Digital demands squeeze smaller auto retailers

Vroom’s Super Bowl ad this month opened with a grim, tortured picture of traditional auto retail — a hyperbolic stereotype that likely left most dealers cringing or angry.

But the second half of its ad, with a couple sitting on their lawn as a vehicle is delivered, is hardly exclusive to online startups. It is, however, a service that can require resources more suited to a large retailer than a standalone mom and pop store.

Backed by a frothy stock market, publicly owned companies are in a mood to buy dealerships. Lithia Motors, already the third-largest public dealership group in the U.S., plans to add more than $7 billion in annualized revenue through dealership acquisitions this year. The Oregon-based group aims to roughly quadruple in size by 2025 at $50 billion in annual revenue, more than double those of its largest peers today. LMP Automotive went public with plans to pursue a strategy of rolling up dealerships, though early efforts have been scaled back.

It’s easy to see what’s driving these investment trends. Dealership profits and values are high right now, and they’ve proved resilient through economic cycles. At the same time, facility updates required to sell and service electric vehicles may entice many smaller, family-owned dealers to sell their stores or give up the franchise. Almost one-fifth of Cadillac’s U.S. dealers accepted a buyout offer late last year rather than sell EVs.

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