Dealers today are being affected because of industry wide consolidation, whether it’s their dealership, one of their administrators, or their agency partner. One could say it’s the new normal, and how we must approach everyday business in the automotive industry.
It’s important to futureproof your dealership and plan accordingly so that consolidation doesn’t deter or hinder you from reaching your goals. Realizing and planning for the concerns, like maintaining process and procedure consistency and how it affects your relationship and overall needs when one of your administrators or agencies is acquired. Will you be required to go by a different set of rules, follow a new organizations procedures and guidelines?
The Reality Check
Your concerns are certainly legitimate. You need to know how an acquisition can impact your relationship(s) and overall needs when your administrator or agency is involved. The new way of doing business can be a drawback and/or a positive change. You may find that resources are greater, that you have better customer service and a more focused customer experience. The companies that you work with could be bigger, stronger, more financially sound. While your agency may have been dealing with a select few administrators, now they could have several dozen to pull from to bring the best products forward. Cost structures could get lowered translating to higher profits for dealers. You could see advancements in a regionalized approach to products and services.
The optimistic viewpoint is that these changes will open up more participation streams, with different types of dealer equity programs and reinsurance structures, and as dealers, you will now have access to more of those opportunities. Your anticipation and goal will be more capital available for your dealership.
Acquirement of Administrators and Agencies
When administrators get acquired, it will be very similar to what you can expect with agencies getting acquired. Potentially products and services may go away and get folded into an existing administrator’s portfolio. While it will likely make the product better, it will be an unfamiliar practice for your finance department and the administrative office staff who is remitting the product, processing claims, and cancellations.
It’s a new way of doing business. There is no avoidance and again, there are definitely some positives and some negatives. On the dealership side it will predominantly be positive because the side effects will be beneficial. The dealer will see more resources made available (people and/or products) and should see some capital available. The downside is doing business the way you know, goes away, and for those who don’t like change that could be a hardship. Your service department, parts department, sales, finance, and the business office need to learn new products and new ways to sell those products.
The optimistic viewpoint is that these changes will open up more participation streams, with different types of dealer equity programs and reinsurance structures, and as dealers, you will now have access to more of those opportunities.
Ask the Right Questions
Whether it’s one of your administrators or agents, be sure to ask all the right questions regarding the transition.
- What is the compliance structure?
- What are claims practices like?
- What type of support do they offer me (human resources, technology, marketing)?
Dealers need to make sure that whatever the change is, that it’s positive for their business. If it’s not, then the dealer should look for alternatives that meet their needs. At the end of the day, the dealer needs to worry about what happens in their store.
Dealership acquisitions can be very positive. A dealer won’t be acquired unless they want to be, or if the offer is just too good to say no to. Once a dealer has been acquired an exit plan, or succession plan, is no longer necessary eliminating the worry of what comes next. Being acquired by the right organization can produce significant rewards by way of increasing the dealer footprint, and help dealers who are looking to grow gain more traction. More times than not these acquisitions are successful.
If you are a dealer looking to be acquired, you will need key people to facilitate the new acquisition, especially if they are out of your existing market. You can be highly successful in one state, then branch to another state where you don’t have full grasp on demographics, and it becomes more of a risk.
If you want to stay in ownership mode with the acquiring entity, you will need to embrace the changes you are faced with. You will need to stay out in front and update your technology needs. Further, you need to plan and prepare for the EV emergence because it is here and coming at the industry hard and fast. It’s not literally happening overnight, but we currently don’t have the infrastructure to support what is anticipated by 2030. Dealers, whether acquired or not, should start installing as many charging stations as they can support. For the service department, start to prepare for what’s to come, to service and be completely vested in the EV market. When the dealer down the street doesn’t have it and you do, that’s when more customers will come.
For the dealer who doesn’t know how to get started, step one would be to discuss your finances with your accountant. Review your succession plan and decide if it is adequate. If you believe you want to sell, start to explore brokers. Ask your agent, as they should be knowledgeable about dealer groups across the country that are consistently looking for stores to purchases. Above all else, make sure you have confidentiality agreements with anyone you speak to. Make sure your acquisition strategy is generating the organizational benefits you desire.
The Acquirement Effect on the Industry
The automotive industry will see (and benefit from) an infusion of technology hitting the stores. Agencies and administrators will be providing technology upgrades and make them readily available to dealerships.
The Covid pandemic has taught everyone how to work, sell and deliver cars outside of the dealership, and these tools will be built upon for a better customer experience. The transportation industry and remote deliveries are doing well, with a great deal more cars being transported than in the past. Many dealerships have purchased their own transport trucks to gain the advantage by making their own deliveries. As dealer groups get larger and larger, they have more volume and capital to offer lower prices and provide exceptional customer experience.
Mergers and acquisitions are part of the business cycle and have taken a strong hold in the automotive industry. It’s a great time for both growth and expansion.
ABOUT THE AUTHOR: Bob Seal is Director of Administrator and OEM Relationships at APC.