Pub. 59 2018-2019 Issue 1

32 Before we state that, let’s check again with the dealers surveyed by UBS. Opinions were all over the map, but from the data we could draw three clear conclusions: 1. No one thinks therewill be an increase in the number of owners. Consolidation continues. 2. The average expected decline among the bulk of respondents was 15% or so, to perhaps 6,750. 3. However, there was a small but vocal minority (about 10% of respondents) who foresaw a complete collapse in the number of owners, to 3,500 or even fewer. Given these puts and takes, perhaps it is best for you to make your own forecast, but here ismine. I believe that on the one hand that the pressures to consolidate are high, so that a count of 5,500 might be where are headed, but that on the other hand the frictional “drag” on actually getting 2,500 transactions done (with a recession somewhere in the next decade throwing all calculations off) will slow the pace. I’ll go therefore with 6,500 owners by 2025, down from today’s 8,000 by about 20%. 56 Within the ownership base the big gainers will be regional chains of 50-150 stores, and the big losers single-point stores (especially in highly-competitive metro areas: see our Rural Futures chapter for commentary specifically on country stores 57 ), while the public chains will slowly grow. 58 Most owners will still be private individuals or firms, and within firms, family offices probably will be well ahead of private equity.This concentration of ownershipwill not occur evenly: in recent years in fact the rate of consolidation has been slower than this forecasted rate. 59 What all our interviewees are expecting is that the next downturn will trigger another exodus, as did the last one. It is in times of troubles that sellers most readily revise their price expectations, and brave buyers can capture the opportunity. So we may not see much happen for a few years, and then a rapid drop, followed by some stability again. SPECIAL TOPIC Chapter D: Insights fromChina If American dealers can gain valuable insights from a large mature market like Europe, they can also learn from China, which is an- other huge market—but an immature one. That is, it has not yet settled into a fixed pattern: over 70% of Chinese car owners are just in their first car now, and the average age of the fleet is only 3 or 4 years. This means that there is an absence of tradition, and so innovations in car retailing (for better or worse) are easier to try out than in both the USA and Europe. China is in some respects a laboratory for automotive retailing experiments. (The insights in this chapter are again from our friends at ICDP, the experts in global auto retailing.) Today’s SituationandKey Trends TheMarket (Supply andDemand) • New car sales continue to grow, although confidence in the markethasdecreased. While growth remains strong by western standards, it has in part been propped up by government tax breaks (e.g. for small-displacement cars). And there are also large geographic variations in demand: for example, some large cities have flat sales, due to registration restrictions aimed at reducing congestion.However, fundamentally, demand should be stable, as it is still the case that many more Chinese have drivers’ licenses, than have their own cars. • The aftermarket is growing rapidly, fuelled by 20 million units being added to the fleet every year (few cars in China are old enough yet to scrap), and by the ageing of that fleet. This drives an upsurge in independent garages, as Chinese dealers have weak post-warranty customer service retention, focused as they have been on new sales. • The used car market is largely unstructured and is mostly ig- nored by new-car dealers. It is dominated by independents, who lack tools familiar to Western dealers such as widely accepted price guides. This confused situation has given opening for a large number of internet start-ups to try to secure a position as the trusted intermediary in the used car trade. • The Chinese car buyer is still learning, which drives a strong needtoresearchpotentialpurchasesextensivelyonline,before everspeakingtoadealer. And as consumers here are enthusiastic “digital natives,” there is a much trust in e-commerce: most new car shoppers start on big online platforms (e.g. Autohome, Bit- Auto).Dealers lag badly:most do not have their own full websites. • There is high usage of mobility services, both rideshare and carshare. Didi Chuxing dominates the former (after winning its battle with Uber). In the realm of carshare, note that Daimler’s Car2Go signed up 76,000 subscribers in the firstmonth of opera- tion in just one (though large) Chinese city. • As forF&I, theuseof credit for newcar purchases is growing, but is still under 30%. And the absence of reliable valuation 56 Extrapolating from NADA member numbers to total dealer counts. 57 Also see our trucks chapter, because in that end of the market consolidation is much more advanced, since for these dealers most of their customers have also consolidated, from solo owner-operators to multi-truck fleets. 58 Barring the probable event of at least one public chain buying another. 59Forexample,we lostonly150soleproprietorsbetween2014 and 2015, a time of flat or rising sales, but over 700 between 2008and2009,whensaleswereonlybeginningtorecoverfrom “The Great Recession.”  THE DEALERSHIP OF TOMORROW — CONTINUED FROM PAGE 31