Pub. 58 2017-2018 Issue 1

27 FALL 2017 Executive Summary Our overall top-level conclusion is that, over the next decade, franchised new-car dealers operating in the USA will see many changes to how their stores are set up and run, but no significant disruptiontotheirunderlyingbusinessmodel. Such an evolution- ary prediction is unfashionable in today’s environment, dominated as it is by pronouncements about accelerating rates of change in every aspect of life. But car retailing is an enormous industry that is shaped by over a century of habits, consumer preferences, regulatory regimes, and constant adaptation to an evolving environment. We see little in our survey that would dramatically alter that trajectory. Accordingly, we see franchised new-car dealerships continuing to evolve, but at a moderate pace, over the next decade. That does not mean we do not see significant changes taking place, fromthe slowbut steady consolidation of store ownership, to growing sales of electric vehicles, to accelerating penetration of autonomous driving features, and much more. We even see the risk of a dramatic shock to the system, ifmobility service companies succeed inbreaking the centuries-old bond of ownership between Americans and their means of transport. Andby the endof thedecadewe see the typical dealershiphavingevolvedfromthemargin-optimizingoperation that it once was, to one that ismore focused on sales volume. Below these general findings, we present our detailed results in two strands: core conclusions about the dealership systemoverall, andaddi- tional findings that focus on several topics of specific interest. Interms of core conclusions (discussed in the numbered chapters), in2025: • We expect to see a rate of unit sales similar to today’s 17 million level, but with a shift in mix to the more expensive and wealthier ends of the vehicle and customer spectrums. • We project that the physical dealership still exists, even if much of its activity is online, and even if its physical format may be sub- stantially altered. • We believe the independent franchised dealership model will remain very dominant through 2025. But we also expect factory- directmodels togrow(especially for high-pricedvehicles), to achieve a market share in the low single digits. • While we have less confidence as to howmany dealerships (“roof- tops”) there will be in 2025, we project a slow consolidation, from roughly 18,000 today, to perhaps 16,500 or so. • We are more confident that there will continue to be consolidation in ownershipofstores, fromaround8,000owners today toperhaps 6,500 by 2025. Private ownership will continue to dominate, with the gainers regional chains, and the losers metro-area single-point stores. • We expect that, as for profitability, income statement ratios will be somewhat lower than they are today, while balance sheet ratios (e.g. ROE) may hold up better. But stronger profits will flow mostly to more aggressive stores: the average store might fall behind.  DEALERSHIP OF TOMORROW — CONTINUED ON PAGE 28  DEALERSHIP OF TOMORROW — CONTINUED FROM PAGE 25 LOOKING FOR THAT LAST PIECE TO THE PUZZLE? Don’t be fooled by the marketing spin of smoke & mirrors telling you to cut out the middle man (then who are they?), own your own warranty company (who doesn’ t) , or no one else has what they have! There are no secret plans, programs or structures out there that are proprietary to anyone. So what makes the difference? 18 years of putting YOUR dealership profits FIRST! www.firstinnovations.com www.firstinsuredgroup.com Find Out What Hundreds of Dealerships Across The Country Already Know The First Group Family of Companies Better Products • Better Prices • Better Service NADA commissioned a study of the future of franchised dealers. Here are the findings of industry expert Glenn Mercer.