Although the short to medium term looks positive for auto retail, we are encouraging dealers who want to thrive over the long-term to take specific actions now to ensure their success. Many dealers remember all the so-called threats to their business model over the years. The OEMs were going to take over sales; public companies were going to take over, and the internet would kill their businesses. But none of these have proven to be true. The number of dealers that have gone out of business because of these threats is 0.

We know that all businesses have risks, however, and we believe that smaller dealers need to start paying attention to those posed by large consolidators over the next decade. Auto retail has consolidated at a slower pace than any other major retail categories, not because of a lack of capital or consolidators, but because smaller operators have been able to compete effectively against large groups for a number of reasons. Economies of scale have been more limited than in other industries, smaller retailers have been able to attract top talent, and OEMs tend to resist public companies. Consumers had few reasons to purchase from a national firm vs. a local one.

But the Pandemic and evolving technologies have changed things in our country, and dealers will need to evolve significantly to thrive in this new era. Online shopping (digital retailing) has raised the bar of consumer expectations regarding selection and convenience. And there is a new generation of shoppers who prefer interacting with their phones or computers rather than with live human beings. Forward-thinking auto retailers are responding and giving the customers what they want: a huge selection of new and used vehicles, a fair price, and a convenient way to buy.

Take a few minutes to go online and look at Carvana’s or CarMax’s websites. They offer consumers a huge selection of vehicles with a simple one-price sales process. F&I is also online. Franchised retailers are also moving in this direction. Lithia Motors, now the largest auto retailer, has announced its plan to acquire enough dealerships so that they will be located within 100 miles of every consumer in the US, then they plan on using their Driveway app/website to sell new and used vehicles and offer service to customers located in every market of the country. Lithia will be the first truly national franchised auto retailer. These three retailers currently offer a much bigger inventory selection than smaller dealers. And their websites and apps provide a world-class shopping experience that is increasingly essential for consumers of all ages, particularly the upcoming generation.

Today, when inventory is so limited, most dealers are spending little time competing for consumers. If you have it (inventory), they will come! In these conditions, scale and technology have few advantages, and almost every dealer is holding onto market share in a highly profitable manner. But in several years, when new vehicles are plentiful again, it will be increasingly important to be able to attract eyeballs, and larger groups will have bigger ad and digital marketing budgets than smaller retailers. Their dealerships and vehicles will show up first when consumers look online for their transportation needs. And when consumers arrive at their websites or applications, larger dealer groups will have an excellent chance of converting them from shoppers to buyers by giving them what they want: big selection, ease of shopping, and fair prices. Those retailers who can best satisfy customers by offering them more of everything will take market share from those that offer less. Here is where scale will finally matter in auto retail. Stronger brands, more effective advertising, better selection, and an easier purchase process will enable larger groups to take market share and profits from smaller ones. And the advantage won’t be limited to vehicle sales. Better marketing and technology will also allow larger retailers to fill their service departments.