The battle lines have been drawn. Big Box retailers, such as Walmart and Home Depot, against the much smaller, but locally-owned family businesses: the neighborhood Mom-n-Pop stores where everyone knows your name. As the proverb tells us, big fish eat little fish. It happened to hardware stores and book stores and that friendly diner with daily specials just around the corner. And it could happen to private and family-owned auto dealerships as well.
But it won’t happen if Matt Buchanan and Jesse Biter, founders of Dealers United (DU), have anything to say about it. DU’s mission is to save these dealerships from extinction.
Now more than ever
Buchanan and Biter know they have little time to waste. The trend of big fish getting bigger—and more powerful—is not slowing down. As a result, the competition for private owners no longer is coming from the dealership down the street; today’s competitor is the MegaDealer Group. From 2000 to 2009, dealer groups with 20 or more stores grew by 64 percent, and seven of those were publicly-traded companies. During the same period, the rest of the industry fell by 28 percent.
Vehicles sold in new car franchised stores experienced a similar trend. The industry as a whole suffered a 33 percent decrease while MegaDealer Groups enjoyed a 23 percent up-tick in sales.
Putting the rise of publicly traded dealership groups in perspective, 1996 marked the first year of the phenomenon with three such dealer groups. At that time, the three companies collectively held a mere 0.4 percent of the new vehicle market. In 2009, the market share of public dealership groups was about 7.3 percent, a whopping 1,700 percent increase in a little over a decade.
Fighting an unfair advantage
The trend is obvious. Conglomerate dealership groups are growing while privately-held dealerships, for many years the backbone of the industry, are seeing their numbers dwindle. You can’t read an automotive trade journal these days without learning about still another small, family-owned dealership closing its doors for good; often after decades of service to their local community.
The odds of business survival, already tough during a recession, are stacked against the Davids in favor of the Goliaths. Conglomerate dealerships buy in bulk and get huge vendor discounts. They can leverage multi-dealer marketing campaigns and promotions. Publicly-traded dealership groups have the resources to be innovative, participate in test pilot programs, and even create their own technology tools. They can share best practices across their portfolio of dealerships, standardize procedures, and protect their reputation in the marketplace.
These conglomerates can offer more cars for customers to choose from and, like Walmart, because they deal in huge volumes, can afford to offer their products to consumers for less. And if that isn’t enough to drive fear into the heart of any private dealership, the big guys have more and better access to financing; coming at a time when banks are overly cautious about lending and car financing has all but dried up for everyone else.
According to Buchanan and Biter, if you’re a private dealer, you shouldn’t just be worried; you should be ready to fight back. It’s an uneven playing field.
Level the playing field
The competitive landscape may be tilted in favor of the conglomerates, but it doesn’t have to stay that way thanks to Dealers United. This innovative company is the first service to leverage the combined buying and negotiating power of private dealerships, as well as provide business development services for its members. Dealers United goes beyond the normal buying co-op by vetting, negotiating, and following up with vendors, making sure vendors deliver as promised.
In addition to its strength in numbers philosophy, DU is driven by two other key concepts. First, joining is free and any dealer may join; no hassles, no fees. Second, DU is a service of, by and for dealers; and, appropriately, dealers call the shots.
So, how does it work? Dealers United members identify a specific service they desire, say SEO, CRM or DMS through a group vote each month. Industry experts from Dealers United research leading providers of that service/product through Q&A sessions and onsite visits with businesses. Once the best of the best vendor in the category is selected, Dealers United negotiates the best deal – leveraging the combined buying power of its membership. At the end of each month, DU will distribute a detailed video about the vendor to members, as well as specifics of the upcoming deal. Dealers decide whether they want to participate by agreeing to the discounted price and buying the offer. If the minimum number of dealers is met, it’s a done deal and the participating members are given the group discount on the product or service.
Each vendor deal that DU members select will be time-sensitive, with clearly stated start and end dates, as well as parameters for the minimum and maximum number of dealers the chosen vendor can handle. Biter estimates DU members could enjoy vendor savings of anywhere between 45 to 75 percent. This savings represents money dealers could reinvest in their businesses or simply take to their bottom lines.
“We know through discussions with other vendors that MegaDealer Groups, on average, save at least 40 to 60 percent on average off what the smaller, private dealers pay for essentially the same product or service,” said Buchanan.
Win-win for dealers and vendors
Vendors benefit as well. Dealers United will act as the voice for private dealerships while giving those vendors with superior product offerings the opportunity to market to a highly-targeted group. Each month dealers will be asked for feedback on which vendor providers they’d like reviewed by Dealers United. DU will then research the vendors within a specific silo, whether it is CRM, Social Media, Web Design etc. and select the provider that represents the best quality and value for dealer members. Instead of a vendor having to spend resources reaching one dealer at a time, they’ll be able to capture bigger, multi-dealer sales with less effort.
Vendors will still need to deliver. DU plans to secure service performance level guarantees (just like the MegaDealers routinely enjoy). If a particular vendor fails or underperforms, participating members could be entitled to receive credits for the missing or unsatisfactory service.
“Speaking as a vendor with years of experience negotiating deals with MegaDealers and single-point dealerships, I can honestly say that smaller dealerships often end up with the short straw,” said Biter. “They don’t have the expertise or the staff to negotiate favorable terms and conditions. As a result, they often miss out on the benefits of an SLA, a service level agreement.”
Perhaps the hidden gem in the DU plan is the opportunity for private dealerships to tap into the emerging vendor market. It’s these newer products, according to Biter, that are changing the automotive landscape yet are typically only available to early adopters from big dealer groups. Acting as a business development team, DU can stay on top of latest trends and products, vet the appropriate vendors, and free up their dealership members to focus on selling cars.
The voice for private dealerships
A self-proclaimed geek, Biter became an automotive vendor at an early age. Responding to a dealer’s request, Biter created a software program that automated the process of uploading car inventory to the Internet. He named the program IOL, for Inventory Online, and it became a software sensation. Before long, Autobytel asked him to install the software at dealerships around the country and, as they say, the rest is history. Biter founded HomeNet Automotive and grew the company from zero employees and one dealer to over 135 employees and more than 18,000 dealers, before selling the company to AutoTrader in 2010.
“I learned a lot about the automotive industry, especially about vendors and the way they sell their products,” recalled Biter. “I’ve seen first hand some of the amazing new products that will someday revolutionize the auto industry the way my product did.”
Buchanan’s family started in the automotive business in Ocala, Florida, in 1992, with a single dealership. Eventually, the family owned more than 20 dealerships and was ranked as the 20th largest dealership group in the country. But by 2005, the family sold off the majority of their dealerships and was left with only three stores. This transition from small dealer to big auto group back to smaller dealership taught Buchanan an early lesson in the buying power—and influence—of the bigger-is-better concept.
“I realized the importance of purchasing power, efficiencies, and advantages that large dealer groups have,” said Buchanan. “After discovering this, I knew that all private dealerships deserved the same opportunity to succeed as any other dealership, regardless of which dealer group they belonged to.”
Survival of the best connected
According to Buchanan and Biter, Dealers United is that rare “now more than ever” opportunity. Dealers United levels the playing field and enables smaller dealerships to secure more favorable terms and conditions with vendors, save money, and compete more efficiently against publicly-traded conglomerates.
“If a frog is placed in boiling water, it will jump out. The same frog placed in cold water that is slowly heated will not realize it’s in trouble and will die,” said Buchanan. “Right now, as private dealers, we are the frogs. Up until the mid 90s, we were in the cold water. Since then, the conglomerates have been turning up the heat and the industry is hardly noticing. Dealers United plans to stop this trend before consumers only have five auto retailers to choose from.”
It’s not simply a matter of the more, the merrier. To the visionaries behind Dealers United, it’s a case of the more, the better deal. Whether you’re talking about frogs or fish or your family’s legacy, it all boils down to survival.
Jesse Biter is the co-founder of Dealers United, the first service to leverage the buying power of private dealerships, complement their business services through the vetting of vendors and act as a conduit for smaller stores to compete with conglomerates. Biter has strong expertise is vendor negotiation, before starting Dealers United he founded HomeNet Automotive and grew the company from zero employees and one dealer to over 135 employees and more than 18,000 dealers, before selling the company to AutoTrader in 2010. Jesse and his wife Katie spend the majority of their time in Sarasota, Florida where they nurture their love of flying, boating, golfing, skiing and scuba diving. In addition to action sports, Jesse is active on the board of the West Coast Black Theatre Troupe and is an active supporter of various charities in the Florida area.
Matt Buchanan is the co-founder of Dealers United, the first service to leverage the buying power of private dealerships, compliment their business services through the vetting of vendors and act as a conduit for smaller stores to compete with conglomerates. Buchanan has extensive experience in dealership operations through his current position as the Principal of Sarasota Ford. Before running the Ford store, Buchanan attended Dealer Academy which helped him learn the ins and outs of dealership operations. Previous to his time at Sarasota Ford, Buchanan worked as a financial advisor at Merrill Lynch and is a graduate of Stanford University, majoring in Science, Technology, and Society. He enjoys flying, boating, and spending time with his friends and family at his home in Sarasota.