Doom & Gloom? Self-Driving Cars and Dealership Valuations


By Jeremy Alicandri

Deal­ers should con­sider the effects of self-driving tech­nol­ogy in their 10 to 15 year plans.

Five years ago, the self-driving car seemed like some­thing lim­ited to an episode of the Jet­sons. But then Google changed his­tory, and built an autonomous car that proved safer and more reli­able than its human con­trolled coun­ter­part. Then in 2011, Google began con­vinc­ing leg­is­la­tures in Nevada, Florida, and Cal­i­for­nia to allow Google’s autonomous cars to roam with­out a driver.

Depend­ing on reg­u­la­tions, ana­lysts pre­dict the self-driving car will pop­u­late U.S. roads within the next 12 to 20 years. While the self-driving car will bring soci­ety innu­mer­able ben­e­fits, deal­ers may find that self-driving tech­nol­ogy will dis­rupt the entire retail auto­mo­tive sector.

It’s believed that after the ini­tial rush to pur­chase the self-driving car sub­sides, unit sales/ deal­er­ship will decrease for most deal­ers, as the consumer’s need for more than one auto­mo­bile per house­hold will decrease…. More­over, with the expected low­ered cost of pub­lic trans­porta­tion and ten­dency of Gen Y buy­ers to rent vs. buy, we may even see a greater shift to on-demand pub­lic transportation.

How­ever, dur­ing the early to mid­dle years of the next decade, we may begin to iden­tify small declines in deal­er­ships val­ues as the per­ceived effects of self-driving cars could begin to affect blue sky val­ues and other aspects of the indus­try (e.g.  OEM credit risk rat­ings). Still, pre­dict­ing this risk remains rather spec­u­la­tive, as no one can truly under­stand the future dynam­ics of this tech­nol­ogy and how it will be imple­mented. At the min­i­mum, deal­ers should be aware of this tech­nol­ogy in their 10 to 15 year strate­gic plans, espe­cially since “semi-autonomous” cars have already entered the marketplace.

In my opin­ion, deal­ers will con­tinue to make acqui­si­tions and invest in brand required facil­i­ties improve­ments for at least the next few years. Accord­ing to Pre­sidio, by mea­sur­ing the Return On Invested Cap­i­tal (ROIC) for most deal­er­ship acqui­si­tions, we’ll find that the pay­back for pur­chas­ing a deal­er­ship is 4.5 to 6.1 years of pre-tax earn­ings. Thus, based on this data, invest­ments in a deal­er­ship now or by 2016, should gen­er­ate a pos­i­tive return before self-driving cars even begin to enter the mar­ket­place. Thus, despite the future uncer­tainty, it’s my opin­ion that car deal­er­ships will remain a solid invest­ment oppor­tu­nity for the next few years.

Jeremy Ali­can­dri, writ­ing for the blog, is Vice Pres­i­dent of Hab­ber­stad Auto Group. Read the full arti­cle here.