Cox-Dealertrack Acquisition Pinnacle of Industry Consolidation

by · June 14, 2015

You have to appreciate the way that Cox Automotive publicized its acquisition today of Dealertrack: “Cox to invest into customers and industry.” This is a terrific PR spin, but what’s really going on is consolidation and it is occurring because there are greater profits at play.

I am not on any bandwagon for or against consolidation, it’s only natural in capitalism, but consolidation occurs because companies have something to gain. If they didn’t then the acquisition would not occur.

Last year when Dealertrack bought Dealer.com for $1B I did not offer much commentary on the news, even though I do have a personal connection with both companies. Today with the announcement that Cox Automotive is going to acquire Dealertrack for $4B, I am inclined to opine.

A lot of folks are, I am sure, taking in a deep breath with this “blockbuster” acquisition as Auto News calls it. $4B is no small sum, but there are folks suggesting this deal may have been undervalued.

For the record, Dealertrack operates at a net loss of more than $20 million per quarter, twice its quarterly net operating loss from the year-earlier first quarter, according to reports. With more than $253M in quarterly revenues, this net loss is not even 10%, and $4B is approximately four years worth of revenue right now.

 

Cox Automotive Acquires Dealertrack for $4B

 

The Unintended Consequences of Consolidation

The combination of Cox Automotive and Dealertrack will create a broader suite of open solutions that deliver value to consumers, dealers, lenders, manufacturers and the overall automotive industry. 

Many dealers find comfort in a consolidation like this, with the idea that they can harness more resources from a single source and achieve better integration of systems and information. But this is a misnomer that inevitably leads to complacency. The majority of dealers won’t assemble a strategy that works for them because they will buy into a collection of tools and strategies pieced together for the sake of the master.

Make no mistake, acquisitions like this do not result in integrated systems. They only result in how profits are funneled, i.e. into the same source.

REPEAT: Acquisitions like this do not result in systems integration.  

There is no shortage of people speaking out against conformism, or arrangements where dealers are required and/or incentivized to go with specific providers for things like websites, marketing, etc. Automakers of course prefer their dealerships be uniform, all on the same platform, and part of a more orchestrated marketing strategy that squelches competition and serves the marketplace whereas dealers want to crush the competition and dominate the largest market possible.

 

Being Bold and Breaking the Mold

Dealers that break the mold are the ones that not only meet their automaker requirements but also distinguish their dealerships in their marketplace by not relying on boxed or antiquated solutions designed to serve a market strategy versus their own local dealer strategy. These are the dealers that push technology and spur innovation. These are the dealers that seek out the best solutions, regardless of size, alliances, and the motivations of others.

From the single store franchise to the multi-franchise group to the largest of enterprises, each dealership is in a different place with specific needs at any given point in time.

  • An acquisition like this does not result in systems integration, something that companies such as my own employer 3 Birds Marketing thrives upon by offering customer demand and retention marketing solutions on a single platform.
  • An acquisition like this does not enhance the customer service experience for dealers, something we all know is a challenge as entities grow and consolidate.
  • An acquisition like this does not assure scalable rollouts, be it for product enhancements or the seamless onboarding of dealer groups and enterprises.

This is not to say that Cox Automotive and Dealertrack, or any company for that matter, provide inferior boxed solutions. This is about how consolidation affects and influences the dealership community because it can (unintentionally) lead to complacency which only leads to mediocrity.

 

 

 

 

 

 




Ryan is a creative, resourceful, and resilient B2B sales and marketing technologist who works with people and businesses on a variety of levels to help elevate their game, their brand, and their businesses. Text 'autoconversion' to 555888 to opt in and receive text communications from Ryan @ AutoConversion.

Comments

comments

Filed Under: Buzz Worthy, Featured, News, Press

Tags:

Discussion2 Comments

  1. Mark Dubis says:

    Ryan, agree that we do not know if this will be a benefit to dealers or create for “homogenization” and make things stale. Remember innovation rarely comes from big corporations. Facebook, YouTube, Twitter, Tumblr were NOT products of large “risk averse” organization.

    The flip side- in an industry that is very slow to change (auto dealers) this will most certainly provide them with a reason to do the same old, same old.

  2. Ryan G says:

    Hey Mark thank you for chiming in. I modified my post a bit since you commented, but only to strengthen my point and draw focus.

    Innovation is a tremendous challenge for companies as they grow. With their growth also comes other benefits such as scalability and reliability. This acquisition does not achieve anything, in my opinion, other than direct the flow of revenue. As for “investing into customers and the industry,” for me that is only PR babble.

    I do not believe that the auto industry as a whole is slow to change. I see us on the cutting edge in several ways. Some dealers might be slow to change, but the industry as a whole is progressive in my eyes.