Although there has been
much written in the press and by apparent sector disrupters (ie
uber) about the change in western consumer attitudes regards the
private car – ostensibly the manner in which the 'millennial'
demographic has fallen out of love with cars – the fact is that
western nations have seen a return to (or near) pre-2008 new car
sales highs; thanks predominantly to the combined availability of
cheap and available credit and pent-up new car (and fleet vehicle)
demand.
Thus far, by
October-end 2015 the USA has seen light vehicle sales of 18.2m units
on a SAAR basis, Canada approximately 1m units, the UK with 2.3m
units (now seemingly peaking), and Europe (exc UK) with 9.5m (also
possibly peaking).
Whilst the oft
over-looked used car market, in terms of turnover puts new car
turnover in the shade, its national market varying from x3 to x6 the
new car volume depending upon region.
Cars Still Reign as
Social Symbols -
It is inevitable then
that although perceptions regards the high status of the car has
altered, with once prestige brands now available,and still 'top of
the tree' in the B-segment and the massive increase in volume
somewhat diluting past reverence, the fact is that as the most
outwardly visible consumer item associated with lifestyle and so
self-perception and ego, the private vehicle remains for most (if not
all) the most prized new purchase possession.
Yes, for its high price
the new car remains largely an idle asset given its limited
functional use across a full 24 hours, but the very fact that the
counter-point, counter-culture of “car sharing” ventures has not
grown in as greater popularity as envisaged by many 21st
century forecasters indicates that, even as urbanisation increases in
the west, for the most part across the city suburbs and provincial
towns, the car maintains its socio-economic role.
The 'Battle of the
Brands' is a well known phenomenon amongst car-makers themselves,
with (as ex BMW's Wolfgang Reitzle well recognised by the mid 1990s)
brand association as great an impetus to the consumer as the rational
decision-making. It is the reason the Japanese created their near
luxury brands in the early 1990s, and why PSA regenerated the DS
brand as something more superior and likewise Hyundai today with
Genesis. That impetus not changed in essence and typically relates to
the conventions of status, but in more cash-constrained periods such
as today, an inverse snobbery also has its place, whereby the likes
of Skoda and Dacia – albeit price-point distinct - are seen as
intelligent choices compared to their higher cost, mid-stream brand
cousins.
Value Driven Purchase
Rationale -
As was well noted some
years ago, well before 2008, the mid-stream market had slowly begun
to fragment and separate into status choices and 'commodity' choices.
The mid-stream obviously still accounts for most sales, but the
consumption trends toward either 'conspicuous' or 'logical' buys
still persist. This becomes far more blurred in the used car market
obviously, depending upon brand, model and regional availability, but
as the very essence of used car buying continues to evolve, so it
seems likely that similar and more distinct trends in purchase
prompters become clear.
Car brands are of
course very well known given their high profile in society, but what
of the distribution channels?
New Car 'Relationship
Retailing' -
In the formative
Edwardian era the retailer of the car was as important, if not more so,
than the vehicle manufacturer, given that one's direct relationship
was with the local agent. Those agents located in the prime shopping 'arcadias' of Piccadilly,
Knightsbridge and Kensington in London of course had counter-parts in
Paris, Amsterdam, Berlin etc, and were often themselves
from amongst the buyers' social set. (The story of Rolls-Royce itself
that of aristocratic marketeer conjoining with 'middling' engineer to sell to remaining gentry and nouveau-riche).
Even after decades of
social change, likewise though to a lesser degree, the importance of
locality and bonhomie endured; as seen in the early 1970s with
Datsun, Honda and Toyota's progress in the British suburbs. Long
established family garages took on these new franchises, the close
relationships those family businesses had created the basis of trust
for various customer types – old and new. The husband might have
been loyal to his Ford Consul-Granada or Rover 2000, but his wife
would be keen to 'move-up' from a second-hand Mini into a new
school-run Honda Civic, Datsun Cherry or even slightly bigger yet
still affordable Toyota Corolla. This pattern simultaneously seen in
North America.
Thus, unlike the power
of the manufacturer's brand today, and the weakened state of
retailers, it was typical up until the mid 1980s that the local agent
maintained much of the retailing power to a discreet, local, customer
group. This situation existing for much longer in the USA, especially
mid-western and more remote patriotic regions, given the level of
innate dealer protection, to in turn help protect Detroit's supply
and demand; diminishing at the turn of the new century.
A Changed Retail
Environment -
Of course over
successive decades client-dealer relations underwent rapid changes.
More brands and models were introduced, advertising became far more
sophisticated, creative and influential - arguably reaching its
pinnacle by the late 1980s and early 1990s – but as an ever greater
volume of cars entered a single market, amid fierce competition,
value destructive pricing eroded dealer margins, so destabilising the
dealer's earnings power and thus the job security of dealer
principles and his/her staff.
This most seen in the
very liberalised UK market, to assist inter-European trade, but also
later in the the (semi-protected) USA and even the small suburban
monopolies of France, Belgium, Holland and Germany; Italy able to
maintain a protectionist attitude because of political and consumer
patriotism – against the Eurozone grain - far longer.
But ultimately as the
sales environment became ever more harsh and ever 'slimmer', so the
once esteemed role of the dealer-agent built-up over decades rapidly
altered to that of yet another optional sales channel.
And of course, whilst
savvy shoppers previously looked and telephoned around for the best
deal in town, or indeed further afield, it was the simultaneous
emergence of the used-car super-stores and the forever growing
internet that had an impact upon the local dealer-agent.
The former created
business models and sales techniques to “stack 'em high and sell
'em cheap”, or so the public was told, but in fact became
'prisoners of process' to maintain 'sharp-selling' profitability.
The latter of course
offers a seeming world of opportunity and possibilities, with the
ability to create a broad or narrow range of search options depending
upon buyer criteria; though this itself is influenced by the spectrum
of options available, ironically making choices harder if not
disciplined.
Scaling Up to Battle On
-
In reaction to the
early days of these new disruptive inputs independent and franchise
dealers improved their own business models through relocation, scale
enhancement and cost-cutting. Often trading in older smaller premises
for much bigger sites on easy access multi-lane roads and
undertaking local acquisition of competitor dealers as part of the
growth agenda. Amongst the mainstream brands, they might build their
own portfolio of similar brands to provide apparent choice to the
more demanding consumer, or indeed create their own brand ladder
(akin to Sloane at GM in its early days) so that various buyer types
could find the specific brand they wanted, and also similarly seek
out their lesser second car for the family, or perhaps a smaller more
fuel-efficient car for ageing parents.
Furthermore, some have
sought to stave-off the damaging influence of car super-stores,
established dealer groups would go on to seemingly mimic the model,
even if in reality in name only via the internet, to help steer
potential customers away from their undermining competition.
And likewise, with the
rise of large dealer groups able to better manage new and used sales
so as to protect resale values, and the rise and rise of web-based
retailing, so the role of the vehicle auction house has diminished
year on year, now specialising in the re-sale of ex-fleet vehicles
with corporate clients seeking speedy liquidations of their balance
sheet based 'end-of-life' assets.
Thus, just as the
environment changed, so very necessarily, did the modus operandi of
the 'agent'; long family run business overtaken by the consolidation
techniques of highly professionalised dealer groups.
Today, of those groups
we see names like:
UK: Lookers, Pendragon,
Synter (pvt), Inchape, Jardine (pvt) (latter two international)
USA: Penske Auto Group
(international), AutoNation and Group 1 Automotive
Europe: Porsche Holding
Salzberg (pvt) [with various others seeking to mimic its strength].
Obviously, having
rationalised on a geographic basis, such groups also recognised the
threat posed by the internet. Critically, its ability to provide a
massive virtual market-place effectively spanning the nation, or
indeed in Europe's case, nations. Most concerning – as proven a
reality – it used as a instrument to provide the consumer with
bargaining power, and with that a re-run of highly competitive, value
destructive environment seen earlier and that dealers had sought to
escape.
So of course, to combat
this threat, dealer groups have long offered themselves with virtual
shop windows of varying sophistication. (Moreover, the likes of
Inchcape and latterly Jardine have sought to internationalise into
stable and growing AM and EM regions, the latter operating in Hong
Kong, Macau and China).
The Virtual Showroom -
However, just as with
the disruptive consumer influence of more mundane discretionary
consumer goods, the online market-place has undoubtedly altered
buyers' habits.
From the simple
researching of models, variants and prices of standard 'batch-made'
cars through regional dealers' inventories, to the near 3-D
virtualised selection of colour, trim and options applied on-screen
for an illustration of a potentially wholly tailored car; each choice
made intended to create an greater engagement with the potential
buyer.
Thus the on-screen
world has allowed for greater convenience, reduced in-store sales
pressures, greater realms of exploration and ultimately deeper
immersion. Consumer's almost 24/7 web connectivity has assisted and
indeed by promoted by manufacturers into what has come to be an
expected 'play and pay' experience. This in turn has assisted the
channelling of prospective sales into the hands of authorised brand
dealers, whether VM owned or independent as part of the necessary
advancement of the melded virtual and physical sales environments.
New Entrant Disruption
-
Yet, diametrically
countering this persuasive effort, intended to maintain at least
decent margins for manufacturer and dealer, has been the ever
increasing raft of on-line car-buying brokers, who set themselves up
as prime 'go to' consumer portals for the car buying process. This is
done by demonstrating a massive catchment area offered, usually
nationwide and by plying a memorable or trust-worthy sounding brand
name and persona; typically as the buyers' helpful 'best friend'.
Thus, as seen with the
accompanying graphic, the car-buying world is today split into three
distinct, yet merged arenas:
1. Physical Retailing:
the century old
traditional model of physical dealer with factory ordering and
on-site inventory
(as with the dealer
groups mentioned previously)
2. Virtual Retailing:
the 20 year growth of
dealer group websites which direct interest to specific dealers, but
may allow the viewer to see all of the group's regional or nationwide
inventory, so as to allow for intercity transportation of a buyer's
desired vehicle.
(as with the dealer
groups mentioned previously)
3. Virtual Brokering:
the 15 year existence
of on-line marketplaces dedicated to vehicles, and critically
unaffiliated to manufacturer and dealer entities, has spawned a newer
realm of independent providers, in both brand presentation, spirit
and business model. They typically promote themselves as offering a
greater choice of vehicles, routings to optimised sellers and often
with a better comparison-based end deal for the consumer.
Virtual Retailing and
Brokering -
Companies which operate
in this on-line marketplace 'space' include:
- CarsDirect.com (USA)
- Autotrader.com (USA)
- TrueCar.com (USA)
- AutoTrader.co.uk (UK)
These firms have
effectively sought to 'piggy-back' the rising tide of independent
comparison information providers and associated websites. Some
actually established from those very origins, whilst others have
sought to present themselves in a similar manner.
As regards the rapidly
changing dynamics of the new and used market, whilst Glass's Guide
was once the renowned and closely held pocket-book of British used
car dealers, it has become a consumer-facing entity in its own right,
today with Glass.co.uk offering 'comparison' and 'finder' resources.
Its counterpart in the
US has been the 'Kelley Blue Book' since 1926, spanning cars, light
trucks and motorcycles. It has rebuoyed itself in recent years
on-line to maintain its 'go to' service provision in the face of ever
increasing competition, formal and unofficial.
One such Edmunds.com
has become renowned as the website to gain an unfettered
understanding of new and used values; Edmunds however, not providing
a sourcing feature so that it might remain unbiased.
Ebay - A Partial
Operator:
Quite obviously the
auction and retailing website ebay offers a method by which used and
even new car sellers can reach a broad audience. Very well
established, operating on a national basis and generally respected
given the buyer-seller ratings mechanism, ebay.com / co.uk / et al
has perhaps become the default first stop shop for those seeking both
general and specific models and variants.
Critically, the website
has been seen to offer even unregistered vehicles from various
independent dealers, typically small and specialist in nature,
seeking a best price for specific cars – such as run-out luxury
models (Ferrari, Aston Martin, Lamborghini etc) – which otherwise
would have to be substantially dropped in price if remaining within
the dealer's showroom. These ebay using on-sellers are often a
somewhat secretive arm to such dealers.
And obviously, given
the anonymity of seller and buyer, ebay is undoubtedly used by
nefarious sellers and their accomplices (boosting ratings) as a
method for deceitfully obtaining a puurchaser's funds without
providing the paid for goods.
Similarly, as re-noted
by the FT recently, given its size and scale in EM and BRIC regions,
the luxury goods market – from jewels to art to new and classic
cars – is used in a criminal manner by those seeking to launder
illicit finances. Thus ebay and others, being lightly regulated and
lightly monitored, are seen by the police and authorities as
unfortunately almost ideal for any sizable laundering process, across
one large ticket item, or more likely, broken down into many more
smaller transactions.
Thus whilst undoubtedly
a favoured channel for legitimate sellers and buyers of typically
used, older vehicles, ebay has innate perceived disadvantages upon
which the newer crop of vehicle brokers, dealing in both new and used
cars, seek to circumnavigate.
Summary of Newer Entrants -
CarsDirect.com (USA):
This was the first of
the breed, created in 1998 by the entrepreneur Scott Painter, to sell
cars wholly on-line, not referring to a 'bricks and mortar' dealer.
He had previously
formed a line of start-up companies, with auto-market interests
starting with the electronic data-base AutoAccess, and a low
production-cost car venture named Build-To-Order. AutoAccess, or
similar, provided the information platform for CarsDirect.com.
Painter has promoted himself as the deliberate disruptor of the
traditional, staid and “ripe for revolution” vehicle marketplace.
Whilst 'BTO' flailed
given its enormous challenges, it seems likely that Painter's
ambition is to undertake disruptive change across both the production
and retailing of cars, this academically known in its most
ideological guise as 'Micro-factory Retailing'
The CarsDirect.com
operation had been marketed as ripe for an IPO in 2000, but
unfavourable circumstances (ie the collapse of inernet stocks in
1999) precluded that hope. Instead being sold to the Private Equity
firm KKR in 2014 for $1.1bn.
It is now part of the
Internet Brands group, which itself is a much expanded commercial
enterprise originating from CarsDirect, had undergone an IPO in 2007,
but was de-listed from NASDAQ when Hellman and Friedman bought it,
and latterly (as seen) via a PE trade sale to KKR.
AutoTrader.com (USA):
The ambition of this
corporate website was to have a broader ambition than others, in as
much as it has sought to span a greater automotive commercial
'bandwidth', with interests across vehicles (reviews / advice /
comparison), financing and insurance. It thus seeks to offer greater
'one stop shop' facility for those who require more immediate
convenience.
Established in 1997,
the firm is majority held by the the Automotive arm of Cox
Enterprises, a media orientated conglomerate which owns the 'Kelley
Blue Book' operation. Its intermediary holding vehicle is the
AutoTrader Group. With that association Autotrader.com has been able
to grow its recognition. In 2010 the private equity interests of
Providence Equity Partners (at 25%) and Kleiner Perkins Caufield and
Byers, likewise too a stake.
Very usefully
AutoTrader.com offers a two-way transaction routes, one for a private
buyer seeking a new or used car, the other a double aspect service
for private used car sellers. The first to contact local or regional
dealers to gain a valid price on their vehicle for either cash sale
or trade-in against another in-stock car. The second a tiered service
by which the seller is assisted by the firm to best promote the sale
to another private buyer. Moreover, dedicated apps have been created
for the most popular smart-phone operating systems to broaden appeal
and use.
TrueCar.com (USA)
The second of Scott
Painter's efforts. Established in 2005 the firm attracted over $200m
in private equity backing so as to undertake a nation-wide
advertising campaign. Well received by consumers, it was however
immediately problematic for incumbent manufacturers and dealers who
objected to what appeared significant on-line discounting of their
vehicle inventories. Over a dozen states initiated investigations
requiring a change to TrueCar's virtual 'store-front' so as to be
compliant with standard practice.
The fact that TrueCar
did indeed need reformulate its website - part of an overall
restructuring - may have been as seemingly damaging to the brand, but
may equally be argued as actually quite PR positive. It is likely
that the 'discounting' perception has remained within the public
subconsciousness, even though pricing regimes are now far more
aligned with dealer expectations and needs. This has been managed by
using a dealer certification regime, which is likely to have assisted
in TrueCar's referred “per unit price reduction” negotiation.
The 're-launched'
TrueCar took effect in 2012, and grew affiliations with its
'marketing partners' including financial institutions, membership
based organisations and large enterprise employee buying programmes.
It also provides
data-based consulting services regards vehicle valuations and future
residual values for lease and loan companies, financial institutions
weighing risk exposure of their own lending categories and fleet
management companies.
AutoTrader.co.uk (UK)
AutoTrader Group has
long had a stranglehold on the used car advertising publications
sector in the UK, about a decade on from its inception in 1975.
Although previously (and still partially) competing against local
private sale classifieds, the local paper advertising of used car
dealers and the likes of LOOT and similar, AutoTrader's simple and
effective brand identity and its over-riding continual presence on
the shelves of magazine retailers means that it has build an strong
nationwide presence.
The now defunct
magazine's circulation peaked in January of 2000 at 368,000 copies,
its sales dwindling since, reaching a low of 27,000 in March 2013,
with a final hard-copy edition in June of that year. The website
Autotrader.co.uk had been established in 1996, and inevitably
substituted for the magazine, allowing users to buy and sell on-line.
The website has recently seen an average of 10.3m users per month.
Mobile phone and smart-phone access has likewise been encouraged,
with the provision of broad handset availability in 2009; the apps
for apple products launched in 2010.
By December 2014, it
was publicised that 92.2% of Britains knew of the brand and what it
did. Like others, it recognised the need to diversify within its
prime segment, so latterly offered services to dealer group retailers
– with a reported 60% of dealer sales also advertised through the
website – and also finance and insurance products to the general
public.
In March 2015
AutoTrader's owners decided to partially monetise their holding by
releasing 59% of the group via an IPO as a public listing on the LSE.
The 590m shares issued provided £437m after fees, and provided a
nominal MktCap of the company at £2.35bn
The Much 'Shifted
Sands' of Auto-Retail -
As seen, decades ago
the purchase of a new car was heavily influenced by the strength of
the personal relationship with the local agent or dealer. Trust and
personableness were necessary, indeed vital, features well understood
as critical by the often family-run proprietors. This the pattern
until the early 1980s.
However, as those local
businesses were acquired by larger and larger dealer groups, so the
personableness was gradually lost, especially amongst low margin
mainstream vehicles. It remained in part within the luxury brands,
but even here the large turnover of staff meant that return contacts
were lost. Instead dealer principles looked to the new world of CRM
(customer relationship management) whereby 'invitation only' new
model launch events, and preferred client away-days, were seen to be
better methods for retaining loyalty.
However, the fact is
that since the increased use of smart-phones people themselves are
less and less open to periodic or easily forgotten brand names. Thus
for the average car buyer, dealer group names like Glynn Hopkin or
Bristol Street Motors have become diminished. These names may have
meant much to their fathers, but less and less to them. This is
recognised by the umbrella holding companies and they in turn have
sought to re-invent themselves regards identity, with the relatively
newly established Vertu Motors acquiring Bristol Street Motors, etc.
However, even with seeming brand reinvention, and a good slice of the
TIV upturn, it is essentially still regional locality and the value
of the deal to the walk-in buyer that dominates the dealer group. Not
the brand relationship (ie brand equity) that has 'share of mind'.
Thus, the likes of
Vertu Motors, and its many counter-parts, are far away from the brand
presence the likes of CarsDirect or AutoTrader enjoys today, and very
likely into the future.
The auto-market's
newer, wholly web-based entrants obviously seek to gain the kind of
brand presence for new and used cars as AutoTrader has done for
pre-owned. Their notion, to create a strong brand bond that
hyper-realistically mimics the aspects of trust and personableness
arguably not seen – or at least perceived - for decades. Achieved
by being “in the palm of the users hand” and so “top of mind”.
Effectively, they wish to gain the same level of brand knowledge and
brand equity that car manufacturers themselves enjoy having built it
up over many many decades; but to achieve this within a 10-15 year
time-frame. In essence comfortable familiarity.
With such an ambition,
it is well worth better understanding what some of the key financial
measures are, between the 'advanced old guard' of publicly listed
dealer groups and the 'progressive new guard' of similar web-only
retailers.
Comparison of Key Figures-
Mkt Cap / Price to
Earnings / Price to Book / EV to EBITDA / Profit Margin / Earnings
Growth / Cash to Debt
Physical (&
Internet) Dealer Groups
United Kingdom:
Lookers £666.9m /
13.7 / 232 / 692 / 1.5% / 7.8% / £20.5m vs £92.4m
Pendragon £621.4m /
7.54 / 162 / 421 / 1.96% / 130% / £149m vs £202m
Synter Owned by
Penske Automotive Group of USA
Inchcape £3.35bn /
20.6 / 275 / 1,000 / 2.5% / -8.7% / £450.4m vs £419.7m
Jardine Motors Owned by
Jardine Matheson
Vertu Motors £255m /
13.3 / 134 / 794 / 0.87% / 28.7% / £39m vs £6.9m
United States:
AutoNation: $7bn /
15.8 / 3.1 / 12.2 / 2.25% / 11.3% / $63.9m vs $5.4bn
Penske Auto Group
$4.2bn / 12.7 / 2.3 / 13.2 / 1.75% / 16.2% / $49.7m vs $4.35bn
Group 1 Automotive
$1.9bn / 13.7 / 1.9 / 11 / 1.4% / 73% / $22m vs $2.66bn
Europe:
Porsche Holding GmbH
Owned by Volkswagen AG
Mkt Cap / Price to
Earnings / Price to Book / EV to EBITDA / Profit Margin / Earnings
Growth / Cash to Debt
Vehicle Locator
Websites
United Kingdom:
AutoTrader
Group £3.92bn / 65 / n/a / 2,600 / 22.6% / 504% / £12.1m vs £461.2m
United States:
CarsDirect.com Privately
Held
TrueCar.com $720.5m /
142 (exp)/ 2.7 / -19% / -16.3% / n/a / $124m vs $27m
Autotrader.com Privately
Held
Basic Interpretation -
A quick and dirty review of these key figures demonstrate just how world's apart the two 'old' vs 'new' business models appear.
A quick and dirty review of these key figures demonstrate just how world's apart the two 'old' vs 'new' business models appear.
The commercial weight
of the traditional and conventional incumbents can be seen by the
scant profit margins seen even recently, the costs of: real estate,
sales staff, large back-offices and distribution illustrating that
even though US and UK regional car markets have enjoyed a robust
rebound over the last 3-4 years, it is only now that minimal profits
are being seen.
In the UK this ranges
from Vertu's 0.9% to Inchcape's 2.5%, the latter assisted by its
focus on premium marques and internationalism. And likewise in the
USA ranging from Group 1 Auto's 1.4% to AutoNation's 2.5%, and these
figures only achievable after impressive ongoing quarterly growth
rises, Pendragon's 130% best amongst its UK counterpart, and Group 1
Auto's 73% likewise in the USA.
Obviously, given the
fact that these are well established, and well understood retailers,
operating within a cyclical field, it is unsurprising that the
respective price/earnings valuations are within expected bounds and
generally accord to the component-part mix of the underlying metrics.
Of the newer crop of
internet retailing and sourcing websites, only the American
TrueCar.com and Britain's AutoTraderGroup provide insights, since
they are the only two entities presently listed on the NASDAQ and LSE
exchanges.
Herein, we see that
both companies, in comparison to 'bricks and mortar' operations, have
high p/e values: AutoTrader on 65x and TrueCar on 142x.
Given the UK market
saturation aspect of AutoTrader Group's prime business, its high p/e
ratio may be deemed either overtly high given that it is effectively
a matured business, or indeed rightly valued given that it has such a
monopoly in 'share of mind'. To paraphrase Warren Buffett's
terminology it “enjoys a market moat”. However,
disadvantageously, the business's immediate 'cash cover' is only 2.6%
of the overall debt level; thus no doubt suffers from its debt
servicing costs. Thus although new to the IPO market, its highly
matured composition means that it is very different proposition in
character to many high expectation, web-based IPOs; such as Ocado
previously. On that p/e basis, AutoTrader arguably looks fully price
for now, awaiting the likelihood of international expansion,
Far smaller, in MktCap
terms is TrueCar in the USA, but its apparent potential - shown with
over double the p/e valuation of its seeming UK counterpart –
appears far higher. This a function of not only the room to expand
into its potential advertising slice of the overall US space, but
critically also buoyed by a wider range of separate yet intertwined
service provision B2C and B2B income streams. Presently a
cash-burning, inwardly investing operation suffering volatile growth,
it at least has a cash-pile which is a very strong multiple of its
debt (4.6x) which will undoubtedly be used primarily upon an ongoing
nationwide press campaign, itself supported by its young youtube
channel. Via its youtube adverts, it is recognised however that
inevitably the TrueCar formula of seemingly offering transparent,
'like for like' comparisons of local vehicle sales deals is hard to
quantify given that any dealer, and even cross town dealers,
typically do not hold exact 'like for like' model variants, so the
pricing mechanism is only itself a rough guide. Moreover, the adverts
suggests that the TrueCar business model innately favours those
dealers which can offer greater discounting, these inevitably the
large scale dealer group: Penske, AutoNation and Group 1 Auto, etc.
Ultimately, the lofty
p/e valuations of Britain's AutoTrader Group and America's TrueCar
are only good guestimates, and could be said to rely much on an
ever-expanding new and used car sector, when the former may be now
plateauing for a period, with any such 'slack' taken up by the latter
as people trade-in 3 year old cars so inflating used car inventories.
But critically AutoTrader Group appears to be awaiting international
expansion, whilst TrueCar promotes its brand as the “car buying
friend”.
Lastly, given that the
very name AutoTrader exists on both sides of the Atlantic – as the
British entity and the privately held American enterprise – it
seems almost inevitable that some kind of future relationship will be
born between the two companies. Whether the UK listed Manchester firm
eventually seeks an acquisition of its American 'dopple ganger' with
a purchase from Atlanta's Cox Enterprise, or any possibility of the
reverse, remains to be seen.
Rebalancing the Retail Channel Mix -
What is obvious today and into the future, is how the now immensely brand-centric consumer realm has itself been diced, sliced and effectively 'funnelled' by the immediacy of the smart-phone. And likewise the consumer is being 'funnelled' toward a select band of large and mega-sized retailers.
It seems then that
consumers will be given ever greater choice, and be assisted within
the car-buying process, but on a national level at least, that
expanded model choice will be offered by ever fewer, though
thankfully publicly listed, dealer groups.
The resultant message
for today's auto-makers is that the previous 'shifting sands' of the
marketplace continues, with tomorrow suggesting a rebalancing of the
business and profit equation, as the third realm of 'virtual brokers'
gain ever greater traction.
As dealer consolidation
grew in the 1990s and 2000s, so we saw manufacturer's expand their
interest of in-house dealer operations, perhaps none more so that
“Porsche Salzberg” with recognition that its distribution chain,
assisted by captive credit, was perhaps even more important than its
supply chain, given the importance of corporate proximity to the
buyer and end user.
With the new threat of
'virtual brokers', ultimately seeking ever greater referral
discounting from auto-retailers, it is inevitable that those
auto-makers and dealer groups who reside on either their brand
laurels or geographical strangleholds will be undermined.
The future of
auto-retailing then is a triple aspect realm; and obviously those who
can orientate those central pieces to their own advantage will
support long term profitability.
As to whether
AutoTrader's, TrueCar's and others' ultimate goals are to become
direct-sellers of today's and tomorrow's automotive brands - so
by-passing dealer groups and their heavy overhead – or simply seek
an investment exit via absorption into the likes of Penske or Porsche
Salzberg remains to be seen.
What is clear is that
endemic disruption of the auto-retailing sector will continue as
consumers own minds are effectively recalibrated to seek-out (perhaps overly superficial but powerful) 'comforting convenience'.
