Transformations in automotive retail
Mergers, agency models, and property trends
In recent years our Automotive & Roadside Team at Colliers has witnessed the polarisation of the vehicle retailing sector with continued demand for quality vehicle dealerships and franchises with the smaller groups as well as local dealers selling to national operators. We believe that the rationalisation of the sector will continue with the larger groups looking to expand their representation and benefit from economies of scale.
In March this year, it was announced that the US-based dealer group Lithia had acquired Jardine Motor Group. Additionally, Vertu Motors, Rybrook, and Yeomans recently acquired Helston Garage Group and in October 2022 Constellation Automotive acquired Marshall Motor Group for £325 million. As this trend of mergers and acquisitions continues, we have experienced a surge in valuation instructions as purchasers and vendors seek our professional advice.
The rise of agency retail models
Additionally, there is a movement among many of the manufacturers towards an agency retail model rather than the established franchise structure. Mercedes-Benz moved to this earlier this year and Volvo confirmed last month that it would be switching to the agency sales model. Several other manufacturers have also announced their intention to adopt the agency sales model, keen on learning from the early adopters. The extent to which this will change the way in which vehicles are sold and serviced in the UK has yet to be determined. However, it is likely that dealership networks will be reduced in many cases, with the remaining ones requiring less on-site storage for cars.
As a consequence, we may see the brand standards and property requirements change over the next few years, more specifically we expect that dealers will require smaller sites with less demand for parking.
Additionally, the movement towards electric vehicles is also likely to reduce the scale of workshops, as fewer moving parts require less servicing and hence longer service intervals will be introduced. As a result dealerships will begin to look at downsizing and will seek help in acquiring new premises and disposing of their surplus space.
Examining the transactional landscape
Following the mini-Budget in September 2022, as has been witnessed across commercial real estate, the transactional side of the business is quieter as interest rates rise and debt financing becomes more expensive. As a result, there has been a slight cooling in demand for real estate, leading to a decrease in prices compared to the peak of the market in H1 2022.
Despite these uncertain times, we have noticed ongoing activity, with dealerships seeking to dispose of properties or streamline their property portfolios, while others view this as an opportune moment to make strategic acquisitions to continue to grow and of course new entrants to the market will be making acquisitions. There are dealer groups with no succession plan who want to exit the industry, or who will see large scale investment requirements coming up, which they cannot afford. Other dealer groups are concerned what the agency model will do going forward and think it is the right time to get out. There are also those seeking to acquire automotive property for alternative uses, particularly food, while EV demand is also strong.
