Mom and Pop Auto Dealers - a dying breed

Published: 01st January 2006
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The U.S. automotive retailing industry has experienced significant structural transformation in recent years. Increased competition together with a changing operating environment is driving the change. The rise of high-volume mega retailers and dot-com companies poses a challenge to the 100 year-old system of car buying.



Franchised new-car dealers faced a challenging year in 2001, with annual sales up to 17.12 million units of new vehicles and 21.4 million units of used-vehicles. Industry-wide revenue increased 6 percent in 2001 to a record $690 billion.



Dealers sell primarily regional due to high cost of shipping long distances although customers often drive 50 or 100 miles to shop at dealers who were willing to accept bigger discounts. The market is at an early mature stage. New-vehicle department sales of an average dealership were up by 6.6 percent and total dealership sales rose by 7.9 percent. Total dealership gross margin jumped to 13.1 percent in 2001- the highest level since 1994



In 2001 the number of automotive retailers had declined significantly by 350, the largest drop since 1993, and consisted of 22,150 franchised dealers.



The driving force of the industry and the most dominant factors affecting the industry are called driving forces because they have the biggest influences on what kind of changes will take place in the industry's structure and environment.



In automotive retailing industry the driving forces are the following:

The Internet and e-commerce. Many analysts believe that the Internet will have a dramatic impact on how consumers shop and what vehicles they buy. They also argue that as more and more customers use the Internet, traffic through dealers will decline, and dealers will lose out on the opportunity to employ "push" tactics to close the deal. Internet operations from most of the dealers and manufactures are reshaping the conventional retail dealership operation. Internet is used for advertising, online selling, promotions and online communication. As of mid-2000, more than 85 percent of the franchised dealers, dot-com companies and many manufacturers use the Internet as a way of providing direct connection between buyers and sellers. The main reason they are speeding onto the web is that they are looking to lower costs and broaden their reach.



Price based competition. The automotive retailing industry is a low-margin, high volume business. The increasing price sensitivity of the customers had started a price war that small-town dealers had found hard to cope with.



Mergers and acquisitions. The intense battle for market share and the attempts of a number of dealers to keep up with competition and expand their geographical reach, has led to consolidation of traditional dealers into national organizations or into manufacturer control retail chains.



Rough competition among dealers, strong bargaining power of buyers and suppliers and Internet-driven changes have resulted in a very challenging industry in which all companies involved must offer very competitive pricing and services to survive.



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