Dealerships Don’t Decide To Buy Dealerships: CEOs, Partners, And Executive Boards Buy Dealerships

June 8, 2022

The recent evolution of automotive retail has brought many changes to the process of dealership acquisition. The rise of both privately-owned and publicly-financed dealer groups of very large size has led to a more corporate-based, analytical approach that comes into play when these entities decide to add to their holdings.

The decision-making processes of these large dealer groups involve much more than achieving ever-higher sales volumes. Today’s major players place significant emphasis on how the moves they make today will support their future performance and profitability. This requires a more strategic approach that takes many factors into account. Let’s examine some of these factors.

Acquisitions As Strategic Elements

Large dealer groups tend to see the nation as a very large chessboard, with dealerships as the game pieces. Acquisitions act as the moves they make to improve their positions on the board. These groups can have different approaches to acquiring more dealerships, depending on their particular strategic goals:

  • Do they want to own more dealerships that sell specific brands?
  • Do they want a greater presence in specific geographic areas?
  • Do they want the volume that comes with selling mass-market brands
  • Do they want the profits that come with selling luxury brands?
  • Do they want to cover the entire market from mass-market to luxury?
  • Do they want under-performing dealerships with greater profit potential?
  • Do they want to add up-and-coming franchises whose value will grow over time?
  • Do they want to be in the vanguard of the future EV conversion?
  • Do they want something else entirely, or to combine these goals in unexpected ways to fill a niche?
  • Or do they have an ambitious “all of the above” strategy, planning to be all things to all people?

The Role of Boards, CEOs, and Partners in Making Decisions

Large dealership groups engage their boards, CEOs, and partners to make the decisions relating to their future business direction. These decisions can include expansion, diversification, and even divestment for some brands and geographic areas, combined with reinvestment in other regions.

Public dealerships in particular will often look years into the future, laying the groundwork for their future growth now. They are also planning for their future profits by choosing their acquisition targets according to their own unique and specific strategies.

Operating in this way, these large groups always have an immediate plan to get the results they want. This means that they are prepared to strike quickly, acquiring any appropriate acquisition targets as soon as they become available.

Consolidation is Driving the Growth of these Large Groups

While large dealership groups increase in size and dealership buy-sell activity is at an all-time high, it helps to understand that the number of rooftops has not changed significantly. This means that ownership is becoming ever more concentrated, with fewer companies owning and operating the nation’s dealerships. This trend is in evidence at all dealer group size levels – the small ones want to grow to mid-size, the mid-size ones are working to become large, and the large ones look to become even more dominant.

According to Automotive News, the top 150 dealer groups owned 4,138 stores, or 22.7% of the US total at the end of 2021. The top 10 groups owned 1,565 stores, an 8.6% share. The six main public dealership groups added a total of 279 stores in 2021. These numbers are likely to continue to increase in 2022 and beyond.

Buyers Have Cheap Capital and Cash to Make Acquisitions

While the pandemic created many problems, it also boosted liquidity, kept rates low, and sent stock prices soaring. This provided public dealer groups with plenty of capital. The high market valuations have facilitated acquisitions paid for in shares of stock.

In addition, tight supplies of vehicles have created a seller’s market, boosting average transaction prices into the stratosphere. Dealers are now flush with cash, providing even more resources for buying additional dealerships. This has pushed valuations to new highs.

Excellent Profitability of Dealerships Drives Ongoing Acquisition Growth

Dealership profitability has never been better. The unprecedented profits that have flowed from the sales of vehicles at higher than MSRP and without discounts or incentives has created a new normal, one which most dealers hope will last into the foreseeable future. These profits are both the motivation and justification for ongoing dealership acquisitions. In the eyes of the large dealership groups, the profitability level is expected to grow even further.

Why it is Helpful to Understand this Process if you are a Seller?

If you are interested in selling one or more dealerships, it is extremely helpful for you to see how your store or stores might fit into the strategic plan of a potential large buyer. How will the transaction fit into their particular game plan, in terms of geographic coverage, franchises added to their portfolio, new EV models to sell, and overall profitability? How much value do you add to their existing holdings? By considering these questions and making strategic adjustments, you can make the dealership you are putting on the market all the more attractive to the pool of likely buyers.

DCG Acquisitions Understands How Large Dealership Buyers Think

DCG Acquisitions is experienced in negotiating sales with large dealer groups. We will help you to successfully navigate the sale of your dealership to any qualified buyer. DCG Acquisitions will also demonstrate to these prospective buyers how your store or stores can make a meaningful contribution to their own master plan.

DCG Acquisitions is here to help you get the most value for your dealership sale. We are one of the country’s leading and fastest-growing automotive M&A firms. Our extensive network of connections – with auto manufacturers, lenders, buyers, sellers, and more – enables us to create a qualified, competitive environment on both sides of the sale.

Contact DCG Acquisitions to speak with an Automotive M&A specialist and learn how we can help you get the most out of your next dealership sale.