A GOOD TIME TO BE AN AUTO DEALER

I recently had a chance to examine the performance of the publicly-traded auto dealer groups, and I’ve included a few slides to support my position that it's a good time to be an auto dealer.

By pretty much any characterization, dealers have navigated through first COVID and then a global microchip shortage in stellar fashion. Front-end and back-end gross profit per unit sold are at historical highs, while they’ve also found ways to successfully reduce operating costs.

The most important lesson to be learned through all of this may be how artificially reducing supply allows for more profit realization for the seller of the scarce good. According to NADA, 2021 average dealership total sales set a record, topping $71 million.

And the good times seem positioned to continue to roll throughout 2022. Public groups have recently reported their Q1 2022 numbers, and they continue to experience record profitability.

J.D. Power forecasts that full-year 2022 profitability for dealers will be 15% to 35% higher than in 2021.

BUT THERE ARE WARNING SIGNS ON THE HORIZON

Dealers are facing more uncertainty about the future than ever before and will need to be on their best game as inventory levels normalize and many of these industry dynamics begin to affect their businesses.

This juxtaposition of record-high profitability with heightened levels of uncertainty around the future is the exact reason that we’ve launched the new Automotive Ventures DealerFund, which will harness the collective wisdom of dozens of dealership owners into investment areas for the new fund. Dealers participate in the financial upside while investing in new technology products that benefit their operations.

I’ve been on a bit of a roadshow visiting dealers to support the new fund, and I’ve included a calendar of my upcoming trips. Let me know if you happen to be in one of the cities I’m visiting; it would be my pleasure to drop by your store for a visit.

THE DEALERFUND IS BUILDING MOMENTUM

We’re planning on conducting the initial close of our new DealerFund in mid-May, and in preparation, we have onboarded three new employees:

Andrew Gordon is coming aboard as Head of Value Creation, to work closely with dealers throughout the U.S. to identify solutions that solve key challenges dealers face today, and to guide them as we invest in emerging technologies that are transforming the future of the industry.

Adam Lafferty is joining us as VP of Operations and will manage Automotive Ventures’ strategic operations to prepare us to scale up and grow our investor and portfolio company base.

Brian Reed is joining Automotive Ventures as an Operating Partner, to help us work closely with our investors, better identify companies for investment, and accelerate their adoption post-investment.

Automotive Ventures is committed to hiring the best people to support our investors and entrepreneurs. I’ve been lucky enough to have worked with Andrew, Adam and Brian in the past, and I respect their leadership skills, value their insight and welcome their vision and ingenuity to support our investors and help our portfolio companies grow. I’m honored that they’ve decided to join the Automotive Ventures leadership team and I look forward to driving the company forward together.

We continue to make dealership visits, asking owners to articulate their vision of what the future looks like and identify operational gaps that might be filled by technology solutions, a process that will ultimately define the areas of investment for the DealerFund. I look forward to sharing our findings with you in the near future.

It’s an exciting time for this industry, and I look forward to working with you to create the future.

Steve Greenfield is CEO and Founder of?Automotive Ventures, which is raising its first?DealerFund?to help auto dealerships navigate through the next decade of unprecedented change and participate financially in the AutoTech startups they help to grow. The DealerFund looks to build a critical mass of the most progressive dealerships, work closely with these investors to understand their biggest challenges and needs, and then identify companies to invest in that uniquely address our dealer investors’ needs.

Note:?This article was?originally published in the?Automotive Ventures May 2022 Intel Report.