Experts offer six factors for success to make dealerships acquisitions more profitable.
The Canadian auto dealership industry is currently undergoing a phase of rapid consolidation. From 2009 to 2013, the number of groups with five dealers or more increased by 24 per cent.
We are also seeing the emergence of large cross-Canada organizations such as AutoCanada and Dilawri Group.
This trend is being driven by various factors, including business succession. In 2012, over 70 per cent of Canadian auto dealers expressed a desire to retire completely within five to ten years, according to PwC’s report on industry trends, “Paving the way to a smooth transition.”
Business transfers will lead to a growing number of acquisition opportunities within the market. But how can we ensure that these opportunities benefit dealers who wish to expand their existing groups?
Growth strategy
In PwC’s view, to ensure successful acquisitions, auto dealers should begin by laying out a clear growth strategy; they should then implement an integration plan once the transaction has been completed.
Each acquisition should be consistent with the existing strategic plan. Dealers should be able to justify each acquisition not only on the basis of their desire to grow, but also in terms of the transaction’s strategic value to the group.
In PwC’s view, to ensure sustained long-term growth, business models should be based on the following six factors.
Centralized services
As soon as a dealer controls more than one dealership, certain administrative functions should be centralized. At the same time, operational functions should remain close to consumers.
By focusing on HR, marketing, IT support and finance, costs can be reduced and funds can be freed up to hire highly skilled staff. Experienced professionals will be able to determine best practices and put them into action in each dealership with a view to improving group performance.
Economies of scale
By qualifying for better financing terms and/or lower prices with suppliers, dealer groups that implement a supply chain integration strategy can achieve significant economies of scale. They can also capitalize on revenue synergy opportunities, in particular by negotiating higher commission percentages with financial product suppliers.
Talent management
The labour market is highly competitive, so companies are always fighting for the best candidates. A larger dealer group can offer better conditions aimed at attracting and retaining the best people.
For example, a larger group can offer personal development opportunities and a career path that lets employees rise up through the ranks. In some cases, they may also provide access to personalized leadership training programs.
In addition, a larger organization is more likely to offer comprehensive and attractive compensation programs designed to contribute to staff retention and improve the group’s financial and operational performance.
Business transfers will lead to a growing number of acquisition opportunities within the market. But how can we ensure that these opportunities benefit dealers who wish to expand their existing groups?
Information technology
Growth brings with it the need to put in place tools to facilitate day-to-day management and boost sales. IT systems provide dealer groups with a wide array of real-time financial and operational data for management dashboards. This information is the key to swift and smart decision-making.
Acquiring state-of-the-art marketing tools is also highly profitable and beneficial. For example, a website designed to optimize the user experience can also provide accurate usage statistics. This wealth of information can be put to good use, e.g. through better targeting of advertising and by tailoring promotions to specific clientele.
Brand diversification
By diversifying the number of brands available, a dealer group can fully benefit from market trends. For example, just ten years ago, the market share for light trucks was only 45 per cent; by 2015, this had risen to 60 per cent. A group offering few branded products in this segment would not have benefited from growth in this market.
Brand diversification offers another sizeable advantage: by working with various manufacturers, groups can tap into multiple sources of business intelligence and apply best practices in all of their dealerships.
Geographic diversification
A growth strategy designed to foster well-planned geographic diversification will reduce not only dependence on regional economic fluctuations, but also operational risks.
Geographic diversification also makes it possible to skirt manufacturers’ restrictions on the number of franchises that a single group can own in a given area. The growth strategy must provide for the creation of infrastructure enabling the owners to expand beyond their current geographic boundaries.
To sum up, when it comes to successful acquisitions, auto dealerships have everything to gain by putting together a profitable growth strategy and business model before they even enter into the transaction.
Last but not least, an integration plan must be carried out to obtain the expected strategic value.
Damiano Peluso is National Automotive Leader, Toronto, PwC. Frédéric Séguin is Vice President, Montreal, PwC.
