Vroom’s Super Bowl ad this month opened with a grim, tortured picture of traditional auto retail — a hyperbolic stereotype that likely left most dealers cringing or angry.
But the second half of its ad, with a couple sitting on their lawn as a vehicle is delivered, is hardly exclusive to online startups. It is, however, a service that can require resources more suited to a large retailer than a standalone mom and pop store.
Backed by a frothy stock market, publicly owned companies are in a mood to buy dealerships. Lithia Motors, already the third-largest public dealership group in the U.S., plans to add more than $7 billion in annualized revenue through dealership acquisitions this year. The Oregon-based group aims to roughly quadruple in size by 2025 at $50 billion in annual revenue, more than double those of its largest peers today. LMP Automotive went public with plans to pursue a strategy of rolling up dealerships, though early efforts have been scaled back.
It’s easy to see what’s driving these investment trends. Dealership profits and values are high right now, and they’ve proved resilient through economic cycles. At the same time, facility updates required to sell and service electric vehicles may entice many smaller, family-owned dealers to sell their stores or give up the franchise. Almost one-fifth of Cadillac’s U.S. dealers accepted a buyout offer late last year rather than sell EVs.
Especially during a pandemic, more consumers demand online shopping options such as those central to Vroom and Carvana. Dealers are responding, satisfying customers better than ever.
According to a recent Cox Automotive study on digitization, 72 percent of consumers were “highly satisfied” with the overall shopping experience in 2020, up from 60 percent in 2019. That’s a remarkable one-year leap. Yet the study showed that two-thirds of franchised dealers in the U.S. lacked key online purchase steps.
Larger retail groups may have advantages of scale that align with consumers’ hunger for a quick, uniform sales process. But continued and accelerated consolidation may also lead to a sea change in an industry built by entrepreneurs and their families — innovative retail competitors with deep ties to their communities.