Consolidation of the U.S. Automobile Retailing Industry: The Wave of the Future, or a Short Lived Dream?
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Author
Dever, Shane Thomas
Subject
Washington and Lee University -- Honors in Business Administration
Automobile industry and trade--United States
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Over the past three years, significant change has occurred in the retailing side of the American automobile market. An industry traditionally run predominately by private franchisees is quickly being taken over by public conglomerates. Or is it? Opinions vary regarding the threat that these companies impose on the private dealer. The vast amounts of Wall Street capital that they can attain certainly gives them a competitive advantage, but many think this advantage is canceled out by their lack of knowledge in the car business. These companies are trying to capitalize of the great inefficiencies within the current system by being more cost effective than the private dealer. Billions of dollars are wasted annually by private dealers on overhead, advertising, vehicle and part logistics, and other redundancies. The pubic companies feel that by reducing these inefficiencies, they could create a market with lower prices, as well as higher margins per car sold. . . . Private dealers have now reached a crossroads. Soon every dealer must decide whether or not he wishes to sell out to these companies. The consolidators have been offering the private dealers goodwill premiums that are hard to resist. There is also a
large group of owners who were granted dealerships in the 1950's and 1960's and are approaching retirement age. These dealers may already be looking for a market exit opportunity, and selling out to the consolidators is a great way to cash in. . . . Before starting the research for this study, I hypothesized as to what my results would be. I believed there would be no revolution in the car business because auto retailing is a unique industry that could not be successfully streamlined. I thought the consolidators would have a hard time achieving the necessary economies of scale. WalMart is only able to succeed because it gets significant discounts from the food manufacturers, but such preferred vendor agreements in the car business are not feasible. Therefore, my conjecture was that public ownership would not survive for long in the American auto retailing industry. Six months ago, however, two regional public consolidators entered the marketplace. They have changed my stance on this matter because I do believe they have a successful strategy. My new opinion is that the public condolidators will not take over auto retailing, but they will prove that there is plenty of room in this trillion dollar industry for both types of ownership. In the following sections, I will attempt to show why the auto market of the 21st century will not be revolutionized, but it will rather evolve into an industry with both public and private ownership. [From introductory section]