move in their favor. The bottom line is that, over the last 10 years, franchises of at least six dealerships have increased in number while those operating fewer declined.

Automotive News reached out to a few mom-and-pop dealers to try and unpack why this is happening. But, assuming you’re familiar with outfits like Walmart or Home Depot, you can probably already hazard a guess.

“Today, to be a family-run dealership, the industry and manufacturer, it’s not so much about the people. It’s about the numbers,” said Dean Konner, who owned a Chevrolet dealership with brothers until last October. “What happened is these bigger guys would undercut your price. A little guy can’t survive.”

His dealership was purchased by the Paul Miller Auto Group, which currently has 12 locations across New Jersey.

Many lone dealership owners are growing increasingly uncomfortable by the industry’s bold push into “mobility and disruption.” While subscription programs aren’t particularly popular with any dealer, they’re exceptionally difficult for smaller stores to manage. Meanwhile, rental-based “ownership alternatives” and upcoming autonomous taxi services coming straight from the manufacturer feel like a death sentence for single stores.

“[Disruption] creates huge anxiety, being a family business,” explained Rick Mohr, owner of Eau Claire Ford-Lincoln in Wisconsin, “but you have to strategically lay out your plan … We’ll have to right-size and consolidate some job duties to make sure the store can stay profitable.”

The introduction of electric vehicles is pushing some manufacturers to require that select dealerships have EV charging points available for customer use, requiring a significant investment on behalf of store owners. However, dealers are far more likely to find themselves subject to mandatory storefront improvements as stipulated by the automaker. Many suggest that the money needed to invest in the long-term success of their businesses is untenable. Rather than expend the necessary cash to appease the manufacturer and stay in business, many small-time dealers are getting out.

From Automotive News:

Meanwhile, larger groups continue to soak up stores as they battle one another. Asbury Automotive Group CEO David Hult this month said his company expects 2019 to be a “very active year” for mergers and acquisitions in the industry, though he declined to forecast how many acquisitions Asbury is expecting.

Asbury, No. 7 on Automotive News‘ list of the 150 largest U.S. dealership groups based on 2017 new-vehicle retail sales, has agreed to buy four stores in Indianapolis with eight brands from Bill Estes Automotive.

Hult touted such acquisitions as a “win for everybody” — the dealer and the company and its shareholders. Estes couldn’t be reached for comment.

Jim Tino Jr. found it hard to win as a small franchise facing rising costs and factory involvement. Tino, whose family-owned Chevrolet and Subaru dealerships in Union, N.J., were about 30 minutes from midtown Manhattan, said factory demands — specifically from General Motors — prompted him to sell his stores in 2016.

“I grew up in the business and always felt that while we were franchisees, we should be able to operate our business the way we felt. … I realized we weren’t going to make a profit here unless we play the game exactly the way they want it to be played,” he said, referring to GM programs such as Standards for Excellence and Essential Brand Elements.

There’s also the matter of transitioning a family-owned business. According to the Harvard Business Review, with data from the Family Business Institute, only 30 percent of family-run stores manage to successfully transition to the second generation. By generation three, that number falls to 12 percent, and it’s barely worth mentioning beyond that.

“These up-and-comers see an industry that will transform significantly over the next 20 years, making their careers more volatile and challenging,” Kerrigan Advisors’ third-quarter 2018 “Blue Sky Report” said. “Some are concerned that the value of their inherited family enterprise will decline rather than appreciate.”

The group estimates that more than half of the automotive retail industry is comprised of owners from second or subsequent generations, which doesn’t make for an overwhelmingly positive outlook for single-store owners hoping to keep the business within the family tree.

[Image: Janon Stock/Shutterstock]

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