Thursday April 7, 2022
The UK automotive industry is facing significant changes, challenges and opportunities. After successfully navigating the choppy waters of the pandemic, the sector is currently enjoying strong margins, benefitting from the much-publicised gap between the levels of supply and demand. And as the global shortage of semi-conductors continues to heap pressure on both new and used car supplies, consumer demand shows no sign of easing.
Some may argue it’s a nice problem to have. On the basis that they can secure adequate levels of stock, many car dealerships are currently in the enviable position of selling new cars with very little discounting required, while securing record high values for their used stock. This recipe for strong margins is evidenced in the strong share price growth of many of the UK’s largest car dealers over the last year – a good barometer for the wider industry.
Well, dealers may find they’re at the helm of a business which holds a strong valuation versus historic trends – a strong magnet for potential buyers that are buoyed by confidence and continuing growth in the market.
It’s no secret that increasing numbers of dealerships are coming up for sale, a trend that’s creating opportunities for both bigger and smaller players. Upscaling through acquisition can not only help elevate a dealers’ market presence, but it can also be used to diversify revenue streams and manage risk, in addition to increasing purchasing power which may help to protect margins.
Mergers and acquisitions can also serve to expand a dealership’s operational footprint by bringing new premises into the portfolio and driving expansion into other service areas such as used cars or commercial vehicles.
So now could be the right time to consider speaking with advisers to pursue a transaction, enhancing scale, acquiring capabilities, broadening geography or expanding dealer representation. But it’s a fast-moving backdrop and dealers need to make sure they continue to protect and enhance their value and margins, whilst also exploring new supply opportunities to help overcome current stock shortages.
So, what’s next?
They also need to prepare for bumps in the road ahead. Servicing for example is expected to change materially, largely because of the rising popularity of electric vehicles which don’t require the in-depth maintenance of petrol vehicles. This amplifies the benefits of investing in and developing out service offerings that will remain in high demand, such as tyres and brakes.
And while not every dealer may want to launch an aggressive buyout campaign or place a ‘for sale’ sign around its premises, the rate of change and disruption that’s currently dominating the industry, is certainly creating a wealth of opportunities. Those that choose to transform their dealership models by evolving new sales channels and maximising diversification opportunities, whilst remaining alive to the benefits that the consolidation boom can offer, have it all to play for.
But above all, its abundantly clear that standing still is a road to nowhere.
First published in April 2022 in the official NFDA magazine, The Voice.