Revenue Streams

Cost Structure

Industry Structure

& its Evolution

Customer service

& Differentiation

Govt. Regulations &

Franchise

Agreements

U.S. Automotive Retailing

(1995-2002)

Drivers of

Consolidation

New vehicles gives

50-60% i.e

$ 410 bn (7-8% profit

margin

Used vehicle, $379 bn

11-13% profit margin

Service & parts

$ 118 bn, 45-55% profit

margin Insurance & finance

$93 bn, 100 margin, per unit

Low cost

Variable cost

(62%)

Fixed (38 %)

Compensation expenses are

Largest about 47%

Floor Plan interest

cost critical success

factor for large player

Advertising led to 125%

increase in unit sold

Std OverHead in-

cluding leasing were

accounted

Primary factor

of differentiation

is location and

Brand

NACA rated auto

Ind. As no.1

source of custom-

er complaints.

Limited scope for

price based differen-

tiation (low margin)

Geographical constraints to

protect rights of dealers.

Mandatory uniform pricing by

manufactures.

Restrictions to no.of franchise

owned by single person

Uniform pricing

Across all

Dealers.

No other dealer in

same geographic

region, protecting

rights.

Automobile dealer-

ship sole channel of

sales.

22131 dealerships,$1 trn industry

38.5 million unit sold(2001)

Employed 6.6 mn people(4.5% of

US total workforce)

Franchise decreased by

approx. 20% from 1980 to

2001. Industry is extremely

fragmented.

Public dealer-

ship Consolida-

tion

Republic indus-

tries went to grow

as Auto nation

Sonic group

highest sales

Many players

goes public

Low margin

business

Poor consumer

Experience

Dealers were

strong and could

have leveraged

acquisition

SG&A expens-

es, Inventory,

Efficiency

It accounts for high percent-

age of sales bottom out to

$1-1.5bn in annual sales

Lithia experienced

diminishing returns and

UA, AN struggles for

+ve economic returns .

Industry does not support

consolidation, if SG&A ex-

penses exceeds $1.0-1.5 Bn

Inference

US Automobile Retailing Case Study Mind Map by Sarang Banubakde & Manpreet Singh Group 4