Historically, dealer groups existed because they enabled an individual entrepreneur to leverage his talents and spread his risks beyond a single store; enabling more stable earnings growth in a larger enterprise. While some standards in technology, accounting and vendors were achieved, they aimed to create a more manageable organization rather than driving an advantaged cost structure. The enterprise was largely a portfolio of assets with the individual location still the fundamental economic unit.
Then megadealers emerged. Initially their value proposition was driven by exploiting the difference between private and public earnings multiples. They were roll-ups fueled by a rising stock market and cheap debt. Over time, these large enterprises built on the financial gains by consolidating sub-scale store back offices and utilizing buying power to improve costs. Central capabilities in technology, process design, training and talent management were developed to create and deploy best practices at the store level. They benefitted from more consistent performance across the portfolio. However, the store remained the fundamental economic unit; albeit against some tighter standards and reduced scope of activity.
There is an emerging model that recognizes the potential from placing the consumer at the center of the enterprise to create the shopping and lifetime ownership experience that can only executed by a group with significant local brand density. Corporate takes responsibility for customer communication and offer development, so that consumers can move seamlessly between brands. Brands are recognized for their enterprise value. Consumers are already behaving this way online. It takes place on third party sites, outside the dealers’ control. In this model, stores can be dramatically simplified and re-purposed, as eCommerce departments, BDCs, inventory management and pricing moves to a central location. Centralizing leverages scale, expertise and incentives based on optimizing the enterprise, rather than individual store performance. The store’s purpose becomes solely to deliver in-person brand sales and service experience. The consumer and enterprise become the fundamental economic unit.
Successfully adapting to this change involves breaking tightly held beliefs and practices. The transition will not be easy and needs to be carefully planned and sequenced. However, the resulting economics are very compelling. Scaled efficiencies can be achieved in operating, as well as back office tasks. More importantly, the new processes and offers result in dramatically higher close rates, price realization and customer retention than can be achieved in single store, portfolio or holding company model.