Pub. 16 2017-2018 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 11 new jersey auto retailer W W W . N J C A R . O R G BY GLENN MERCER DEALERSHIP  continued on page 12 T he Dealership of Tomorrow project was conceived in 2015, when the National Automobile Dealers Association (NADA) became concerned that dealers were often not as informed as they could be on the various changes that are occurring in the automotive retailing industry. The goal of the project, therefore, was to look about a decade ahead, and provide dealers with insights about the future that could aid them in their long-term planning process. Our top-level conclusion was that, over the next decade, franchised new car dealers op- erating in the U.S. will see many changes to how their stores are set up and run, but no significant disruption to their underlying business model. We see franchised new car dealerships continuing to evolve, but at a moderate pace over the next decade. Beyond this overall finding, the project de- livered more detailed forecasts on two sets of topics: some directly related to dealers specifically (e.g. the ongoing consolidation of store ownership), and some related to broader changes in the landscape (e.g. the rise of autonomous vehicles), that indirectly im- pact dealers. We also looked at additional topics of special interest, such as the unique challenges facing smaller rural dealerships. In terms of conclusions about dealerships specifically, in 2025: • 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 expen- sive 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 substantially altered. • We believe the independent franchised dealership model will remain very dominant through 2025. But we also expect factory-direct models to grow (especially for high-priced vehicles) and achieve a market share in the low single digits. • While we have less confidence as to how many dealerships (“rooftops”) there will be in 2025, we project a slow consolidation, from roughly 18,000 nationwide today, to approximately 16,500. • We are more confident that there will continue to be consolidation in own- ership of stores, from around 8,000 owners today to perhaps 6,500 by 2025. Private ownership will continue to dominate, with the gainers being regional chains, and the losers being metro-area, single-point stores. • We expect that, as for profitability, income statement ratios will be some- what 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. • We foresee that the drivers of store profits will continue to rapidly evolve. By 2025 the shift from margin to volume will be complete, changes in online technology and in market preferences will ensure the transition away fromnegotiated prices continues, The Dealership Of Tomorrow — Evolution, NOT Revolution