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UHY Hacker Young guest opinion: Is motor retail consolidation a good thing?

Paul Daly, UHY Hacker Young

Author: Paul Daly (pictured), partner, UHY Hacker Young automotive sector team

When I joined the wonderful world of retail automotive in 2003, there was significant talk of ongoing consolidation in the industry and the impending death of the smaller operator running one or two locations.  At the time, I took it for granted that there was a degree of inevitability in the situation and that eventually we would be left with a few automotive giants controlling the industry in the same way the large supermarket groups have monopolised the market.

Nearly 15 years later and my perception has changed.  Yes, there has been a significant volume of transactions which has seen a much greater degree of consolidation than previously.  However, the industry seems to have a uniqueness that means it is possible to grow too large and suffer from a situation where increasing economies of scale no longer outweigh the nimbleness and close control that a smaller owner managed business affords.  

The reasons for this are not fully understood, but are likely due to a combination of manufacturer influences (the risk of the tail wagging the dog), the uniqueness of the used car departments and a very narrow band between success and failure.

The current situation leads to a strong and vibrant sector, and that is largely thanks to the preservation of the current blend of larger operators along with smaller growing businesses.  Of course it depends on the regular injection of new blood into the sector and historically this was catered for via a combination of manufacturer sponsored schemes (provided by among others Toyota, Honda, VW Group and BMW) and leveraged management buy outs.  Both of these routes have provided significant wealth creation for a number of successful operators with highlights such as Ridgeway, Spire Automotive, Knights and Steve Eagell providing fantastic examples for others to follow.

Of course, the entrepreneurs of the future need a helping hand themselves to establish their first business and this is where in recent years things have become much more difficult.  Since 2008, sponsored dealers and MBO’s have become all but non-existent leading to a void of new entrants.  This situation could cause significant issues in future and lead to an ever greater concentration of power in the hands of a just a few players.

The sector, despite numerous downbeat commentaries, has proven remarkably resilient in recent years and offers strong return on investment making it attractive to investors.  There is certainly no shortage of talent waiting in the wings to exploit opportunities if they were presented to them.  Perhaps the time has come for well managed sponsored operators to come back into the market and provide the new blood our industry needs.

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