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 DrivingSales.com blog, is Vice President of Habberstad Auto Group. Read the full article here.