January 27, 2016
Connect Media asked Avison Young’s national specialty automotive properties group leader Jodi Meade to share insights on the automotive industry. Here are her thoughts:
Q. What’s the state of the automotive industry today?
A. New car and truck sales reached a record high of 17.3 million units last year. That’s a significant increase from 2009 when under 10 million vehicles were sold. Vehicle sales account for roughly 17 percent of all retail sales in the U.S. and the industry employs some 2.25-million people.
In 2016, forecasts predict vehicle sales will reach another high water mark approaching 17.7 million units. That’s not a sustainable level, and it’s anticipated it is the tail end of seven straight years of year-over-year growth. It’s reasonable to expect sales will stabilize at an annual level of 16.5 to 17 million units.
Q. What are the major factors impacting the industry?
A. We’re seeing continued dealership consolidation across the industry as larger, national companies take greater ownership stakes. In the past decade, the number of dealerships has declined from 22,000 to roughly 16,400. That trend is expected to further compress margins and lead to additional consolidations to achieve economies of scale.
Consolidation is also being driven by the Internet, which now is firmly established into the car buying process. Consumers can research vehicle options, find the best deals and are increasingly willing to travel longer distances to a dealer. That has forced manufacturers and dealers to adjust – and we’re seeing savvy moves that are generating positive results.
Q. Why should the CRE industry pay attention to the auto sector?
A. The automotive industry serves as an economic indicator in the U.S. Thus, it is wise to keep an eye on the sector for any sign of wavering or wheel wobble. It can sound an early warning of a direction change.
There’s a CRE angle as well, since auto dealerships are underpinned by real estate. That’s underscored by record prices being paid. Franchise values, the ability to shift to meet demand or capture consumer preferences, as well as to make investments in upgrades or build new facilities are all tied to a dealerships underlying land value.