The big auto dealer groups just keep growing.
West Herr Automotive Group last year acquired two Nissan dealerships and one Infiniti dealership in the Buffalo Niagara region. Even before those deals, Automotive News ranked West Herr the 24th largest dealer group in the country, based on new retail vehicle sales.
Meanwhile, Towne Automotive Group acquired a Chevrolet Buick Cadillac dealership in North Collins, adding General Motors brands to its lineup for the first time.
The Basil family of dealerships expanded, acquiring a Ford franchise in Niagara Falls. And even without making a deal last year, Northtown Automotive Cos. remained a big player, with 17 separate franchises.
Dealer groups are powerful forces in selling new and used cars in the region. They take advantage of scale, spreading their costs across multiple operations, and promote a bevy of brands.
Frank Downing Jr., president of Towne Automotive, said multiple brands and locations equip dealer groups to cope with industry swings. Dealers don’t control what the manufacturers make, how those products go to market, or what the incentives are on them. “But if you have multiple brands, you will always have a few that have the hot product or the exceptional programs,” he said.
Matthew Lasher, West Herr’s marketing director, said a dealer group benefits from “operational efficiencies” with multiple franchises in one market. But he says the bigger benefit is offering customers a variety of options.
For example, if West Herr has a longtime customer at a Ford location who is interested in a different brand, West Herr can still help them at another dealership, Lasher said. “If we had a smaller footprint, we couldn’t do that as effectively.”
Running a large organization with several locations also comes with challenges, like satisfying lots of customers and providing consistent customer service.
West Herr has 1,900 employees across its operations, and has more than 500,000 customer interactions per year. “A risk for us is a customer having a bad experience at one location and not giving us another chance down the line with any of the other brands we offer,” Lasher said. For that reason, he said, West Herr emphasizes “talent acquisition.”
With each franchise comes expectations from the manufacturer about how dealers will handle everything from employee training to the facilities’ appearance. “I’m constantly being pulled to a dealer meeting by one franchise or another,” said Craig Schreiber, a co-owner at Northtown Automotive.
Northtown plans to spend more than $20 million this year on either new construction or upgrades to its existing locations, Schreiber said.
The Basil family members have continued to build their presence, through new and used car locations. “For our family, this is what we do, the car business,” said Chuck Basil Sr. of Basil Ford in Cheektowaga.
Why are many smaller dealers are selling their businesses to larger groups?
Downing said that during the recession, many dealerships closed or merged. As the industry bounced back, so did dealer groups’ sales, profits and capital.
“Reinvesting capital in dealership acquisitions made sense for dealer groups because it provides a better return on investment than keeping capital in the business in this low-interest rate market,” Downing said. “And with the market improving, dealership valuations have grown rapidly so it became a good time to sell for dealers who wanted to cash in during a strong market.”
While publicly traded companies like AutoNation have been in the business for some time, private equity firms are also getting involved, searching for a good return on investment, Schreiber said.
Lasher said the growth of dealer groups in the region is “a result of some of the best operators simply rising to the top.”
“There are also some very good operators who, for a variety of reasons, are looking to either downsize their business investments, or retire from them all together, and in those cases it presents opportunities for groups like ours to continue to grow and serve the people of Buffalo and Rochester,” Lasher said.
Matt Jones, retail experience editor at Edmunds.com, said these days, it is a heavy lift for someone to get into the franchised new-car business as an individual owner.
“This isn’t a job for a start up,” Jones said. “You’ve got to come in with a whole lot of bucks.”
What’s more, he said, there are lots of expenses to manage once a dealership is running, from payroll to inventory.
“There’s a lot of risk to running a car dealership,” he said. “For the most part, most dealerships are profitable, but not all of them are.”
Some dealers might find everything too much to handle, or determine they aren’t making as much money as they expected, and sell to a dealer group, Jones said. In other cases, a dealer group might come calling. “Some people just can’t refuse the offer: take the offer and have no headaches.”
For consumers, the growth of dealer groups means more locations in fewer ownership hands. For instance, West Herr owns three of the region’s four Nissan dealerships.
Schreiber said bigger dealer groups give consumers more services that they like, such as shuttles and loaner cars, and a larger inventory of parts and services to draw from.
Jones said dealer groups provide consumers with a more uniform approach to sales, using a system based on statistics rather than “the way things have always been done.” Consumers might even receive a slightly better deal for a trade-in on a brand different from the brand they plan to buy, since a dealer probably has a car lot where that trade-in would be a good fit.
But what do dealer groups mean for competition in new car sales?
Schreiber said manufacturers have reduced the profit margin on vehicles, and consumers have access to more information than ever as they research a deal.
And Jones said as long as dealer groups don’t eliminate certain brands from a market, he doesn’t see them harming competition or diminishing consumers’ negotiating leverage.
While a group might have multiple locations of a single brand in the same market, he said, the employees at those locations still compete against each other.
“Even though they have the same umbrella owner, these guys still have to hit their numbers, and they’ll do whatever it takes to hit their numbers,” he said.
A dealer doesn’t necessarily need multiple brands and locations to make a splash. In some months, Paddock Chevrolet has outsold all other Chevy dealers in the country, from its single-brand home base in Kenmore.
And Hamburg Mitsubishi made news last year when it debuted: It was a dealership new to the region, and wasn’t attached to a large dealer group.
Two other dealer groups ranked among the 150 largest by Automotive News also operate in the Buffalo Niagara region: Albany-based Lia Auto Group (No. 53) and Michigan-based Ziegler Auto Group (No. 66). Both of them sell Hondas here.
Even the big dealer groups should expect company: CarMax plans to open a location in Amherst, though not this year. The company sold more than 877,000 vehicles in 2014.