Dealerships

NADA, AIADA welcome incoming chairman for 2018 in Las Vegas

LAS VEGAS - 

Both the National Automobile Dealers Association (NADA) and the American International Automobile Dealers Association (AIADA) welcomed their respective new chairman for 2018 this past weekend.  

The new NADA chairman and president of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Mich., Wes Lutz, outlined his goals and focus areas for the coming year at NADA 2018; while AIADA named its 2018 chairman — Salt Lake City, Utah, dealer Brad Strong — at its 48th Annual Meeting and Luncheon. 

NADA Chairman outlines goals

Lutz, during his first official speech at 2018 NADA chairman, focused on how technology is changing the industry — for the better — as well as his priorities for the coming year.

“It’s true, technology makes sharing a car more convenient than ever. But, what the naysayers forget, is that technology also makes owning a car better than it used to be,” said Lutz, who has been a dealer since 1976. “Auto dealers are going to sell the vast majority of electric cars sold … The automobile is the most exciting platform for innovation in the next 100 years.”

Lutz explained he plans to advocate for new-car dealer concerns within the industry, as well as in the legislative and regulatory sectors. Lutz said he will also encourage dealers to continue adapting to future retailing challenges.

“Just because a new system pops up, doesn’t mean the ‘old one’ is dead. Just because technology changes, it doesn’t mean that a car’s usefulness is gone. At almost every turn, dealers have faced challenges—some major ones. But our troubles didn’t define us. How we responded to them did.”

Earlier this year, he discussed with Auto Remarketing this very topic of change. Ridesharing, in particular, was one shift he addressed. 

“I think a variety of options are going to coexist. The future, in my opinion, is going to be a combination of vehicle ownership and ride sharing,” he said. “It’s not going to be one or the other.”

Lutz explained at the NADA conference that auto dealers “have a role to play in the future of the industry,” in terms of investing in both new franachises and facilities, as well as new technologies.

As for NADA’s role, Lutz said,  “NADA will continue to fight for you in our nation’s Capital —in the face of regulatory and legislative burdens. We will continue to reach out to manufacturers and build strong relationships moving ahead.”

Lutz served on NADA’s board of directors until 2004, and then returned in 2017 as chairman of the association’s regulatory affairs committee. He also served as president of the Michigan Automobile Dealers Association in 2012. Most recently, Lutz served as NADA vice chairman under outgoing chairman Mark Scarpelli. 

New AIADA chairman focuses on threat of ‘trade wars’

AIADA’s new chairman is the co-dealer principal of Strong Volkswagen, Audi Salt Lake City and Porsche Salt Lake City.

Strong, a third-generation dealer, runs the stores with his brother, Blake — two of which have been in operation since the 1940s. The pair opened their new downtown VW store last year.

At the AIADA event, Strong focused on the role dealers play in the U.S. economy, as well as what they need to do to “defend their businesses” — with a particular focus on trade wars in light of recent news stemming from the Trump Administration.

"We need to work with AIADA to hold congressional visits at our dealerships where we can share our investment numbers and our employment stats,” said Strong. “That's the best shot we have at convincing lawmakers that trade wars aren't abstract fights between nations and political parties. Trade wars have real consequences, and unfortunately for us, they can have real casualties.”

In fact, Strong, who has served on AIADA's Board of Directors since 2009, focused on the threat of new trade and tariff policies and what this means to international nameplate dealers in a recent column that ran on Auto Remarketing

"Washington has no sense of how price sensitive this industry is, and just how easily their tax and tariff schemes could send annual auto sales into a tailspin, costing thousands of jobs," Strong said.

 

 

Another NC dealer receives TIME and Ally Financial Honor

LAS VEGAS - 

For the second time in the past five years, a dealer from the Tar Heel State has claimed one of the highest honors for a franchised operator.

Jack Salzman, owner of Lake Norman Chrysler Dodge Jeep Ram in Cornelius, N.C., was named the 2018 TIME Dealer of the Year over the weekend during the 101st annual National Automobile Dealers Association (NADA) Show 2018 in Las Vegas. Salzman was selected for the prestigious award from a field of 47 dealer nominees from across the country in recognition of his many business accomplishments and community contributions, which focus on helping women, children and animals.

“Jack Salzman has made giving back a central part of his personal and business philosophy,” said Tim Russi, president of auto finance for Ally, which has been the exclusive sponsor of the program for seven years. “It is an honor to recognize him as the 2018 TIME Dealer of the Year for all he has done to invest in his community and his dealership team.

“We’re proud of the hard work and generosity shown by each of the nominees and finalists, they inspire us with their dedication to this business and to giving back to their communities,” Russi continued.

The other regional finalists for this year’s award were:

— Brent Brown, president of Brent Brown Toyota in Orem, Utah
— William Fenton, president of Toyota of Keene in East Swanzey, N.H.
— Wally Sommer, president of Sommer’s Subaru in Mequon, Wisc.

Ally will provide $10,000 dollars to the nonprofit organization of Salzman’s choice. In addition, $5,000 will be donated to the charitable organization selected by each of the three finalists and the state Automotive Trade Association Executive (ATAE) who nominated Salzman. In recognition of all the dealers nominated for the award, Ally gave $1,000 to the charity of choice for each of the 47 nominees. For more information about the nominated auto dealers, including their philanthropic contributions and achievements, visit AllyDealerHeroes.com.

TIME Dealer of the Year, which is presented by TIME magazine’s owner, Meredith Corp, is a coveted award in the auto industry, with recipients among the most successful auto dealers in the country who have also shown enduring dedication to community service. Salzman, 55, was chosen to represent the North Carolina Automobile Dealers Association in the 49th annual TIME Dealer of the Year competition. Only a fraction of the 16,500 franchise dealers nationwide are nominated for the award each year.

Back in 2013, Michael Alford, who is president of Marine Chevrolet Cadillac in Jacksonville, N.C., received the honor. Now a dealer near Charlotte is this year’s winner.

“The most rewarding part of my retail automotive career has been hiring great people and investing in their future,” Salzman said. “We pride ourselves on searching out quality employees and providing them with the tools and support they need to grow from entry-level jobs up to top management positions within the company.”

Salzman graduated from Riverview High School in Riverview, Fla., and went on to earn a degree in business administration from Auburn University and a J.D. from the Shepard Broad College of Law at Nova University, now Nova Southeastern University, in 1989.

Rather than working at a law firm after graduation, Salzman decided he wanted to own his own business and started a cellular phone agency. After partnering with a local car dealership on a promotion for the agency, the dealer hired Salzman as a sales manager, and he has been in the auto industry ever since. Today, he owns two Chrysler, Dodge, Jeep and Ram dealerships in North Carolina located in Cornelius and Gastonia.

Salzman’s hiring practices earned Lake Norman Chrysler Dodge Jeep Ram the 2012 Champions of Diversity award from the Lake Norman Chamber of Commerce.

“We have always sought out great employees regardless of gender, race, religion, sexual orientation, etc.,” he said. “As a result of this philosophy, we have been rewarded with extremely low turnover and incredibly caring employees, whom we are able to continually promote to new positions that further their careers.”

In his community, Salzman is committed to giving back. He is a contributor to the Humane Society of Charlotte, as well as a founding board member of Lake Norman Humane. He also supports Lake Norman Lucky Cats, which provides trap-neuter-return services, as well as Holly’z Hope, an organization that helps unchain dogs by building fences for homeowners in need.

 “When I purchased the dealership in 2003, my wife and I decided that we wanted to focus our philanthropic time and attention on three areas: animals in need, children in need and women in need,” he said.

Salzman is a longtime supporter of The Dove House Children’s Advocacy Center in Statesville, N.C., and Pat’s Place Child Advocacy Center in Charlotte; as well as Amy’s House in Lincolnton, N.C., and The Shelter of Gaston County in Gastonia, which both serve battered women and children. Salzman also supports Make-A-Wish; Big Brothers Big Sisters; Habitat for Humanity; Susan G. Komen; American Cancer Society; and many other local groups.

Salzman was nominated for the TIME Dealer of the Year award by Robert Glaser, president of the North Carolina Automobile Dealers Association. He and his wife, Robin Smith-Salzman, have three children and six grandchildren.

The finalists from each of the four NADA regions and the national Dealer of the Year were chosen by a faculty member panel from the Tauber Institute for Global Operations at the University of Michigan. The award is sponsored by TIME in association with Ally Financial, and in cooperation with NADA.

Outgoing NADA chairman emphasizes affordability during advocacy efforts

LAS VEGAS - 

From Washington, D.C., to Walla Walla, Wash., Mark Scarpelli simply wants a retail environment where regulations do not inhibit dealerships from delivering vehicles their customers can afford and enjoy.

In his final remarks as 2017 chairman of the National Automobile Dealers Association, Scarpelli saluted franchised dealers for their successful advocacy efforts on Capitol Hill fighting to preserve what the associations believes is affordability for vehicle buyers at every turn.

“Vehicle affordability is the air we breathe. Affordability is everything. Americans need cars — affordable cars — more than ever,” Scarpelli said over the weekend in keynote remarks at NADA Show 2018 in Las Vegas. “If there’s one group that got that message loud and clear, it was the Consumer Financial Protection Bureau.”

“We stood up for our business model, for common sense and for our customers’ right to save money when they buy a car,” Scarpelli said. “And I’m proud to tell you that we stood our ground, and we prevailed. This was a great victory for NADA and for our customers.”

In 2013, the CFPB issued an auto finance guidance that threatened to eliminate a dealer’s flexibility to offer consumers discounted rates on vehicle installment contracts, according to NADA.

“We knew something that everyone else failed to see: Consumers won’t be buying cars tomorrow if they can’t afford them today,” Scarpelli said. “That’s why NADA fought for consumer affordability at every turn and throughout the year.”

Scarpelli, president of Raymond Chevrolet and Raymond Kia in Antioch, Ill., and co-owner of Ray Chevrolet and Ray Chrysler-Jeep-Dodge-Ram in Fox Lake, Ill., said NADA went on offense again to stop overly broad recall legislation.

“This legislation would have created a consumer trade-in tax for every recalled car on the road – even the ones with only minor defects like a peeling sticker,” he added. “We averted legislation that could have cost consumers on average $1,200.”

One of NADA’s biggest challenges was tax reform, which again mobilized NADA’s grassroots efforts, Scarpelli said.

The bill, which was signed into law in December 2017, preserved 100-percent deductibility on floor plan loans, increased the estate tax exemption and preserved both the LIFO accounting method and advertising deductibility.

“The stakes for our businesses are enormous: When taxes increase, jobs at dealerships decrease. Our capital investments decrease, and prices for consumers increase,” Scarpelli said.

“If we had not preserved floor plan deductibility, a lot of dealerships would be paying more in taxes for years to come. Many would hope to simply break even. Many more would suffer crippling losses. Because the original tax bill slashed interest deductibility by 30 percent,” he went on to say.

On the industry affairs front, Scarpelli, over his term as chairman, said he made it his personal mission to level with automakers concerning the “elephant in the room, also known as stair-step incentive programs.”

“Make no mistake, dealers are proud to work with our manufacturers. We value our brands and our integrity above all else. So, if any factory program runs counter to that we shouldn’t use it,” he said.

“Dealers and automakers can have the same goal. We just need to go about it in the right way. Let’s sell our inventory in large volumes. Let’s do it at competitive prices. Let’s put a great customer experience first, because if we do that the numbers will fall into place,” he added.

SiriusXM reveals new connected car solution for dealers & their customers

NEW YORK - 

SiriusXM has launched a new aftermarket connected car solution for dealers and their customers, developed by its company — Automatic Labs.

The solution delivers connected vehicle service at a cost SiriusXM shared comes in as low as $40 per vehicle, including the device and introductory 6-month subscription.

On top of providing features to drivers like crash alerts and vehicle health and performance monitoring, it also gives dealers the ability “to maintain a connection with their customers long after the initial vehicle sale,” the company shared.

The technology, which Automatic will be demonstrating at the SiriusXM booth at the 2018 NADA Show in Las Vegas, also serves to encourage drivers to return to the dealership for their service needs through its Connected Maintenance feature. This gives dealers the ability to send service reminders and maintenance information, vehicle-specific recall notifications and more, directly to a customer’s smartphone.

And drivers can use the Automatic mobile app to book service appointments and receive estimates from the dealership where their car was purchased.

Automatic will also be launching a new 4G hardware device, which will be available for distribution this summer.

Some of the features Automatic delivers to shoppers are as follows:

  • Crash Alert: Detects when a serious collision occurs and enables trained responders to contact you, send emergency services and contact a driver’s emergency contact.
  • Real-time vehicle location monitoring and sharing: Shows where your car is parked in a crowded lot, and can keep you connected with family out on the road.
  • Vehicle health and performance monitoring.
  • Direct recall notifications and service reminders: Gives you the ability to book service appointments with your dealer with a few simple clicks.
  • Integration with smart home devices: Open your garage door, adjust your thermostat and turn on house lights on your way to or from home.
  • Roadside assistance: Sends towing and repair services to your exact location when help is needed. (available summer, 2018)

“We are excited to be entering into this new phase of development for Automatic. Our new series of products offer cutting edge safety and convenience services that consumers are asking for, and drives key first and future service traffic right back to a dealer’s store,” said Stewart Lyons, senior vice president of emerging business at SiriusXM.

“SiriusXM has a long and successful record of working with automotive dealers. As we continue to enhance our connected vehicle services and products, we’ll deliver even more value to them and their customers,” he continued.

 

 

CDK Global announces Fortellis Automotive Commerce Exchange platform to simplify tech integration

LAS VEGAS - 

On Thursday, CDK Global announced the launch of its new Fortellis Automotive Commerce Exchange platform.

The company described the new platform as a technology engine and “plug-and-play platform”that works to allow developers, OEMs and dealers to securely integrate solutions and workflows to ramp up sales, operational efficiency and profitability. 

Through the new platform, CDK Global shared:

  • Software developers can offer customers new solutions in a secure e-commerce environment.
  • And dealers can find new solutions and connect them with others to develop unique and custom experiences that provide new efficiencies.

Through the launch of the Fortellis platform, CDK Global was trying to solve a few specific issues. First, shopper and auto consumer expectations are changing quickly. And more shoppers are moving online for more of the research and purchase lifecycle.

But there’s often an issue with this trend: a lack of connection between online and in-store experiences. And in an effort to improve the online environment for their customers, dealers have to adopt technology solutions that often do not work across providers — which again hinders their ability to create a seamless customer experience.

“We recognized that our industry is ready for an entirely new and collaborative approach to address the major roadblocks that are impeding innovation that leads to better customer experiences,” said Brian MacDonald, chief executive officer at CDK Global. “We have been listening, and we know the entire industry wants faster and simpler ways to create solutions that can build a competitive advantage.

"Given the primary role that CDK plays in the industry, along with its technological scale, we are uniquely positioned to reimagine how the automotive industry connects and to bring Fortellis to life," MacDonald continued.

New technologies are coming out every day to make the dealership more efficient and profitable. But sometimes there isn’t a way to connect them into dealer workflows, or with eachother.

“When we look at all the systems and tools that dealers need to keep up with the changing marketplace, there is no easy way to weave together new solutions without a significant amount of custom development and integration,” explained Rajiv Amar, executive vice president and chief technology officer, CDK Global.

“Fortellis streamlines the process for dealers and OEMs as well as software developers, allowing them to easily select and combine the solutions and services they want without reinventing the wheel each time. And it makes changing those services a simple administrative function. With advanced interfaces and modern standards built in, this raises the quality bar for all offerings in the industry,” he continued.

There are two elements of the Fortellis platform that aim to solve these challenges — the Fortellis Developer Network and the Fortellis Marketplace.

A ‘developer network’

The Fortellis Developer Network, part of the Fortellis Automotive Commerce Exchange, is designed to allow developers, dealers and OEMs to design, build and publish solutions.

CDK Global explained that these solutions can be developed through available application programming interfaces (APIs) through the program. What the company is calling “API building blocks” are adaptive and interchangeable. But developers can also provide their own APIs to the network for others to use.

Over time, ideally the combination of existing and newly developed APIs will increase the possibilities and connections. Today, the Fortellis Developer Network already includes several standardized APIs “that span a variety of workflows to improve efficiency and productivity for dealers,” CDK Global shared.

The APIs at initial launch focus on service and sales, but over time, CDK Global explained APIs will be created by Fortellis users to support all workflows in the dealership.

The Fortellis marketplace

The Fortellis Marketplace is also a key element of the new offering, and allows automotive retail technology providers to sell their integrated product or services in one location.

The Marketplace provides automated billing, provisioning and subscription management. It aims to provide a wider and ready-to-buy audience to developers, as well as help OEMs deliver a more consistent brand experience.

“As we continue to listen, research and develop, we are confident that the most transparent and effective way for the industry to advance is to create a hub of possibility,” said Ron Frey, executive vice president and chief strategy officer, CDK Global.

“In fact, we believe that the best solutions are going to come through collaboration and innovation from a broad community even if — and when — these solutions come from others. Imagine a world that is only limited by the ingenuity and drive of the greatest minds in our industry. By joining the efforts of global partners, collaborators and even competitors, we are optimistic and passionate about the future of automotive commerce,” Frey concluded.

 

 

 

 

Tax reform expected to boost dealership values, buy-sell activity in 2018

FORT LAUDERDALE, Fla. - 

As 2017 came to a close, auto dealership values fell a bit, and the number of dealerships sold in the U.S. for the year was down, but the tides could be turning in 2018.

According to the year-end 2017 edition of the Haig Report, a report released by Haig Partners that studies M&A activity among dealerships, buy-sell activity for 2018 is expected to remain strong, while tax reform is expected to support dealership values this year.

Starting by covering this past year’s numbers, the number of dealerships sold in the U.S. last year dropped by 7 percent from 2016 levels — 357 to 331.

That said, even though the industry saw a drop in rooftops purchased by public companies during this period, “they ended up spending significantly more money,” Haig Partners reported. Last year, publicly traded retailers spent $1,015 million on auto dealerships in the U.S., which was a whopping 53 percent increase from the $661 million spent in 2016.

Lithia is a name that stood out among the publicly traded dealership groups as the “most” active in the M&A market last year. According to Haig Partners, Lithia “continues to target underperforming large platforms in different parts of the U.S.”

And it doesn’t look like the dealer group plans on slowing down anytime soon. In fact, Auto Remarketing correspondent Arlena Sawyers reported earlier this month that it is poised for additional growth this year, according to Lithia president, Bryan DeBoer. 

Lithia opened one dealership and acquired 18 others in 2017, and dealership acquisition activity in 2018 is “off to a robust start,” DeBoer said during the company’s quarterly conference call in February.

Private or public, Haig Partners expects the new Tax Cut and Jobs Creation Act, which will reduce taxes for most dealerships, to add additional demand for dealerships in 2018. This is expected to in turn support values. While profits at privately owner dealerships were 4.9 percent lower last year than in 2016, values of these same dealerships fell by 2.6 percent during the same period.

Haig Partners painted a slightly rosier picture for franchise dealerships with increased valuations for Buick-GMC, Chevrolet, Honda and Toyota offsetting lower profits a bit. But either way, tax cuts are expected to help alleviate some of these challenges.

Alan Haig, president of Haig Partners, said, "The buy-sell market remains very active, although at a slightly lower level than in the past.  The new tax code could soon be having an impact on dealership values.  All dealers will be paying lower taxes, and we expect this to lift the demand for dealerships.  If so, we could see a continued decline in profits but an increase in blue sky values." 

Analysis on current dealer environment

Interestingly, while macroeconomic factors such as employment, number of miles driven and consumer sentiment remain “highly favorable” for dealers, according to the report, other trends in the industry are working against these headwinds. Think used-car pricing challenges, such as softening residuals; strong incentive spending by OEMs; rising interest rates and more.

While the report shows new and used gross profits per vehicle are dropping at dealerships — making what are razor-thin margins even smaller — analysts did find that some of these losses are being lessened by gains in the F&I office and fixed operations.

Interestingly, although the current environment might not be all rosy for dealers, potential challenges to the industry, such as ride sharing, autonomous cars and changes to franchise laws “are so far having no measurable impact on dealership values," according to the report.

Wes Lutz, 2018 NADA chairman and president of Extreme Chrysler/Dodge/Jeep, RAM in Jackson, Mich., recently touched on some of these challenges and opportunities in a recent Q&A with Auto Remarketing that focused on disruptive tech such as ride sharing and changes in the retail model.

“Ridesharing isn’t replacing my personal vehicle. It can’t! But it’s adding to my options. So I don’t look at it as an either-or proposition, and I don’t think my customers do either,” Lutz said in an emailed Q&A with Auto Remarketing.

“I think a variety of options are going to coexist. The future, in my opinion, is going to be a combination of vehicle ownership and ride sharing,” he said. “It’s not going to be one or the other.”

 

 

3 reasons why 2017 dealership buy/sell transactions topped 200 again

IRVINE, Calif. - 

Kerrigan Advisors identified a trio of reasons why the dealership buy/sell market surpassed 200 transactions for the fourth consecutive year in 2017.

According to the firm’s latest Blue Sky Report released on Monday, the factors driving market activity included dealership consolidation, profitability, and the growing number of sellers coming to market. Kerrigan Advisors determined many dealers reassessed succession plans in light of disruptive projections about the changing nature of auto retail, and the belief that only large groups will be able to successfully navigate the industry’s evolution. Sellers also cited concern over reliance on OEM incentives to support dealership profitability, as well as manufacturer facility requirements.  

“The economic benefits of consolidation continued to bring new buyers to market in 2017, and these new entrants included a growing number of international auto retailers,” said Erin Kerrigan, managing director of Kerrigan Advisors.

“These international buyers are primarily motivated by the tremendous consolidation opportunity in the US auto retail market, considered by many to be the most fragmented in the developed world,” Kerrigan continued. “High net worth individuals and family offices also sought investments in auto retail in 2017. All of these new entrants are highly attracted to the economies of scale available in US auto retail through meaningful consolidation.”

The Blue Sky Report, published by Kerrigan Advisors, includes analysis of all transaction activity in 2017 and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments for the quarter.

Blue Sky Report data and analysis from the 2017 full-year report also includes:

• 202 dealership buy/sell transactions were completed in 2017, according to Kerrigan Advisors’ research and The Banks Report, compared to 221 transactions in 2016.  After hitting a plateau in 2015 at 240 transactions, buy/sell activity declined slightly; Kerrigan Advisors expects an increase of activity in 2018 compared to 2017.

• Multi-dealership transactions declined slightly in 2017. The firm noted 51 multi-dealership transactions closed in 2017, resulting in an 11-percent decrease compared to the record year set in 2016. The size of some dealership groups is a motivating factor in the sale. Many are simply too large and too valuable to pass on to the next generation, particularly given predicted industry disruption.

• For 2017, domestics’ share of the buy/sell market remained steady at 43 percent; import luxury represented 20 percent of the buy/sell market in 2017, a disproportionate number considering that import luxury franchises represent just 9 percent of U.S. franchises.

• Public retailers’ acquisition spending increased 20 percent in 2017 compared to 2016, led by Lithia Motors.

• Private buyers, including new entrants to US auto retail, dominated the 2017 US dealership buy/sell market. Of the 343 franchises sold, 317 were acquired by private buyers.

Over 60 dealership groups now report over $1 billion in sales. That number is expected to grow considerably in the next five years, as the largest groups consolidate the industry.

The report also identified three key trends shaping this year buy/sell market, including:

• Tax reform benefits auto retail and results in increased buy/sell activity

• Dealers’ investment strategies shaped by auto retail’s expected evolution

• Dealership profit variability widens blue sky pricing ranges

“We expect 2018 to be a very active year for buy/sells with more private and public buyers eager to put their capital to work. These buyers believe growth is the answer to a changing auto retail environment and are eager to capitalize on economies of scale and scope,” added Ryan Kerrigan, managing director of Kerrigan Advisors. “We also expect more sellers coming to market in 2018, particularly given the drumbeat of change reverberating throughout the industry.”

Kerrigan Advisors is deeply involved in the buy/sell market having advised on the sale of 60 dealerships, including four of the Top 100 dealership groups (Sam Swope Auto Group, the Carbone Auto Group, the Tonkin Family of Dealerships, and Downtown LA Auto Group) since 2015. Kerrigan Advisors’ extensive experience representing the largest dealership groups in the country provides the firm with a unique perspective on the trends shaping the industry and today’s franchise values.

The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. To download The Blue Sky Report, go to this website.

Kerrigan Advisors also releases a monthly index, The Kerrigan Index, composed of the seven publicly traded auto retail companies with operations focused on the U.S. market.  The Kerrigan Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index, go to this website.

AIADA chair: Tariffs are taxes — and small business killers

WASHINGTON, D.C. - 

At a recent AIADA board meeting, I took over as the AIADA chairman from my friend, Maryland dealer Paul Ritchie. In just a few weeks, I look forward to formally accepting the chairman’s gavel at the NADA convention in Las Vegas during AIADA’s Annual Meeting & Luncheon. As a Volkswagen dealer I am particularly interested in what our keynote speaker, VW chief executive officer Hinrich Woebcken, has to say.

To be completely honest, I had hoped to have a quiet start to my time as chairman. The recently-passed tax cut package was a huge bonus to our industry, and I felt optimistic that we were starting the year on the right foot. Unfortunately, the past few weeks have been eventful — and worrying — for international nameplate dealers.

Earlier this month, President Trump announced his intention to place a 25 percent tariff on all imported steel and a 10 percent tariff on imported aluminum. AIADA responded with a strong statement, urging the president to reconsider his plan and pointing out that the flattening auto retail market is ill-equipped to absorb a significant bump in vehicle costs.

Then the next week, President Trump followed up on his tariff announcement by adding that he was prepared to place new taxes, up to 25 percent, on vehicles imported from Europe, citing a “big trade imbalance.” As a VW/Audi/Porsche dealer, you can bet that got my attention. AIADA again responded in a statement, saying “no one wins a trade war;” and Cody Lusk, AIADA president, went on CNBC to remind viewers of European brand dealerships’ enormous investment here in the United States.

The truth is: Tariffs are taxes. If the president follows through on his plan, which we have every reason to believe he will, American consumers will end up paying an estimated $3.5 billion more per year in new taxes JUST ON VEHICLES. That doesn’t even take into account the potential for retaliatory tariffs from our allies and trading partners, which could further devastate the American economy. The total cost of these tariffs has the potential to wipe out many of the gains made by the 2018 tax cut package.

Those losses will matter to voters, and they will be painfully felt by America’s 17,000 auto dealerships and 1.1 million dealership employees. In reaction to the tariff threat, as of my writing this, the Dow has dipped about 500 points, and the president’s top economic adviser, Gary Cohn, has resigned. Toyota, Ford, Volkswagen, Volvo and others have all issued statements condemning the tariffs and tax threat.

Large manufacturers will surely take a hit from these new tariffs, but small businesses like ours will bear the brunt of any trade war. We’re the ones with the razor thin margins, working tirelessly to meet the demands of increasingly price conscious customers. We’re the ones struggling to avoid layoffs, meet local, state and federal regulations, and pay the tax man on time. We’re the ones driving this economy, but we’re also the ones who will take the force of any collision.

Thankfully, AIADA is on the side of dealers, pushing back against new tariffs and taxes, and working with our brands in Washington, D.C., to develop strategies to protect our industry from the damage of a trade war. To the extent that the president may be using these tariff threats as a lever to move Mexico on Canada in his NAFTA negotiations, I wish him luck. But, I urge the Trump administration, and our legislators, to use caution when starting a trade war where everyone will lose.

Brad Strong is the 2018 chairman of the American International Automobile Dealers Association. This blog post originally appeared on the association’s website here. AIADA discussed this issue in a video available here and through the window at the top of this page.

Lithia to add dealerships, boost used-car sales this year

DETROIT - 

For the past two consecutive years, Lithia Motors acquired dealerships that generate over $1 billion in annualized revenue, and it is poised for additional growth this year, said its president, Bryan DeBoer.

Speaking during Lithia’s quarterly conference call on Feb. 14, DeBoer also said the group expects to continue making progress toward increasing its used-vehicle per-dealership, per month count.

Lithia opened one dealership and acquired 18 others in 2017, and dealership acquisition activity in 2018 is “off to a robust start,” he added.

In January, Lithia acquired Ray Laks Honda in Orchard Park, N.Y., and Ray Laks Acura in Buffalo, N.Y., which are expected to generate $140 million in annualized revenue.

“The plateauing new-vehicle sales environment seems to be further accelerating the number of acquisitions available, and we believe 2018 activity may exceed 2017 totals,” DeBoer told analysts and reporters on the call.

DeBoer said Lithia expects recent federal tax reform to create positive gains “in both our existing store operations as well as new acquisition opportunities.” The company’s effective tax rate will drop to 27 percent from 38 percent, resulting in an incremental $40 million in annual cash flows, he said.

At the time of the reporting for this story (in February) for the print edition of Auto Remarketing, Lithia owned 171 dealerships representing 30 brands in 18 states.

DeBoer said Lithia retailed an average of 67 used vehicles per month, per store in the quarter that ended Dec. 31, up from 66 used units per store in the year-ago quarter, putting it closer to its goal of 85 used vehicles per store, per month.

Though Lithia’s newly acquired stores typically sell fewer than 40 used cars and trucks per month, its “seasoned” stores exceed 85 per month, and some sell as many as 200 used units per month, DeBoer said.

Lithia stores that sell lower volumes of used vehicles have the location, people and potential to “expand their reach, and there really is no limit to what the upside is,” he said. 

“That’s why that 85 units — our seasoned stores do more than that — we believe that’s realistic.”

(Editor's Note: This story first appears in the March 15 print issue of Auto Remarketing. After this story was written for that issue,  Lithia announced on Feb. 27 that it had acquired Day Automotive Group in Monroeville, Pa., a suburb of Pittsburgh. Then on March 1, Lithia announced that it had acquired six marquee stores from Prestige Family of Fine Cars in Bergen County, N.J., including a BMW, Mini, Mercedes-Benz, Toyota and two Lexus stores.)

CPO down; other used sales up

In the quarter, same-store sales of certified pre-owned vehicles dropped 7 percent, sales of its “core” units increased 8 percent and sales of its “value auto” units increased 3 percent.

In a previous conference call DeBoer said Lithia’s “core” used vehicles are 3 to 8 years old and generate a gross profit margin of about 12 percent; “value auto” vehicles are over 8 years old and yield a gross profit margin of about 18 percent; and its gross profit margin on certified vehicles is 8 percent to 9 percent.

DeBoer said sales of CPO vehicles in the fourth quarter decreased because the supply of lower-cost, core vehicles is growing, and the company typically acquires its value auto vehicles as trade-ins on core vehicles.

“We make a higher margin on those (core) vehicles, which we’re excited about,” he said.

“Lastly, it’s a lot less likely when you sell core and value auto vehicles that you’re going to be cannibalizing new like you do on certified, which can be difficult. So, we always are preferential to core for that single reason.”

Tax law changes help

Lithia’s net income in the quarter benefited from a gain of $32.9 million related to changes in the federal tax law in December. 

Lithia’s net income in the quarter that ended Dec. 31, rose 74.2 percent to $89.4 million; it’s revenue for the quarter grew 17.9 percent to $2.7 billion compared to the previous year.

For all of 2017, Lithia’s net income rose 24.4 percent to $245.2 million; it’s revenue for the year grew 16.2 percent to $10.1 billion.

The company’s new-vehicle retail sales grew 17.3 percent in the quarter to 45,202 units, and for the year were up 14.7 percent to 167,146 units. Its retail used unit sales in the quarter grew 12.3 percent to 32,242, and for the year rose 14.5 percent to 129,913.

On a same store basis in the quarter Lithia’s:

  • total revenues were up 2.6 percent to $2.3 billion, and total gross profits were up 4.3 percent to $346.2 million;
  • new-vehicle units sales were up 0.8 percent to 38,669, and used unit sales were up 2.8 percent to 29,273;
  • gross profit per new vehicle retailed grew 14.2 percent to $2,182; gross profit per used vehicle retailed dropped 9.3 percent to $2,003 and finance and insurance gross profit per unit was up 6.7 percent to $1,342 and
  • service, body shop and parts revenue increased 4 percent. Customer pay work increased 4 percent, warranty work increased 4 percent, wholesale parts increased 1 percent and body shop work increased 6 percent.

Of the vehicles Lithia retailed in the quarter and on a same-store basis, it arranged financing on 71 percent, sold a service contract on 44 percent and sold a lifetime oil product on 25 percent, said John North, the company’s chief financial officer.

PERQ study highlights how much research buyers are doing on dealer websites

INDIANAPOLIS - 

Perhaps not every potential buyer who arrives at your dealership — or, more specifically, your store website — knows exactly what vehicle they want along with all of its attributes from the amount of horsepower to placement of cup holders and power outlets.

New data from thousands of consumer profiles studied by PERQ — experts in online consumer engagement and behavior — uncovered further evidence that the majority of visitors to dealership websites are hot new prospects who need to be guided into conversion.

The research also offered key insights into the features consumers value as they make their vehicle purchase decisions.

PERQ highlighted that its new study, Car Buyer Insights Report 2018, defies the conventional wisdom that most dealership website visitors are existing customers. The reality? They are not as 74 percent are brand new and 68 percent are still looking for information to educate them about the purchase, representing prime opportunities for conversion.

But according to the data, while 77 percent are at the beginning or middle of their purchasing process, they want to transact sooner rather than later, so an efficient, engaging website experience that guides them down the purchase funnel is critical.

“We are constantly monitoring consumer website behavior and the data continues to confirm how important it is that dealerships approach their website as fertile ground for new sales, rather than as a static receptacle for returning customers,” said Andy Medley, chief executive officer and co-founder of PERQ.

“The data shows that most website visitors are new to the dealership, not ready-to-buy, and expect to be in control of their shopping experience as they narrow down their choices,” Medley continued.

Here is another example of trends highlighted in the study:

Besides safety, what else is important to you when buying a vehicle?

— Interior space: 36 percent
— Performance: 31 percent
— Fuel economy: 28 percent
— Technology: 6 percent

PERQ’s takeaway: “Your website should be responsive to how a visitor engages with interactive experiences on your website. If they’re looking for more interior space and the assessment gives them a result of mini-vans, they should have the option to immediately go to the mini-van VDP or retake the assessment even if they’re not happy with the results.”

PERQ went on to mention its research also offers key insights on consumer preferences that can help dealership websites better interact with these visitors, such as data on the number of vehicle they want to test drive (nearly a third want to test drive more than one), and what they are looking for in a drivetrain — an astonishing 59 percent said four-wheel or all-wheel drive is a priority.

“It’s critical for dealerships to expect their website to act as one of their best sales team members,” Medley said. “If they don’t, they are missing a massive opportunity, and letting all those dollars spent driving traffic turn into vapor.”

The PERQ research results can be downloaded here.

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