Dealers seek increase in capacity, efficiency with tech investment

Franchised dealers who have invested in a new venture capital fund want to support early-stage technology startups that can help them increase capacity and efficiency in their service departments.

Dealer investors chose fixed operations to be the first priority for DealerFund, part of Automotive Ventures, which provides venture capital and consulting resources to automotive entrepreneurs, CEO Steve Greenfield said.

Some dealers who invested in DealerFund told Automotive News they believe the industry has underinvested in technology to support service operations compared with sales. The need to improve productivity and efficiency in the service drive is particularly acute today as dealerships struggle to recruit and retain technicians. And it's likely future margin compression on new vehicles will occur as production constraints ease, Greenfield said.

"I do think we'll look back and say we're raising this fund at the best time ever, given dealer profitability," he said. "What I get concerned with is what's going to be the health of the dealer in the future. I think our fund is positioned no matter how things play out in the next five years to help dealers navigate. Agency model, electrification, connected cars, autonomous — name whatever potential headwind out there, hopefully we're helping them."

DealerFund will look to invest in technology companies that could help with such things as hiring and retaining service technicians, increasing technicians' productivity by automating data entry, reducing the amount of time technicians wait for parts or following up with customers who previously declined service, Greenfield said.

Dealerships then could eliminate the low-value work technicians and service advisers do on a daily basis, enabling them to bill more hours and improve employee morale, he said.

"There's no doubt that becoming lean and efficient in your operation is more and more important as fixed costs go up in our business," said Brian Godfrey, president of Pat Milliken Ford in suburban Detroit, who made a personal investment into DealerFund. He declined to share the amount.

Godfrey said he is interested in technology that can maximize the time technicians spend in their bays working on vehicles and improve customers' experience.

"That's not only good for the store, I think it's good for our technicians. Most technicians in this industry are still paid flat rate or some variation," he said. "If we can help them be more efficient at getting a job done, they get paid more."

Automotive Ventures aims to raise $50 million for DealerFund from about 50 dealer investors who represent at least 1,000 dealerships, Greenfield has said. To date, it has raised about $20 million from 36 investors, Greenfield said. Automotive Ventures has not yet made any investments out of the fund and hopes to close the investment stage by the end of the year or early next year.

Automotive Ventures earlier launched a fund focused on global mobility-related technology, which counts in its portfolio WarrCloud, which uses technology to process warranty claims, and RoboTire, which developed an automated tire-changing system.

Rick Ford, executive vice president of operations for the RFJ Auto platform within Sonic Automotive and a DealerFund investor, said he believes that new-vehicle margins will decrease because of multiple factors, from more inventory to more electric vehicles on the market. To retain profitability, he said, "we're going to need to get better and better at the parts and service business."

Sonic bought RFJ Auto Partners Holdings Inc. in December 2021.

Ford declined to disclose the amount of his investment. He said he is interested in saving consumers time at the dealership, including when dropping off their vehicle for service.

"There are a lot of really smart guys that look at the business differently than we do as dealers," he said, "and frankly that's the reason why I'm investing in these funds."