Dealer Consolidation A Key Trend For 2014
BMI's view that US dealer acquisitions, particularly overseas, would gain momentum in 2013 has been borne out by the latest data from financial services firm Presidio, which shows that M&A spending in the segment grew 51% year-on-year in the first nine months of the year. There is likely to be more to come when full year data is announced, but one interesting trend is the growth in US spending and the potential for greater consolidation in the year to come.
The country's largest public dealers have still been spending on international expansion, which BMI still sees as a cushion against future slower growth in US light vehicle sales. The value of international acquisitions was fairly flat in 9M13 at US$247mn, compared with US$224mn in 9M12. That said, there were some particularly significant international deals in terms of strategy over the year. Not least the Penske Automotive Group's acquisition of Western Star Trucks Australia, with a view to expansion in South East Asia ( see 'South East Asia Growth Spurs Penske Acquisition', July 30 2013).
|Value Of Acquisitions By Public US Dealer Groups (US$mn)|
Indeed, Penske's CEO Roger Penske said the company has a strong acquisition pipeline both in the US and internationally. He also said that the country's leading dealer groups own less than 10% of the US market, which means 'many opportunities here'. This is a sentiment echoed by other CEOs, who are incorporating a certain amount of domestic growth into their strategies. AutoNation CEO Mike Jackson said the company would be increasing its footprint in existing markets, while Bryan DeBoer of Lithia Motors said 'the opportunity for consolidation is ripe and is the foundation for our continued expansion in 2014 and beyond'.
While there is still a risk to building up a dealer network in a market where growth is expected to slow, the dynamics of the dealer segment have changed. There are around 4,000 less dealers than in 2007, when the light vehicle market was last at 16mn units. This means sales per dealer are growing and this is what the major groups are interested in and why they are increasing their presence in their existing markets. Although BMI forecasts sales to return to more modest growth of 2-3% over the next five years compared with the 8% estimated for 2013, as the market returns to its natural level of around 16mn units from 2014, this is still positive growth and will be shared among fewer beneficiaries.
Other changes in favour of the dealers include less reliance on incentives, which improves their bottom line. According to Autodata, the average incentive spend per vehicle for the 10 months to October 2013 was US$2,552, compared with US$2,776 in the same period of 2009. We have flagged inventory build-up and the resulting need for incentives as a potential threat to sales in 2014 ( see 'Incentives Down But Inventories A Risk For 2014', December 9 2013). In general, however, the business plan for most dealers is far more sustainable heading into another year of projected growth, as BMI forecasts a 3.6% increase in light vehicle sales in 2014.