Written by: Brian Gordon, Chief Business Officer, Dave Cantin Group
The automotive industry, and particularly the retail automotive segment, has been a laggard in its utilization of data, insights, and overall market intelligence to help drive business decisions. This isn’t surprising for an industry proudly rooted in a blue-collar mentality and with best practices and trade secrets being passed down through the generations, not taught in business school. Oh, and for about a century, it’s also been one of the most consistently successful business verticals out there = so why change?
Of course, data exists in retail automotive. What’s changing most is the intelligence part. The industry is becoming more data dependent, asking for it along with accompanying insights to help make the right short-term and long-term business decisions. To be effective data must be current, must be packaged in a way that’s user friendly, and must have people skilled in analyzing it for the executives making the business decisions.
If the tide is turning, why now? Why is there a need and why is a dealer body that’s been indifferent to the importance of data starting to embrace it?
The primary need has ironically arisen as a direct result of a time when dealerships were making more money than ever before. The COVID profits in 2021 and 2022 skewed the industry’s perspective on performance and what a good year was that it reframed the art of the possible for retail automotive. Before the 4-minute mile was broken, it wasn’t something anyone imagined possible. Once it was broken, it kept getting broken repeatedly. It is unlikely that normal times in retail automotive will see an 8% return on sales again, but the fact that the industry tasted it made 2% – 3% seem like tough times.
So here we are, closer to pre-covid numbers but 2024 sure doesn’t feel much like 2018. Dealers aren’t satisfied, they want greater profits, but where is it coming from when margins are under pressure, lots are filling up, growth drivers aren’t obvious, and consumers are just starting to tighten their belts?
Take that one step further for larger companies that made significant acquisitions during the COVID years. These groups paid top dollar for dealerships that are great long-term assets, but on a short-term annual basis, the proformas and projections are underperforming their models and leaders need to extract as much value as possible out of each store to make up the gaps.
Related: Brett Hopkins, CEO of Ken Garff Automotive Group on the Dealer News Today podcast discussing the ‘amazing’ Covid years and sellers trying to market their dealerships based on those numbers.
Now we know there’s a need for data, but why the willingness to embrace it?
The makeup of the dealer body is changing in three ways.
1. Family-owned dealerships are being passed down to a generation where data and intelligence are endemic, a part of their everyday lives including business.
2. Rapid consolidation has put more dealerships under the management of larger, more sophisticated automotive groups who have already embraced the data driven approach.
3. Significant amounts of institutional capital have flowed into the business, not only demanding results but expecting operators to make decisions based on data.
What’s bringing all of this together is that more data is beginning to be available by third parties in ways that the industry can use. Why should the approach to automotive M&A be any different?
DCG has been quietly investing in M&A intelligence for years but seeing the recent thirst for more, we’ve upped our game too.
We launched our Dealer News Today Automotive Industry podcast in 2020 and our content engine shortly thereafter. We began development of our AI-powered software, Jump IQ, in 2022 and just announced its imminent launch last week. This tool has been built to assist the retail automotive segment in making better and more informed choices with their M&A strategies. In January of this year, we debuted our annual Market Outlook Report and will publish updates in the summer and fall. In the coming weeks, we’ll be announcing a syndicated show focused on M&A.
This industry is wrestling with an unprecedented number of challenges: shrinking margins, increases in inventory, higher costs due to interest rate increases, a slowing economy and a more cost-conscious consumer, regulatory changes, slowing EV adoption, increased foreign competition, labor challenges, volatile used car market, and more. For dealers to maintain margins and maintain growth, they need to have data and insights into every facet of their business and an understanding of how to benchmark their business against how others are performing.
M&A is a critical part of the overall equation. M&A has been go, go, go for the past few years, with many great acquisitions closing without being a part of a real business strategy. M&A isn’t slowing down at all, but the intentionality and strategy has changed. Executives are demanding more data and insights to effectively develop a long-term M&A strategy, determine acquisitions to target, and decide what underperforming or outlying stores to divest of.
“Today’s acquisitions must work for tomorrow.”
This is where DCG’s commitment to innovation, M&A intelligence and our AI powered software separates us. We’re solving for the bigger picture, answering the questions yet to be asked by bringing our clients data, information, insights, and visibility across a variety of platforms that have never been available before.
Are we raising the bar for the entire industry? Maybe.
Maybe we’re just hyper-focused on achieving better outcomes for those we serve, and the industry bar was never in our way.