NEW YORK — In a rapidly changing automotive retail industry, getting bigger can make a difference in the long term, but what will matter more is becoming and remaining a better dealer, according to panelists speaking on mergers and acquisitions strategies Tuesday at the J.D. Power Automotive Forum here.
Mergers and acquisitions activity doubled during the pandemic as dealership groups, especially larger ones, sought opportunities to pick up stores and increase profits, said Alan Haig, president and founder of Haig Partners, a buy-sell advisory firm in Fort Lauderdale, Fla. Part of that was driven by the exponential growth in digital automotive retailing as COVID-19 altered retailing practices for the better, Haig said. Those changes gave larger groups an advantage they may not have had when they were competing just with neighboring stores.
“The pandemic changed consumer behavior and advanced e-commerce in the U.S. by a decade,” Haig said. “Larger groups are going to be able to differentiate themselves from smaller players” when they can offer more selection and a better standard of service because of their size.
Other panelists suggested, however, that dealers today don’t face an existential grow-or-die threat but can adopt strategies that ensure their success.
Tim Batchelor, principal at Open Road Capital, said lenders like him are still bullish on automotive retailing, enough to underwrite merger and acquisition activities, but there is pressure on dealers to improve their operations.
“I wouldn’t say a smaller dealer with two or three stores is going to be driven out of business, but there are more opportunities to make money by growing,” Batchelor said.
Bill Cariss, CEO of Holman Strategic Ventures, which operates 35 dealerships and other auto-related businesses, said retailers of all sizes need to concentrate on their partnerships with automakers — especially those studying agency models or other potential distribution systems.
“We continue to believe that the good manufacturers are going to see the value of good dealers. So we need to be a phenomenal dealer,” Cariss said. Holman continues to pursue acquisition opportunities, despite potential retailing changes on the horizon.
“We look at the payback period [for new acquisitions], and the payback period right now is pretty strong and will be for at least the next five to eight years,” Cariss said.
Rob Cochran, CEO of #1 Cochran Automotive, which has more than two dozen stores in western Pennsylvania and northeast Ohio, said that a geographically dense regional growth strategy has worked well for his company, which continues to expand. But, he said, there are more ways than one to be successful. #1 Cochran ranked No. 59 on Automotive News’ latest list of the top 150 dealership groups based in the U.S., with retail sales of 13,871 new vehicles in 2022.
“There are peers of mine that have a strategy different than mine and are wildly successful with it,” Cochran said. “Ultimately, the customers are going to choose the winners of tomorrow.”
Cochran said his company focuses on branding and building its brand within its region.
“The defined geographic market works well for us. The company is 58 years old now, and we’ve built around our name and our brand,” he said, adding that #1 Cochran has “resisted the temptation” to expand outside its region. “In that defined geography, whatever the product is, whatever the service is, if it involves personal mobility, we want to be involved with them.”
Said Cochran: “There’s some scale advantage, and by looking at the business differently, there can be more.”
