Dealerships today are facing unprecedented changes. From the impact of data-driven models on inventory management to the volatility in blue sky values, Erin Kerrigan of Kerrigan Advisors sheds light on how the industry is adapting. On today’s episode of Driving Solutions, Kerrigan discusses the effects of recent disruptions, the shifting market dynamics, and what the future holds for dealers.
Key Takeaways
1. The automotive industry increasingly relies on data-driven approaches rather than traditional human capital. This shift reshapes how dealerships manage inventory, price vehicles, and make strategic decisions. While not catastrophic, the CDK outage highlighted the industry’s growing dependence on data.
2. The volatility in automotive earnings is impacting blue sky values. While sky brands like Toyota are seeing stable values, others like Mercedes and Hyundai are experiencing declines due to their handling of EV strategies and other market factors. The return to pre-pandemic valuation models brings clarity and highlights ongoing challenges.
3. OEMs’ strategies for electric vehicles (EVs) are significantly influencing blue sky values. Brands with well-aligned EV plans, such as Toyota, are performing better, while others, like Mercedes and Hyundai, face challenges due to misaligned strategies and increased control over dealership sales.
4. Regional market dynamics, such as those in Florida and Texas, drive growth despite weaker franchises. The increasing demand for high-growth areas influences dealership success and market stability, with population growth contributing to a more favorable environment for dealers.
5. Recent trends show lenders becoming more cautious with financing weaker franchises, impacting dealership acquisitions and operations. The rising cost of floor plan expenses is squeezing profits, making it crucial for dealers to adapt to these financial pressures.
"Data-driven models are transforming the industry, pushing dealerships to rethink their inventory management and pricing strategies. The shift from human capital to data reliance is one of the most dramatic changes we've seen in the last 50 years." – Erin Kerrigan.
