Public dealership groups: Small in number, huge in clout

Read the article online here.

In the late 1990s, it seemed that big, publicly traded dealership groups would come to dominate auto retailing, leaving independent operators and small, family-owned collections of stores in the dust.

That didn’t happen. Two decades later, just six franchised dealership groups in the U.S. have gone public, responsible for 6.5 percent of new-vehicle sales nationwide. And not a single new player has joined the fray in 17 years..

But there’s no doubt the public groups are a powerful voice for the entire dealer network. By going public, they showed the potential of auto retailing and helped transform an industry of mostly self-funded small businesses into one flush with cash from big banks and private-equity firms.

The publics have heavily influenced the industry in terms of scale, scope, management processes and dealership valuations, said Jim Press, president of RML Automotive in Lewisville, Texas.

Going Public

Here’s when the 6 public new-vehicle dealership groups had their initial stock offerings.

1996: United Auto Group (renamed Penske Automotive Group in 2007) in Bloomfield Hills, Mich.
1996: Lithia Motors in Medford, Ore.
1997: Sonic Automotive in Charlotte, N.C.
1997: Group 1 Automotive in Houston
1998: Republic Services Inc. (renamed AutoNation in 1999) in Fort Lauderdale, Fla.
2002: Asbury Automotive Group in Duluth, Ga.

“Public retailers have been a positive influence on the entire auto dealer retail organization and still represent a fairly small percentage but have a big impact,” said Press, a Toyota executive during the fledgling public retail era who later became co-president of Chrysler Group.

Today, many private dealership groups count on the publics’ candor with automakers because the publics have the heft to speak on behalf of retailers at large. Especially now, with an unclear future looming over auto retailing, many private groups are watching the six publics — AutoNation Inc., Penske Automotive Group Inc., Lithia Motors Inc., Group 1 Automotive Inc., Sonic Automotive Inc. and Asbury Automotive Group Inc. — for hints on how to cope with the anticipated disruptions.

Before the groups went public, auto retailing “was a hidden industry,” said auto analyst Maryann Keller, principal of Maryann Keller & Associates. “It was a mom and pop kind of industry — or viewed that way.”

The public offerings raised the profile of auto retailing, she said. As public companies, the six retailers are required to have calls with analysts to explain quarterly earnings results, which continues to be a “great source of information,” Keller said. Executives at the public groups are vocal, she said, and “If something was selling slowly, or they were getting inventory pushed on them, they would tell you.”

For example, Mike Jackson, CEO of AutoNation for two decades before stepping aside in March, has been known as an energetic, blunt voice in the industry. Jackson remains as executive chairman at AutoNation.

“We have certainly been very vocal as to the sins of overproduction and to the sins of stair-step incentives and that the new-vehicle selling process is not customer-friendly,” Jackson said. “I think we have carried the day there. The vast majority of dealers agree with our position.”

Few understood the profitability of auto retailing before the dealership groups went public, Keller said. Today, if dealers want to expand their group, “They can find backers either in private equity, or they can find backers among typical financial institutions who are willing to provide acquisition funding,” she said. “That’s been one of the areas that’s transformed this business.”

The public groups operate from 83 (Asbury) to 280 (Penske) stores each. Hendrick Automotive Group, with 96 stores, is the only private group with a comparable footprint on Automotive News’ list; the rest have 63 stores or fewer, according to the Automotive News Data Center.

But the largest of the private groups couldn’t have grown to their size without the publics’ demonstration of how profitable auto retailing can be and the resilience of the dealership model amid cyclical economic fluctuations, Keller said.

Two more public companies, CarMax and Carvana, appear on Automotive News’ list of the top 100 dealership groups in the U.S. based on used-vehicle sales, but they do not have any new-vehicle franchises. CarMax, which went public in 1997 and is by far the largest used-vehicle retailer on the list, is hugely influential in the markets where its 209 stores are. Many dealers also have been closely watching Carvana, a fast-growing startup that became publicly traded in 2017.

Follow their lead
Public and private dealers are striving to determine their place in an uncertain future, where ride-sharing, vehicle subscriptions and autonomous vehicles could drastically reshape their business.

Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., said she looks to the public retailers to help outline dealers’ future roles.

“We may not be the first in some of those spaces,” Borches said. “I don’t want to be left behind, but I also want to really pay attention and see what mistakes others are making and where they’re having successes.”

When AutoNation appointed Carl Liebert, an industry unknown, as its CEO this year, many dealers were paying close attention, said Mark Johnson, president of buy-sell firm MD Johnson Inc. He said AutoNation’s board, attorneys and advisers likely were part of the decision to hire Liebert, who is expected to bring digital expertise honed at USAA, General Electric, Home Depot and Circuit City.

 

As AutoNation’s decision-makers discussed what the business could look like in two decades, they probably viewed Liebert as the right kind of leader to avoid following once-dominant companies such as Kodak into irrelevance, Johnson said. Most private dealers don’t have a board or the kind of high-level attorneys and advisers that AutoNation has to rely on for direction, Johnson said, “so they look to follow the [groups] that have a lot of resources.”

Private groups also rely on guidance from the publics when sorting through a confusing, ever-changing sea of vendors vying for their business, Keller said. They take note whenever a public group chooses a particular vendor to service all of its stores. “It would be indicative of the fact that you know they’ve done the homework for you,” Keller said. “They are looked at as the front-runners.”

Innovation race
As customers have grown to expect a digital shopping and buying experience, each of the publics has launched or plans to introduce a digital retailing tool on their dealership websites, either developed in-house or obtained from a vendor.

Some of their commitments to innovation go beyond vehicle sales and beyond their companies. For example, AutoNation in 2017 began working with Waymo, Google’s self-driving car unit. The retailer signed a multiyear agreement to provide maintenance and repairs for Waymo’s fleet of self-driving Chrysler Pacifica hybrids. AutoNation also offers some customers a ride in a Waymo vehicle instead of a loaner during service appointments.

AutoNation last year invested $50 million in Vroom Inc., an online used-vehicle retailer. The investment could lead to a strategic partnership but is only an investment for now, Jackson said at the time.

Lithia, meanwhile, invested in an online used-vehicle retailer last year, becoming the largest shareholder of Shift Technologies in San Francisco. Lithia’s investment was part of a strategic partnership that provides the capital Shift needs to expand nationwide and uses Lithia’s physical infrastructure to supplement Shift’s storage areas.

Penske has invested in Ridecell and Fair.com to participate in the future of mobility, and it plans to launch digital retailing sites in the United Kingdom and at its used-vehicle outlet in the U.S. this year.

CarMax also has invested heavily in digital retailing with an omnichannel car-buying process it launched in Atlanta this year. Omnichannel typically describes a seamless buying experience, whether consumers are shopping from their computer, mobile device or in the store. By February, CarMax says, most customers will be able to buy from home, in the store or through a combination of both.

As part of the omnichannel experience, CarMax next year plans to open three Customer Experience Centers, where consultants will assist buyers by phone or online with shopping and financing, and those buyers can get their vehicle at a nearby store or opt for home delivery.

Large private groups have been auto retailing trailblazers as well. For example, groups such as Holman Automotive Group in Mount Laurel, N.J., and Flow Automotive Cos. in Winston-Salem, N.C., have experimented with vehicle subscription programs. And others, such as Walser Automotive Group in Minneapolis, eliminated F&I managers in favor of a hybrid sales-F&I process.

‘Incubation centers’
Lithia CEO Bryan DeBoer said he thinks of the company’s 183 dealerships as “incubation centers.”

“We allow leaders in our company, in the stores, to be who they are and go to market with their customers in the way they believe is most competitive in those localized areas,” DeBoer said. “It’s a little different than most big-box retailers that are consolidators.”

Lithia’s dealerships operate independently for the most part, but the group builds on best practices from individual stores to develop solutions to benefit others, he said.

Innovation can happen anywhere, DeBoer said, “but you do need scale to find the right formula that works for most people.”

Public groups do have scale, but they still must keep shareholders top of mind.

“The way consumers are buying cars today will continue to evolve to be more digital, and we’ve got to continue to be the most professional dealers in that arena,” said Pete DeLongchamps, Group 1’s senior vice president of manufacturer relations, financial services and public affairs. “And we’re making those investments, but we’re making them cautiously and in a considerate way for our shareholders.”

With limited resources at smaller, private groups, a necessary focus on day-to-day operations can hamper brainstorming about the future. The public groups can get a taste of both the present and the future.

“What I’ve enjoyed about AutoNation for the past 20 years is, I’m doing long-term things,” Jackson said. “And at the same time, I’m very excited to see the sales report every day from the different parts of the country.”

Back to News