After navigating the car market’s highs and lows throughout 2021 and 2022, dealers are increasingly curious what the future holds for the automotive industry. George Karolis is an expert on mergers and acquisitions in the retail space, and the President of The Presidio Group, while Jason Stein is a well-respected automotive journalist, the former Publisher of Automotive News, and the Host of Full Throttle, a Presidio Podcast. On this episode of Inside Automotive, both Karolis and Stein sit down with host Jim Fitzpatrick to discuss what changes the car business may undergo in 2023 and beyond.
Karolis notes that although 2021 was one of the best years on record for the automotive industry, this strong performance began to fall behind in the second half of 2022 when interest rate hikes and other economic headwinds began to take their toll. This led to reduced activity in dealership acquisitions, especially in the public space. Public activity in M&A had dominated private mergers for several years before 2022, although dealer-to-dealer transaction are traditionally the busier of the two. However, while Karolis expects activity to remain choppy, he anticipates a more robust market in 2023, spurred by positive early quarter reports.
Electric vehicles represent enormous opportunities, but, as Stein and Karolis both note, only for those with the appropriate capital. EVs require massive OEM investments into research, mining, production and charging infrastructure, all of which must meet an ever-growing list of regulations. EV Brands also rely on a small pool of consumers who can not only afford the high prices of electric cars, relative to gas-powered vehicles, but also home-chargers. The financial risks associated with electrification are as high as ever, and, with the likelihood of a return on investment taking decades to arrive, only the most well-established brands are likely to make the cut.
One of the biggest concerns on dealers’ minds is whether the franchise system is under attack by manufacturers. While OEMs are increasingly pushing for direct-sales models, Stein warns against panicking anytime soon. Roughly seventeen states have laws codifying franchise rights and banning automaker sales which do not go through a licensed dealer, and these rules are successfully blocking attempts at forcing a transition. “Let’s not discount the fact that the lobbying efforts at the state level are intense, and the protection of those state franchise laws is an ongoing hand-to-hand combat that occurs on a regular basis,” he explains. “This is not blowing up any time soon.” However, the U.S. is the only country with such laws, which explains why foreign brands are the most likely to resist the agency model. Ultimately, while change will arrive slowly, Stein believes that an eventual transition is inevitable, and that future generations of retailers will need to plan accordingly.
