Author Topic: US car dealerships  (Read 3789 times)

voyager

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Re: US car dealerships
« Reply #20 on: June 05, 2019, 09:44:34 AM »
In the franchised car dealership business, so I can answer most specific questions.

Here are the popular ones:

1) Is the business model at risk?

No - it's not at risk.  Just changing.  Dealers used to make $ off of selling cars, now they make it from servicing.  Selling direct won't scale because of 1) capital outlays for service facilities 2) laws that are ingrained 3) relationships in rural markets.  Industry headwinds are overblow.  EVs are good for dealers, because they'll get higher servicing market share.  Level 5 autonomous driving is still very far off (20+ years) - Waymo's CEO said it not me.

2) How to analyze? 

What's unique about dealers is that every single store is the same.  A big part of performance is running a store better than someone else.  Look at the unit economics for new, used, f&i, and service.  Look at costs as a % of revenue. Other key things are fixed absorption and real estate ownership.  Being in good, growing, local markets is also very important.  From a valuation perspective, I like to think about it from a private market value standpoint. 

3) Advantages of scale? 

There's definitely an advantage to a point - probably 5 stores is enough scale for overhead, brand, and interest rates to be attractive.  The industry will consolidate slowly.  Because of franchise rules, acquisitions are slower to occur then other industries and more restrictive.  It's hard to buy more than a few rooftops in a local geography, so not a lot of big m&a deals.

4) Pricing and gross margins on new cars.

Consumers have benefited.  The internet has brought prices down.  Gross margins are close to the bottom.

5) Which public dealers are well run?

None - most are average, with Asbury leading the pack.  Berkshire owns the best dealer of scale.

Thanks

I repeatedly hear that OEMs will be beneficiary of EVs as servicing can be done directly with them via software updates.

I wonder how the average gross profit per vehicle breaks down into a) front margin, b) warranty, c) OEM incentives etc on an absolute dollar basis - do you know more?

Also, I see that some dealers open independent used dealerships with low avg prices offset by F&I, warranty etc. - What is your view on a) the sustainable economics of that model and b) the potential to scale as to me it seems any dealer could follow the same strategy?

Look up the NADA report for specifics.... here's the high level.

Selling new cars is ~50% of total gross profit.

For new non-luxury, the average selling price is $30k with ~2% gross margins.  F&I ~$1k.  Incentives/fees are ~$1k.

For new luxury, the average selling price is $45k with ~8% gross margins. F&I ~$1k.  Incentives/fees are ~$1k.

In total, each portion makes up around ~15% of total profits and 1/3rd of gross margin off of new vehicles. 

On the latter, I don't know the used market as well as the new market.


muscleman

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Re: US car dealerships
« Reply #21 on: June 06, 2019, 07:21:34 AM »
I've bought 8 vehicles in the past 10 years, and my experience is that the new cars are much better bargain than before. It is not uncommon to get 8-15k off MSRP these days for a 35-45k vehicle. I always check on autotrader.com and set the radius to ANY, so I can find the cheapest offering in the country, and know what price target I should shoot for in the local dealership.

I've also seen dealerships ripping off customers on service packages. My volvo will be due for the 120k mile maintenance service soon. It is a ridiculous $1175 charge. When I check the exact items they do, it is not that much work. If I just tell them instead to do "oil change, tire rotation, engine air filter and ac air filter change, flush the brake", it is the exact same things for that 120k package, but the total cost of these items add up to just over $400.
I am muslceman. I have more muscle than brain!