The trend toward franchised automotive retailing is accelerating

The shake-up across this year’s Automotive News listing of the top 150 dealership groups in the U.S. is dramatic, and the reason is a buy-sell market among dealers so frothy it would look at home atop even the fanciest coffee beverages.

Whether it’s the megadeals that dominated these pages over the last year or the acquisitions of standalone, family-owned stores, the trend toward industry consolidation is now both unmistakable and accelerating.

But it’s worth pausing for a moment to consider why all of these dealerships are changing hands right now, and what those transactions say in a broader sense about the health of franchised automotive retail.

It’s no surprise why long-established dealers would consider selling their stores: They see valuations higher than they’ve been in years and that, for some brands, would have been inconceivable just a few years ago.

The last two tumultuous years have also generated record profits, perhaps leaving some dealers feeling that their operations may have peaked. Add in the unknowns of a transition over the next several years to selling and servicing large numbers of electric vehicles — and the expected impact that will have both on their sales and fixed ops — and it’s easy to see why dealers might consider cashing out.

But that’s the sell side. The better question to ask in looking at this list is this: Why do so many seem so eager to buy? If the franchised dealership sales model is in trouble or even endangered — as some have postulated — there is certainly no evidence of it here.

If the future of automotive retailing belongs exclusively to direct-selling automakers, then all of these buyers must be mad.

The same is true regarding the push toward an agency model, which would pay dealers some level of spiff for selling and delivering a vehicle but give them no control over the pricing of it.

In that future world, manufacturers would suck up profits like giant vacuums, leaving dealers as little more than contract employees: The company decides the price and the compensation for delivery, and — to the extent it can get parts — it determines the level of supply and where it’s stored. (See Tesla’s recent price adjustments for evidence.)

An agency model would leave just scraps for local retailers and destroy the value of franchises. If that was on the horizon, I think there would be a dearth of interested buyers for existing dealerships right now, not a bevy of them.

Let’s cut to the chase: If the tenets of capitalism are correct, and if dealers are truly endangered, the value of their businesses should be going down. But they’re not: They’re going up.

That’s because smart investors realize that the impending, unavoidable death of traditional automotive retailing has been greatly exaggerated, and that state franchise laws — though perhaps weakened by direct sellers in some places — remain politically powerful.