Car dealerships unloading inventory hasn’t been a problem. Inventory could be lower, demand is up. For the seller (aka the dealership), this low inventory combined with higher buyer demand means higher price tags. In fact, some car models have sold more than the sticker price.
Kelley Blue Book reported that the average sale price for new cars is more than $48K, and used cars tend to be selling for higher prices, too. Some car dealership owners might see the seller edge and wonder if it’s time to move on and sell the dealership. For car dealerships, is it a seller’s market?
What the Experts Say
Andy Church, president of U.S. operations at DSMA, tackled this topic for Auto News. Church explained that he wasn’t going to discuss the personal aspects of selling; obviously, selling a business is a personal decision and there could be many reasons why an owner might want to sell.
Church outlined the conditions in the market that could lead owners to sell. He explained that the high buyer demand, low cost of borrowing, the higher profit margin and the overall higher valuation of the dealerships all contribute to the market reasons for selling.
The article, however, was written back in May. This was a time when the dealership had an edge on the buyer, when interest rates were lower and when the profit margin also favored the dealership. Is the tide turning?
The Federal Reserve bumped interest rates yet again, and, unfortunately, this increase could impact the buyer. Higher interest rates mean higher borrowing costs. Buyers could afford less cars for their money.
If car prices remain high, these higher borrowing costs could possibly motivate buyers to delay their purchase. However, some car buyers might need a car immediately and have to simply purchase what they could afford. The market conditions could change for some dealerships.
Yet, the interest rates rising are only one part of the equation. Dealerships might still have the edge related to purchase price, and they also could still see higher margins. What the future holds, though, might be a mystery. Will demand fall? Will the prices go down?
The Fed only bumped rates a few weeks ago. It could take time for the impact to reverberate. The chip crunch could still impact dealership inventory, though. This could mean that dealerships could have fewer inventories and still have high demand. Again, though, only time could tell.
Sometimes Selling is Personal
Church didn’t outline personal reasons for selling a dealership. These reasons could be vast. Some owners might be ready to get out of the industry, or they could be ready to retire to the beach with their family.
Other issues could motivate a dealership owner to sell their business. Again, the personal reasons could be numerous and, obviously, very personal.
Selling Isn’t for Everyone
The car dealership could be a family business. Selling just might not be on the table. Dealerships might be fine with the market evening out. Economic shifts are a reality, and sometimes they are an unpredictable reality.
As the housing market favored the seller and prices soared, the same could be true for the valuation of some car dealerships. Yet, even when home prices were high, some families were simply happy staying where they were. Dealership owners might feel the same way.
Some Dealerships Might Be Evolving
Dealerships that wouldn’t even consider selling at a market high or at any point might also change their marketing plans and strategies to evolve with any industry changes. The pandemic forced many dealerships to move the shopping experience online, and some dealerships might have discovered that customers responded favorably to these online experiences.
Dealerships might be pursuing more dynamic online experiences to satisfy the tech-savvy buyer. Younger consumers—like Gen Z—might prefer augmented reality experiences that enhance their online shopping journey. Car dealerships could create augmented reality showrooms that can be accessed via smartphones and tablets; these experiences let shoppers capture the real world environment with their device camera and preview a product in that environment.
Augmented reality car showrooms drop a 3D digital model of the vehicle in the user’s selected environment. The experience is navigated with the camera, and the consumer can walk around this digital image and some experiences even let them look inside or change the paint color.
Car dealerships also could integrate other interactive experiences into their website to simulate the in-person shopping experience. For example, dealerships could use 3D spin photos to let shoppers explore the vehicle from home.
Consumers can interact with these 360 degree spin photos by using either their computer mouse or their fingertip (for those on a smartphone or tablet). The photo can be rotated a full 360 degrees to view it from any angle. In addition, panorama spin photos can feel as though the user is sitting in the vehicle; the fingertip or mouse can navigate the experience to look all around the interior of the car. Panorama photos even let consumers look up at the moonroof.
What Will the Future of the Car Shopping Experience Look Like?
Car dealerships likely understand that the chip shortage won’t last forever. They also understand that the seller won’t always have the upper hand. Eventually, the market might even out a bit. Prices might come down, inventory might be normalized.
Yet, no one knows what the future holds. The pandemic shook up the economy across the globe, and businesses had to figure out how to survive and remain afloat. Online experiences became the norm, but many businesses offered curbside pickup services. Car dealerships even offered virtual test drives.
Again, buyers might now prefer online shopping for buying and researching a new car. Younger buyers might not want to go to the dealership. Will this impact the future of the car dealership? Maybe it already has.
Who Might Buy?
For dealerships ready to sell, who is ready to buy dealerships? As Church explained, dealership groups aren’t the only potential buyer. He noted that private equity groups and independent dealerships also could be interested.
In some situations, though, selling might be the only option. Again, personal decisions for selling a car dealership could be vast. Some owners might decide to sell now if the market still favors the seller.
Others, though, might not even consider putting their business up for sale even if they think they could make a good profit. Some car dealerships are family businesses; owners could be in it for the long haul. Some could be excited to see what the future holds. After all, the future could be electrified with standard engines being replaced by eco-friendly motors. The future also could be focused on self-driving vehicles.
Regardless of what the future holds, dealership owners might be ready for the long journey. Others though could be more than ready to ride off into the sunset of retirement. Whether the owner sells and focuses on a new venture (or the beach) or stays the course, the future for the automotive industry could be exciting.