Pub. 1 2012-2013 Issue 1

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S S P R I N G 2 0 1 2 18 19 new jersey auto retailer W W W . N J C A R . O R G new jersey auto retailer The high-priced rents and real estate frontage on desirable high- way and premier retail locations will be cost-prohibitive, and the economics of the dealership will dictate that a more skillful use of space and capital resources will be key to survival. Efficient vehicle inventory management and service operations will curtail the need for storage space. Test drives will be accomplished by a true “demo” fleet, and vehicles will be sold out of the dealership’s limited inventory or throughmore sophisticated locator programs. Satellite service facilities will become prevalent in lower cost spaces where allowed by the manufacturer or state regulations. When allowed by state franchise regulations, there may also be small satellite sales facilities for demonstration and presentation purposes only. Given the current marketplace environment, with the capital requirements and needs for professional management, there is no doubt consolidation will be the largest factor impacting the face of dealerships by 2025. ATA predicts that consoli- dation will accelerate dealership buy/sell transactions over the next 10 years. Ownership will condense into 80 to 100 mega-dealer groups owning hundreds of dealerships. Initially, the pool of dealerships for sale versus the number of potential purchasers will be disproportionate, creating a buyer’s market with stag- nating prices. However, as the selling pool diminishes by 2020, a seller’s market will take over. By 2025, the mega-dealer groups will control a significant number of dealership points. Other Influences of Dealership Business There will continue to be pressures on dealerships from government regulators, consumer organizations and the manufacturer. These pressures cannot be discounted as they shape the way business is conducted. It is expected that manufacturer influence through payments for increased sales volume, facility appear- ance, and customer satisfaction scores will increase in the future. By 2025, manufacturers will recognize that those that overstep the bounds of interference in the retail environment will harm their relative value of the franchise brand. As the decade progresses, the multiple of earnings for the valuation on dealerships will increase. If the current multiple ranges from three to five times earnings, by 2025 the multiple will be four to six times earnings or greater. The injection of private equity against public companies, the ability of large groups to have a lower cost of capital and the ability to leverage their presence in the marketplace will cause values to rise. In addition to the franchise brand, the dealership’s real estate position will be a key to the dealership’s valuation. Few industries are as heavily regulated as retail automotive, and no participant or observer of the industry expects that to change. As noted previously, when new regulations come into play deal- erships will have to increasingly rely on technological solutions to ensure compliance. Technology will not be free, and only dealership groups of a certain size or scale will be able to comply economically. Such regulations will also certainly come at a cost of compliance and potentially reduced gross. George E. Berry, Jr., CPA, is a partner with The Mironov Group, LLC, a certified public accounting and consulting firm in Edison, NJ, that specializes in the retail automotive industry. George is also the firm’s lead partner in Auto Team America. strategic vision of dealerships  continued from page 16 Falling Prices Energy prices have fallen dramatically for several reasons, but the drop is mainly driven by an unseasonably mild winter and shale gas extraction, resulting in record-high natural gas inventories. Natural gas recently dropped below $2.00 per British Thermal Units (BPU) for the first time since 2009 and electricity prices have reached lows not seen in over a decade. Electricity rates should rise in the latter part of 2012, adjusting for seasonal sum- mer demand. Rates could rise significantly next year if industrial demand increases. Watchful Waiting or Time to Move? Utility companies inNew Jersey purchased power for theMay 2012 to May 2013 supply period in February, therefore utility rates will not decline as dramatically as expected. Some consumers have been waiting on the procurement sidelines for years, unwilling to take advantage of energy deregulation. Many years ago, before electric- ity purchasing inNew Jerseywas considered amaturemarketplace, hesitationmay have beenwarranted. However, today there are con- servative programs and pre-qualified supplier contracts available through associations and experienced brokers. Due to the utility hedging calendar, the majority of contracts being offered today will yield immediate and continued savings throughout 2013. Commodity Purchasing for Consumers The commodity procurement strategy for commercial end-users should never be to “chase” the market, as hindsight is 20/20. The main goals of commodity hedging should be price stability and budget certainty. Buyers enrolled in a fixed contract are not advised to cancel early to try and take advantage of the temporary dip in price. Cancelled supplier contracts are accessed termination fees and the supplier will, typically, no longer do business with that client in the future. Blend-end and extend options are available if a buyer wants to cost-average their price down. Even in light of falling market prices, the majority of businesses that acquired a Power Purchase Agreement in the past twelve months are still saving money versus their utility rate. It is com- monplace to see rate increases passed on by the utility sooner than wholesale decreases are. Buying the Future Even if an end-user has an existing agreement, now is an ideal time to secure a future hedge. No one can predict the very bottom of the market, but most analysts agree it is unlikely that prices Energy Outlook: 2012 and Beyond BY KLAUDET RISTOVSKI, METROMEDIA POWER Projecting the short and long term prices of wholesale energy is particularly difficult, requiring both a fundamental analysis of the market AND a multitude of additional variables. The economy, regulations, climate, geopolitical conflict and speculative trading drive volatility on the spot and future energy markets. Supply and demand cycles coincide with highs and lows, but are neither conclusive nor complete predictive measures in today’s unique environment. energy outlook: 2012 and beyond  continued on page 20