“According to NADA, 430 new car dealerships closed in 2007 (bringing the total to 20,770 as of Jan. 1, 2008), with another 590 new car dealerships having closed through the first nine months of this year. In addition, NADA sees the potential for roughly 700 closures in full-year ’08. With the large vehicle manufacturers now budgeting for new light vehicle sales in the +12M range for 2009 with modest recovery in 2010, it would not surprise us to see another round of consolidation next year.
“According to NADA’s Industry Analysis Division, the average new car dealership employs 12 technicians, including body repair specialists. If we assume that another 500 dealerships close from now until the end of 2009, we estimate that roughly 6,000 highly qualified, OE trained technicians could be out of
a job and looking for work. This is important as recruiting and retaining qualified technicians (particularly in light of the increasing complexity and sophistication of today’s vehicles) has always been key to the success of aftermarket installers (such as Monro Muffler Brake, Midas, Meineke, Tuffy, AAMCO Transmissions, and numerous independents). With qualified techs staffing the bays, the independent aftermarket has a better opportunity of meeting the needs of motorists and turning repair work away from the dealers. Also, with potential demand increases from professional installers, we believe the warehouse distributors, jobbers, and even the retailers stand poised to benefit given the increased focus on commercial parts distribution.
“But, dealership closures have the potential to not only enhance top-line organic growth prospects for aftermarket participants but also expand gross margins for installers as this influx of potential employees places downward pressure on labor rates for technicians and for distributors as supplier flux creates a more competitive pricing environment.
“However, we believe it is important to keep in mind that the remaining new vehicle dealerships are likely to adopt an even more aggressive stance toward targeting service and parts business as their revenue from vehicle sales comes under additional pressure. Many dealerships have introduced quick service lanes to improve customer experience and broaden their appeal and acceptance as a general maintenance (not just major repair provider) destination. It will also be important to continue monitoring the OEMs and their franchised dealers with respect to offering new sales inducements such as “free maintenance for life” packages that offer complimentary oil and fluid changes, brake pad replacements, and new tires.”
If you have comments to share, send to me at [email protected].
– Jim Smith
