By Rich Sheehan
Colorado auto dealerships are being purchased at an unprecedented rate, reflecting a nationwide trend of automotive retail consolidation that affected seven local dealerships in 2021.
About 25% of Colorado’s 260 dealerships were sold in 2022 or are under contract, the highest percentage in history, according to Tim Jackson, president and CEO of the Colorado Automobile Dealers Association.
Less than 5% of dealerships change owners in a typical year, Jackson said.
âThe industry as a whole has seen consolidation on an increasing scale, but this year it’s a little off the charts,â he said.
The Boulder dealers sold this year are:
- Gebhardt Volkswagen, sold to Fred Emich IV; the name was changed to Emich VW Boulder.
- Boulder Hyundai sold to Foundation Automotive; the name was changed to Hyundai Foundation of Boulder.
- Larry H. Miller Toyota Boulder sold to Asbury Automotive Group; the name has not been changed.
- Pollard Jeep sold to Fowler Auto Group; the name was changed to Fowler Jeep of Boulder.
The dealers in the Longmont area with new owners are:
- Ehrlich I-25 Kia sold to Fowler Auto Group; the name was changed to Fowler I-25 Kia.
- Courtesy of Mazda sold to McDonald Automotive; the name has not been changed.
- Stevinson Hyundai sold to Asbury Automotive Group; the name has not been changed.
Colorado’s sales growth is part of a national leap in dealer sales, said Erin Kerrigan, founder and CEO of Kerrigan Advisors, a consulting firm that advises auto dealer groups on operations, growth and the sale of their businesses.
âIn the first nine months of the year, (dealership) transaction activity has grown by 20%,â Kerrigan said, noting that 2021 will be a banner year for such transactions. âKeep in mind that this is after 2020, which also increased by around 20%. Since the pandemic, auto retail consolidation has accelerated. “
Sales transactions have been completed for 57 Colorado dealerships, with eight others under sales contracts. While Texas and Florida have the strongest growth in dealer transactions, Colorado is in the top quartile thanks to the state’s continued population growth.
âColorado is one of the most in-demand states in the country for auto dealers, in large part due to the state’s population growth,â Kerrigan said. “What our company is finding is that buyer demand is highly correlated with (population) growth, and therefore markets with that growth see a lot more transaction activity.”
An attractive investment
Car dealerships are an attractive investment opportunity for several reasons.
Kerrigan said car dealerships have a “uniquely diversified” business model, with multiple sources of income from the sale of new and used cars, the sale of parts, the provision of maintenance services and the financing of purchases. This business model has made it possible to âface all storms, including the pandemic, with great successâ.
While new car sales margins are relatively slim, at 2-3% per sale, Jackson said, this year’s high sales volume is expected to generate record profits for Colorado dealers.
According to national data from Kerrigan, dealer profits are expected to be 168% higher this year than 2019 profits.
The many disruptions COVID-19 has brought back to normal life have helped fuel demand for vehicles at a time when cars are relatively scarce.
âDemand is driven by consumer savings and a renewed desire for personal mobility over public transportation,â Kerrigan said. âThe renewed consumer love affair with the freedom associated with your own vehicle to go on vacation and live away from your desk because you can work from home has created an environment where the consumer has a very strong desire to vehicles and has access to capital with both savings and very low interest rates.
Like other retail operations, auto dealers have experienced supply chain issues, particularly a lack of inventory. The manufacture of new cars has been hampered by problems with integrating computer chips into modern vehicles, so fewer new cars are shipped to dealerships.
Jackson said stores that would normally have 1,000 to 1,200 cars on their lot may now only have 40 to 60 vehicles on their property. He recalled a dealership sharing an experience with a customer in the showroom purchasing a specific model of Toyota. Because the dealership did not have any of this model in the field, the salesperson sat in the showroom showing the customer’s website images of the car.
âThen a funny thing happened,â Jackson said. âAround this time a truck drove through the large picture windows bringing the next seven cars for inventory and the lady looking for the car turned around and saw the truck coming onto the lot, saw the car that was looking for the car. she wants to buy, and says, ‘There is one now. Can I buy this one? ‘ and she literally bought the car from the truck.
Many reasons to sell
Many, if not most, car dealerships started out as local family businesses. Some have maintained family control and ownership over several generations.
âWe have dealers in Colorado who are in their fourth generation in the same family and they have never changed owners, and it doesn’t look like they have any plans to do so at this time,â said Jackson.
According to AARP statistics, some 10,000 baby boomers turn 65 every day, a demographic trend that is reshaping many aspects of American society, including family businesses.
â(Some) current owners, i.e. major dealers and partners, have been ramping up for years, and they’re just wondering: is it better, from a transitional point of view, is it? better to pass that on to family members, “Jackson said.” And sometimes the dealer family has no one who wants to take care of it for the next generation. If so, there is more to it. incentive to go ahead and sell it, and I think we’re seeing that in a few of those cases. â
Contacting such a dealer about the sale can solve the family’s need for a succession plan while also meeting a potential buyer’s desire to expand into the Denver metro market, said David Hult, president and CEO of Asbury Automotive Group, a Georgia-based publicly traded dealer group. .
Given the increasing valuations of car dealerships, the sale of a dealership could provide such a family with substantial resources to invest in new opportunities.
âThe dealers are making a ton of money and the valuations have gone up dramatically,â Kerrigan said. âSo some dealers are deciding that now is the time to sell in part because they see a landscape for the future for automotive retailing that may be very different from the past. It is believed that digital retail will become a much more important and dominant part of the retail experience. For a traditional family business, they may not be interested in the investment required or the restructuring required to make their business operate in a much more digital sales process.
Kerrigan said trying to stay small and local is “not a very good strategy” in this evolving situation, especially for dealers in large metropolitan areas.
âMany dealers feel they need to either commit to huge growth and be part of the consolidation or consider an exit plan,â she said. âIf you want to grow taller, you have to spend a lot of money. You have to decide that you are ready to double down on this industry.
Impacts of changes in ownership
Dealer groups across the country are pursuing a strategy to get really big very quickly. A prime example is Asbury, which has bought 40% of the 57 Colorado dealerships sold so far this year. This agreement included the 12 Larry H. Miller dealers of Colorado.
According to the Colorado Automobile Dealers Association, the state’s 260 dealerships provide jobs for more than 43,000 people statewide, representing $ 2.5 billion in total compensation for Colorado residents in 2019. It These employment statistics are unlikely to be significantly affected by the surge in dealership sales.
While ownership changes in other retail segments often result in cost-cutting measures aimed at reducing duplicate services, this usually doesn’t happen with car dealerships. Employees at all levels generally keep their jobs. That’s because the biggest asset of a dealership is its team of employees, Hult said.
âWe believe people are your most important asset,â he said. âThere are a lot of incumbents in these dealerships who are used to doing business a certain way and going out there and being disruptive and changing things would be a big mistake and it wouldn’t be. not something we did. â
The Boulder House has 12 auto dealerships on its membership, and House President and CEO John Tayer has confirmed that the new owners are retaining the seasoned employees who operate the local dealerships.
âThe people who buy these local dealerships keep the existing management going, and that makes a lot of sense when you think about the connections and relationships their teams have with customers and suppliers,â Tayer said. âIt just makes sense that they don’t want to lose these assets. “
Tayer doesn’t expect the increase in corporate ownership of local auto retailers to have an impact on his organization.
According to Tayer, chamber members are “a diverse mix of local, national, and international businesses” all of which recognize that “engaging with a chamber organization is an effective way to develop your relationships with the community and grow your business. business “.