NEW YORK–Credit unions’ relationship with auto dealers is a keystone in their auto lending business, but the business of auto retailing is changing.
Many credit unions have built strong relationships with their local dealers, but many of those same small to mid-size dealer groups are selling their businesses to auto-retail giants or investment firms. One indicator of the trend, noted the Wall Street Journal in its analysis–the move by investor Warren Buffett to get into the dealership business in 2014–which has also come at the same time “electric, shared and autonomous vehicles threaten to reshape the car business.”
Auto dealers told the Wall Street Journal they need to make as much as triple revenue in the next half-decade to offset shrinking margins and increasing competition from companies that didn’t exist a decade ago.
The challenges to dealers include the Internet, which has made car prices more transparent for customers and given them the ability to shop around in addition to allowing for the online purchases of used cars; Tesla, which allows online ordering to circumvent dealerships entirely, and companies such as Uber and Lyft, have enabled people who formerly would have purchased a vehicle to instead rely on ride-hailing apps.
“These developments have helped fuel consolidation of the 16,800 U.S. dealerships into the hands of fewer owners,” the Journal reported. “The top 50 dealer groups are poised to book more than $175 billion in revenue this year, compared to $144 billion when Buffett’s Berkshire Hathaway entered the sector four years ago.”
An estimated 200 car dealerships changed owners during 2017, with big dealer groups such as AutoNation and Group 1 Automotive seeking to achieve greater economies of scale.
“Still, dealer margins are shrinking amid tough competition and the increased pricing transparency enabled by the Internet,” the Journal reported. “Dealers took home about 2.5% of the selling price of the average new car in 2017, down from about 4.7% in 2009, according to data from the National Automobile Dealers Association; used-car margins slipped to 6.9% from 10.7% in 2009 during that period.”