Wall Street Not Impressed with Publicly Traded Automotive Retailers
8 November 1999
Wall Street Shrugs Off Publicly Traded Automotive Retailers Despite Strong Performance, According to PricewaterhouseCoopers Study
DETROIT--Nov. 8, 1999--Despite posting record profits in 1998 and record unit sales in the first nine months of 1999, publicly traded automotive retailers (PTARs) still are brushed-off by Wall Street, according to a PricewaterhouseCoopers analysis of the sector. "If Wall Street seems unimpressed with PTARs now, how will it react when the automotive industry enters its next down cycle?", ask the report's authors Herb Walter and Tom Webb of PricewaterhouseCoopers, the world's largest professional services organization.The report forecasts that same-store and industry-wide revenue growth will be modest yet stable in the years ahead. "The franchised dealer industry suffered a decline in sales in only four of the past 30 years," according to Herb Walter, Financial Advisory Services partner within the automotive industry group at PricewaterhouseCoopers. "And the industry, in the aggregate, hasn't recorded an operating loss in decades. Yet, despite auto retailing's long history of stable performance, the stock performance of the PTARs has been sub-par," he says.
The study postulates that the under-performance of automotive retailing stocks isn't the result of a flawed business model or poor implementation. To the contrary, the report concludes, "overly lofty expectations" have led to an impractical view of what synergies and cost savings could be accomplished within a reasonable time frame. These high expectations will be tempered as analysts, investors and operators continue to learn the dynamics, realities and restrictions of automotive retailing, according to the report.
"Automotive retailing is a mature industry and the revenue for many established stores has reached its geographic potential," said Mr. Walter. "Future growth will be predominantly driven by local market factors and the current popularity of the dealer's franchise, not management performance. This means it is unreasonable to expect publicly traded automotive retailers to consistently report rising same-store sales - they will have to rely on acquisitions to achieve substantial revenue growth."
The report predicts that one or more PTARs will likely emerge with a sharp business plan and significantly outperform the traditional, privately funded, dealer network. Nevertheless, the report also notes that the synergies and economies provided by consolidating ownership of the dealership network are dwarfed many times over by that which is possible from a true manufacturer/dealer partnership. But how will the cost savings from any such partnership be shared?
"If a profit sharing arrangement between manufacturer and PTAR were to arise, it would be a watershed event transforming the dealer/manufacturer relationship that has existed since the industry's infancy," said Mr. Walter.
