Picture it: A lone mid-sized dealership spends $35,000 a year on shop supplies. Across town, a rival store, owned by a large dealership group, spends $30,000 for the same supplies. The big group orders in bulk, earning a 10 to 15 percent discount.
That $5,000 difference and others like it add up, making it harder for the single-point store to compete. The big dealership group has operational advantages, too.
"There are a lot of things we do that allow us to take advantage of our size and scale," said Mike Maroone, COO of AutoNation Inc., the country's largest dealership group. "We have a cost advantage going forward. We have a skill set that we bring to the table that gives us an advantage."
Big dealership groups, for instance, have dedicated human resources and information technology staffs to deal with the increasing complexity of the business. The big players can borrow money at cheaper rates to fund facility improvements or to buy smaller dealerships.
Put those factors together, and big dealership groups are gaining an increased edge over single-point stores. For those reasons, many brokers believe that buy-sell activity by large dealership groups will increase.
"The bigger the dealership group is, the more it can absorb taking a risk to be competitive," said Sheldon Sandler, founder of brokerage firm Bel Air Partners in Hopewell, N.J. "It's more and more difficult for the small mom-and-pop dealer to make ends meet."