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.



    Leave a Reply

    Your email address will not be published. Required field are marked *.