Prepare a summary of the auto industry by reviewing the attached report. Then compare these two companies, Group 1 Auto and Sonic Automotive. Base on a review of the two companies financial condition, which company of the two would you invest in? Group 1 Auto ticker symbol is GPI, Sonic Automotive ticker symbol is SAH.

New Car Dealers in the US\u0003October 2015 1 WWW.IBISWORLD.COM\b Fast lane: Rising consumer confidence and new vehicle introductions will drive industry growth IBISWorld Industry Report 44111 New Car Dealers in the US October 2015 Iris Peters 2 About this Industry 15 International Trade 2 Industry Definition 16 Business Locations 2 Main Activities 2 Similar Industries 18 Competitive Landscape 28 Industry Data 2 Additional Resources 18 Market Share Concentration 28 Annual Change 18 Key Success Factors 28 Key Ratios 3 Industry at a Glance 27 Industry Assistance 28 Key Statistics 18 Cost Structure Benchmarks 20 Basis of Competition 4 Industry Performance 4 Executive Summary 21 Industry Globalization 4 Key External Drivers 6 Current Performance 22 Major Companies 8 Industry Outlook 29 Jargon & Glossary 20 Barriers to Entry 22 AutoNation Inc. 10 Industry Life Cycle 23 Penske Automotive Group Inc. 12 Products & Markets 25 Operating Conditions 12 Supply Chains 25 Capital Intensity 12 Products & Services 26 Technology & Systems 13 Demand Determinants 26 Revenue Volatility 14 Major Markets 27 Regulation & Policy www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com New Car Dealers in the US\u0003October 2015 2 WWW.IBISWORLD.COM\b About this Industry Industry Definition This industry sells new and used passenger vehicles. Vehicles include passenger cars, light trucks, sport utility Main Activities The primary activities of this industry are vehicles (SUVs) and passenger vans. New car dealers also sell parts and provide repair services. Selling new cars Selling new light trucks Selling used cars Selling used light trucks Providing vehicle maintenance and repairs The major products and services in this industry are Finance and insurance New vehicles Parts and repair services Used vehicles Similar Industries 33611a Car & Automobile Manufacturing in the US This industry manufactures vehicles sold by new car dealers. 33611b SUV & Light Truck Manufacturing in the US This industry manufactures vehicles sold by new car dealers. 44112 Used Car Dealers in the US This industry sells used vehicles and also may provide repair services. Dealerships that sell both used and new vehicles are not included in this industry. 81111 Auto Mechanics in the US This industry includes automotive repair shops that provide repair services but not new vehicle sales. Additional Resources For additional information on this industry www.freep.com Detroit Free Press www.edmunds.com Edmunds.com www.nada.org National Automobile Dealers Association WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 3 Industry at a Glance New Car Dealers in 2015 Key Statistics Snapshot Revenue Annual Growth 10-15 Annual Growth 15-20 Profit Wages Businesses $809.6bn 5.8% $56.2bn 18,240 $4.0bn Consumer condence index Revenue vs. employment growth Market Share 20 30 15 % change Penske Automotive Group Inc. 1.4% \u0003 10 % change AutoNation Inc. 2 \u0003 .6% 0 -10 -20 Year 07 1.9% 0 -15 -30 -45 09 11 Revenue 13 15 17 19 -60 Year 21 09 11 13 15 17 19 21 Employment SOURCE: WWW.IBISWORLD.COM p. 22 Products and services segmentation (2015) 3.2% Key External Drivers 8.2% Consumer Confidence Index Finance and insurance Parts and repair services Average age of vehicle fleet Yield on 10-year Treasury note Regulation for the Automotive sector 31.0% 57.6% Used vehicles Per capita disposable income New vehicles p. 4 SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COM Industry Structure Life Cycle Stage Revenue Volatility Capital Intensity Mature Regulation Level Low Technology Change Low Barriers to Entry Industry Assistance Medium Concentration Level Low FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 28 Heavy Low Medium Industry Globalization Low Competition Level High New Car Dealers in the US\u0003October 2015 4 WWW.IBISWORLD.COM\b Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage Executive Summary The New Car Dealers industry is set to expand over the five years to 2015. The industry is highly cyclical in nature, and therefore is vulnerable to economic shifts such as fluctuations in employment, overall consumer spending and financing rates. As a result, the industry has benefited as economic conditions gradually improved over the period, particularly for consumers. With increased discretionary spending and elevated confidence, consumers are expected to once again pursue big-ticket items, including new vehicles. In the five years to 2015, industry revenue is expected to increase at an annualized rate of 5.8% to $809.6 billion, lifted by an estimated 1.2% jump in 2015. Low interest rates have also spurred demand for new vehicles. Although the domestic economy has gradually recovered since the height of the downturn, interest rates have remained at historically low levels. Consequently, demand for new vehicles has soared. Over the five years to 2015, new car sales are expected to increase at an annualized rate of 8.1% to 17.4 million. Over the five years to 2020, rising consumer confidence and disposable income are expected to drive demand for cars and trucks. Additionally, the introduction of new energy-efficient vehicle models will boost sales as consumers move away from gas-guzzling vehicles. The volatile price of oil, a key input for operating automobiles, is expected to exacerbate this trend by bolstering demand for fuel-efficient vehicles that operate on hybrid technologies or electric powertrains. However, as regulatory mandates force automakers to improve fuel economy in their vehicle fleets, additional expenses associated with regulatory compliance are expected to trickle from the manufacturing level to the retailer level in the form of higher selling prices for vehicles. As a result, increased regulation poses a potential threat for industry operators as vehicles become less affordable, and therefore, less desirable. Nevertheless, IBISWorld expects industry revenue to grow at an annualized rate of 1.9% to total $887.5 billion over the five-year period. Consumer Confidence Index When consumers are more confident, they are more willing to make large purchases, such as new vehicles. Consumer confidence reached a low during the downturn; however, as the economy recovered and unemployment decreased, consumer sentiment has picked back up. The Consumer Confidence Index is expected to increase during 2015, representing a potential opportunity for the industry. increase in the age of vehicles represents pent-up demand for new vehicles. The average age of a vehicle declines when disposable income rises and demand for affordable, fuel-efficient vehicles increases. However, the quality of vehicles has increased, and as a result, vehicles last longer in running condition. Therefore, consumers hold on to older vehicles for a longer period of time. The average age of the vehicle fleet is expected to increase in 2015. Average age of vehicle fleet The average vehicle fleet age is used to forecast future vehicle purchases. An Yield on 10-year Treasury note The yield on the 10-year Treasury note is analogous to the current short-term interest R \u0003 \u0003 ising consumer confidence and disposable income are expected to drive demand Key External Drivers New Car Dealers in the US\u0003October 2015 5 WWW.IBISWORLD.COM\b Industry Performance rate demanded by the market. Because automobiles are typically financed, demand tends to ebb and flow with fluctuations in interest rates. As interest rates increase, financing vehicles becomes more expensive, and therefore less desirable. The yield on the 10-year Treasury note is expected to increase in 2015. Regulation for the Automotive sector Increased regulation of fuel economy, emissions and safety standards can raise the cost of manufacturing cars and trucks. Dealers pass these costs on to customers, raising product prices and potentially reducing demand. Tighter regulations are expected in the coming years, with emphasis on switching from tailpipe to greenhouse gas emissions. Regulation for the automotive sector is expected to increase during 2015, representing a potential threat to the industry. Per capita disposable income During periods of low disposable income, discretionary spending declines. Similarly, during periods of high disposable income, discretionary spending increases. Rising disposable income boosts consumers' capacity to support debt-funded consumption, such as purchasing new cars. Per capita disposable income is expected to increase during 2015. Yield on 10-year Treasury note Consumer Condence Index 30 5 15 4 0 -15 % % change Key External Drivers continued -30 2 -45 -60 Year 3 09 11 13 15 17 19 21 1 Year 07 09 11 13 15 17 19 21 SOURCE: WWW.IBISWORLD.COM New Car Dealers in the US\u0003October 2015 6 WWW.IBISWORLD.COM\b Industry Performance Current Performance The New Car Dealers industry has turned a corner during the five years to 2015. Per capita disposable income and consumer confidence has risen, encouraging consumers to release pent-up demand for new vehicles. Additionally, lower interest rates have given individuals more of an incentive to purchase new vehicles, bolstering industry demand. Interest rates first plummeted to historical lows during the heart of the recession and have remained low during the postrecessionary period to further support the economy. Therefore, the cost for consumers to finance vehicles has become relatively more affordable, and thus, more desirable. Moreover, low interest rates improve profitability for industry operators as floor plan financing, or the cost to finance new Rising internal competition As consumer confidence and demand for new vehicles trends higher, internal competition for the industry is expected to increase. Growth within the industry encourages companies to open new locations in areas where vehicle use is prevalent, such as metropolitan areas. Consequently, there are often several industry establishments in one area competing within the same market. In the five years to 2015, the number of establishments is anticipated to grow 0.1% to 22,021 locations, as dealers are anticipated to expand to the geographical reach of their operations. The Consumer Confidence Index, which measures consumer sentiment and approximates consumers' willingness to make large purchases, started to improve in 2010, as the economy began to recover and demand for automobiles increased. Consumer sentiment is expected to rise through 2015, reflecting the overall vehicle inventory, becomes less costly. As a result of these trends, new car sales returned to growth in 2010, and is expected to continue growing at an annualized rate of 8.1% to 17.4 million vehicles over the five-year period. During the economic downfall, General Motors and Chrysler dealers were hit particularly hard; 2,800 dealerships carrying their products had their franchise contracts revoked due to bankruptcy restructuring. Nevertheless, these trends have reversed and both companies have recorded industry revenue growth during the five-year period. To this end, industry revenue is expected to grow at an annualized rate of 5.8% to $809.6 billion over the five years to 2015, lifted by an estimated 1.2% increase in 2015. I \u0003 \u0003 nternal competition for the industry will increase as demand for new vehicles trends higher economy's steady recovery. Industry profit is also expected to increase, as higher demand enables operators to increase prices. Additionally, new car dealers can price fuel-efficient vehicles higher as demand for these products has grown substantially. However, technological improvements, such as online sources that enable customers to compare vehicle prices, may pose a threat to industry profitability. Nevertheless, employment is expected to rise at an annualized rate of 2.3% to 1.0 million workers as industry operators hire additional labor to keep up with the influx in demand. New Car Dealers in the US\u0003October 2015 7 WWW.IBISWORLD.COM\b Industry Performance All-new model Vehicle platforms Similar to other direct sales industries, new car dealers are pursuing internetbased sales strategies. Dealer service companies such as Edmunds, Cars.com and AutoTrader help dealerships sell vehicles at a faster rate than traditional methods, though with lower profit margins. Due to rising consumer reliance on the internet to gather information and make new car purchases, new car dealers are collaborating with these outlets to increase traffic to their dealerships. However, such partnerships require dealerships to lower prices to remain competitive with other participating dealers. Although this business model limits profit margins, it increases volume, which lowers floor plan financing expenses. Floor plan financing requires dealerships to pay interest on their inventory until it sells. Therefore, the faster dealerships sell their inventory, the lower interest they have to pay, which helps ease pressure on profit margins. The development of a business model more focused on parts and repair services is also helping dealers bolster profit. Although the parts and services segment comprises a lower percentage of industry revenue than vehicle sales, it provides a larger profit margin and is a more stable source of revenue. When new car sales were down, demand for parts and services did not get hit as drastically due to consumers' desire to maintain their old vehicles. Responding to this trend, industry player Penske Automotive Group is adding new service bays to many of its larger dealerships. The number of new car sales has risen over the five-year period; however, strong increases in the price of crude oil threatened growth. In 2010 and 2011, the world price of crude oil increased 28.9% and 30.6% respectively. This upsurge in price deterred consumers from purchasing heavy-duty vehicles, such as trucks and SUVs. Consequently, dealers affiliated with the Big Three US automakers (Ford, General Motors and Fiat Chrysler) were hit particularly hard during this time, as the portfolio of these automakers were heavy with trucks and SUVs. Nevertheless, the price of oil began to decline in the latter half of the period, and as a result, sales of SUVs and lightduty trucks started to slowly improve. According to the National Automobile Dealers Association, US sales of lightduty trucks have increased from 5.9 million in 2010 to 8.7 million in 2014. In response to this popularity, as well as the high demand for more fuel-efficient vehicles, automakers have been introducing more ecofriendly SUVs and trucks, which has encouraged consumers to trade in their old gas-guzzling vehicles for fuel-efficient alternatives, supporting industry growth. N \u0003 \u0003 ew car dealers are collaborating with online outlets to increase traffic to their dealerships New Car Dealers in the US\u0003October 2015 8 WWW.IBISWORLD.COM\b Industry Performance In the next five years, revenue for the New Car Dealers industry is forecast to grow at an annualized rate of 1.9% to $887.5 billion. Gains in consumer confidence will drive the industry's recovery and increased discretionary spending will support greater demand for cars, SUVs and light trucks. From 2015 to 2020, sales of new light-duty vehicles, defined as vehicles weighing fewer than 14,000 pounds, are projected to grow to 18.5 million, up from 17.4 million in 2015. Industry revenue 20 10 % change Industry Outlook 0 -10 -20 Year 07 09 11 13 15 17 19 21 SOURCE: WWW.IBISWORLD.COM Changes around the corner Falling unemployment and new vehicle introductions will drive consumer traffic to car dealers and will help grow revenue. Additionally, major vehicle manufacturers will continue to introduce fuel-efficient models, including electric and hybrid vehicles, which are popular amongst many consumers. Profit is projected to increase during the next five years, driven by improved sales rates, low floor plan interest expenses and increased parts and repair services revenue. Sales of used vehicles, which are part of the New Car Dealers industry as long as they are sold alongside new vehicles, will experience a decline in their share of revenue during the five years to 2020. Used vehicle share of industry revenue is expected to fall slightly as rising disposable income and relatively low interest rates push consumers to purchase new cars instead of used ones. Additionally, technological improvements in new vehicles, such as improved fuel economy and park-assist capabilities are expected to lure customers away from used vehicles. Government regulation is expected to have an impact on the industry in the next five years as well. In 2012, the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration issued a rule that will increase average fleet-wide fuel economy standards to 54.5 miles per gallon by 2025. This measure will require vehicle manufacturers to build more products that adhere to these standards. However, additional costs associated with this regulation will lead flow downstream to the retailer level in the form of higher selling prices. When vehicles become more expensive, they in turn become less desirable to consumers. As a result, increased regulation may pose a potential threat for industry operators. New Car Dealers in the US\u0003October 2015 9 WWW.IBISWORLD.COM\b Industry Performance New rides Volatile gasoline prices and automaker mergers will lead to more vehicle introductions in 2015. During the economic downturn, Fiat began accumulating Chrysler stock, and in 2014, the Italian company officially secured full ownership of Chrysler, making it a wholly-owned subsidiary. This merger is expected to bring more European-designed small cars to the United States. Fiat, which left the US market in the mid-1990s, has already begun to reintroduce its Alfa Romeo and Fiat brands in the states, starting with the Fiat 500 in 2011. Fiat's highefficiency powertrains, developed for the expensive fuel prices of the European market, will replace less-advanced components in Chrysler, Dodge and Jeep vehicles. Additionally, manufacturers will respond to the growing popularity of compact and New entrants despite acquisition activity Industry players AutoNation and Penske Automotive Group are projected to pursue acquisitions of smaller dealerships. Nevertheless, industry growth will continue to be supported by improving economic conditions, causing the number of industry participants to increase at an expected annualized rate of 0.8% to 18,938 companies in the five years to 2020. This will increase fragmentation in an industry with low concentration. However, industry players that participate in merger and acquisition activity will be better situated to take subcompact vehicles by introducing new models. For example, Buick and BMW offered a new subcompact crossover SUV in 2013. Crossover SUVs have grown in popularity over traditional SUVs because of their improved fuel economy and car-like handling. New models with advanced technology, such as adaptive cruise control and traffic jam assistance that automatically slows or applies the brakes for a vehicle, will also boost demand. According to a 2014 JD Power and Associates survey, 24.0% of US consumers are interested in autonomous driving technology, of which adaptive cruise control and traffic jam assistance are a part. As disposable incomes rise, these new vehicle introductions and technologies will compel consumers to trade in older vehicles for new ones, further increasing new car dealers' revenue growth. M \u0003 \u0003 ajor companies are projected to pursue acquisitions of smaller dealerships advantage of low-margin, high-volume sales practices that will enable them to spread fixed costs over a large revenue base. Moreover, employment is expected to increase at an annualized rate of 1.4% to 1.1 million people as new industry players hire employees. New Car Dealers in the US\u0003October 2015 10 WWW.IBISWORLD.COM\b Industry Performance Life Cycle Stage Vehicle demand remains relatively steady New vehicle technologies may renew demand % Growth in share of economy Product saturation inhibits demand 20 Maturity Quality Growth Company consolidation; level of economic importance stable High growth in economic importance; weaker companies close down; developed technology and markets 15 Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands 10 Quantity Growth Car & Automobile Manufacturing 5 Many new companies; minor growth in economic importance; substantial technology change Used Car Dealers 0 SUV & Light Truck Manufacturing New Car Dealers Auto Mechanics Automobile Wholesaling Decline -5 Shrinking economic importance -10 -10 -5 0 5 10 15 20 % Growth in number of establishments SOURCE: WWW.IBISWORLD.COM.AU New Car Dealers in the US\u0003October 2015 11 WWW.IBISWORLD.COM\b Industry Performance Industry Life Cycle T \u0003 his industry is Mature\u0003 \u0003 The New Car Dealers industry is in the mature stage of its life cycle. Industry value added (IVA), which measures the industry's contribution to the overall economy, will grow at an estimated average annual rate of 2.8% over the 10 years to 2020. By contrast, GDP is expected to grow at an annualized rate of 2.2% over the same period, indicating that the industry is growing slightly slower than the economy as a whole. Industry revenue rebounded in 2010, as economic conditions improved and interest rates declined, providing consumers with an incentive to finance new vehicles. During the recession, domestic automakers increased rebates and incentives on their products, inflating sales figures. However, since the recovery, automakers have ended such offers because demand for vehicles has increased. This industry closely follows the overall economy, which is indicative of a mature industry. As per capita disposable income increases and consumer confidence rises, individuals are encouraged to purchase big-ticket items, such as new vehicles, supporting demand for new car dealers. In 2010, new car dealers sold 11.8 million light-duty vehicles. In 2020, this number is expected to increase to 18.5 million. Additionally, many companies, such as General Motors (GM) and Chrysler, have restructured operations during the 10 years to 2020, as a result of steep revenue declines during the economic downfall. For example, after GM filed bankruptcy in 2009, the company terminated franchise contracts, only keeping dealerships that were the most profitable. As the economy continues to recover and more consumers demand new, fuel-efficient vehicles, the number of establishments is anticipated to expand. However, this number is expected to still remain below prerecessionary numbers. The number of establishments is expected to marginally increase at an annualized rate of 0.5% in the 10-year period. New Car Dealers in the US\u0003October 2015 12 WWW.IBISWORLD.COM\b Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations Supply Chain KEY BUYING INDUSTRIES 9901 Consumers in the US Consumers are the primary customers of new car dealers, while corporations and governments compose a significant portion of revenue. KEY SELLING INDUSTRIES 33611a 33611b SUV & Light Truck Manufacturing in the US The SUV and Light Truck Manufacturing industry supplies SUVs and light trucks to new car dealers. 42311 Products & Services Car & Automobile Manufacturing in the US The Car and Automobile Manufacturing industry supplies cars to new car dealers. Automobile Wholesaling in the US The Automobile Wholesaling industry supplies imported vehicles to new car dealers. Products and services segmentation (2015) 3.2% Finance and insurance 8.2% Parts and repair services 31.0% Used vehicles 57.6% New vehicles Total $809.6bn New car dealers sell new and used vehicles and provide parts and repair services. Due to historically low interest rates, consumers have been favoring new vehicles as opposed to used vehicles. As a result, revenue generated from new vehicles is expected to increase over the five-year period. Although this segment is anticipated to increase as a share of overall revenue, the parts and repair services segment generates the greatest profit margins and is expected to play an integral part in bolstering profit margins. SOURCE: WWW.IBISWORLD.COM New vehicles In 2015, new vehicle sales are estimated to generate 57.6% of industry revenue. Demand for new vehicles fell during the recession as consumer spending dropped, but has since picked up. New car dealers continue to benefit from attractive new models, low interest rates and easing credit terms. Moreover, this segment is benefiting from low used-vehicle supply levels. Due to low supply levels, prices for used vehicles have skyrocketed. As a result, the price discrepancy from used cars to new cars New Car Dealers in the US\u0003October 2015 13 WWW.IBISWORLD.COM\b Products & Markets Products & Services continued has decreased, prompting consumers to opt to purchase new vehicles. The American automakers' market share has been steadily declining, with customers increasingly looking to European and Asian-designed small cars. According to Experian Automotive, 47.1% of new vehicle registrations in 2014 were from domestic automakers. By contrast, import's share of new registrations accounted for an estimated 52.9% during the same year. Used vehicles New car dealers purchase used vehicles through auctions and customer trade-ins, selling them at higher profit margins than new vehicles. IBISWorld expects used vehicles sales to account for 31.0% of total industry sales in 2015. Data from the National Automobile Dealers Association (NADA) shows that the general trend for used vehicle sales as a percentage of total sales has remained steady since the recession. Although used vehicles typically yield higher returns than new vehicles, used car prices have skyrocketed since the downturn due to low inventory levels. According to data from NADA, the average selling price for a used vehicle was $18,846 in 2014, up from $16,474 in 2010. Although used vehicles are generally more affordable, consumers opted to purchase new vehicles in light of historically low interest rates. Used vehicles sold at new car dealerships often come with extended warranties or certificates of inspection, which enable new car dealers to capture additional revenue and higher selling prices. Vehicles under Demand Determinants New vehicle sales are highly cyclical and are affected by trends in interest rates, manufacturer incentives, discretionary income, unemployment rates, home values and industry regulation. Demand for new vehicles will grow in 2015, buttressed by low financing, easing credit warranty can only be serviced at a specific dealership or franchise. Parts and repair services Revenue generated from the parts and repair services segment is expected to decline as a share of industry revenue over the five years to 2015; however, this is misleading. Revenue generated from parts and repair services is anticipated to increase, but not at the same rate as new car sales. Although this segment competes with independent repair shops, it has a competitive advantage in that vehicle warranties permit only franchised dealers to perform repair services under warranty. Since virtually all new vehicles sold in the United States come with a manufacturer warranty, dealers have a lock on this business. New car dealers are preparing for a more repair-focused future by adding vehicle service bays and technicians to their dealerships while they cut sales staff. Parts and services are expected to generate 8.2% of revenue in 2015; however, the segment's percentage of profit outperforms those of new and used vehicles. Financing and insurance Revenue from financing and insurance services has increased over the past five years, up to an estimated 3.2% of revenue in 2015. The Used Car Dealers industry frequently serves customers with average and poor credit: these customers are often denied affordable interest rates on loans provided by mainstream financial institutions, which typically provide financing at new car dealerships. terms, popular new models and rising consumer confidence. Most consumers purchase new vehicles through lease agreements or credit, making interest rates and discretionary income indicators of their ability to service new debt. Vehicle sales and selection are tied New Car Dealers in the US\u0003October 2015 14 WWW.IBISWORLD.COM\b Products & Markets Demand Determinants continued Major Markets closely to variations in gasoline prices, which drove growth of Japanese vehicles over American vehicles in the early 1980s and are now driving the adoption of fuel-efficient cars over SUVs. Used vehicle sales are affected by the same indicators as new vehicle sales, though often times in different ways. For example, while manufacturer incentives boost demand for new vehicles, the same strategy reduces demand for used vehicles. During hard economic times, cash-strapped consumers tend to purchase used vehicles, which sell at a significant discount to similar new versions. Stricter federal regulations regarding fuel standards for new vehicles will drive the prices of these products up, in turn increasing demand for used vehicles. New car dealers sell new and used vehicles, and although used car sales are generally included in the Used Car Dealers industry (IBISWorld report 44112), they contribute to new car dealer revenue when sold on the same lot. The parts and services segment is the most stable component of industry revenue. Demand for this segment is connected to new vehicle sales because purchasers tend to return to the same dealership for warranty and out-ofpocket repairs. At the same time, parts and services revenue also can increase as customers choose to maintain existing vehicles instead of purchasing new ones. Older vehicles tend to need more frequent and extensive repairs as previously reliable parts wear out. Major market segmentation (2015) 3.8% 16.6% Deep subprime customers Subprime customers 40.8% Prime customers 18.5% Nonprime customers Total $809.6bn 20.3% Super prime customers The New Car Dealers industry sells vehicles to customers with a wide range of credit worthiness. New car dealers classify customers' credit worthiness in five different credit-rating segments, with super prime customers possessing the best credit. Customers with the best credit tend to purchase new vehicles for their updated technological and safety features, in addition to performance. In 2009, SOURCE: WWW.IBISWORLD.COM contractions in credit availability made it more difficult and expensive for these customers to get financing. However, it has become easier to purchase a new vehicle with poor credit during the postrecessionary period, as auto loans are greater and more available. Additionally, lower interest rates are making payments more affordable, bolstering demand for new car dealers. New Car Dealers in the US\u0003October 2015 15 WWW.IBISWORLD.COM\b Products & Markets Major Markets continued Super prime customers Customers with super prime credit have a VantageScore of 781 or higher. These customers have a strong history of on time payments and use a low proportion of credit available to them. In 2015, customers with super prime credit will account for 20.3% of industry revenue. With such a high credit rating these customers qualify for the best interest rates. Customers with super prime credit may choose to purchase vehicles from a new car dealer, whether financed or cash, to protect their favorable credit. Increasing their rate of credit use could hurt their score, resulting in higher interest rates on their credit cards or home loans. The share of customers with super prime credit has increased since 2010. score between 601 and 660. During the recession, tighter lending standards made credit scarcer and more expensive for these customers. However, due to economic recovery, lending standards have become looser and credit is more available and less expensive. As a result, nonprime customers' percentage of the market is expected to increase as the economy continues to trend upward. Prime and nonprime customers In 2015, customers with prime and nonprime credit together represent 40.8% and 18.5% of revenue, respectively. Prime credit ratings correspond to a between 661 and 780. Nonprime credit ratings correspond to a International Trade Subprime and deep subprime customers Customers with subprime credit are expected to generate 18.5% of revenue in 2015, up from 2010. Subprime credit ratings correspond to scores between 501 and 600. Deep subprime credit ratings correspond to scores with 500 or less and are expected to generate 3.8% of industry revenue in 2015. These customers are the most likely to default on debts, especially during periods of high unemployment. To bolster sales, industry operators are expected to loosen financing standards for customers in this segment; however, this is not expected to occur at a high rate as dealers are aware of the associated risks. New car dealers do not directly engage in international trade. Motor vehicle manufacturers or automotive wholesalers manage the imports relevant to this industry. Imported vehicles from Japan, South Korea and Europe have been gaining popularity over domestically produced vehicles in recent years. According to Experian Automotive, an estimated 52.9% of new vehicles sold in the United States were imports in 2014 (latest data available). While almost two-thirds of new vehicle sales in the Midwest are domestic, three-fourths of those on the coasts are imports. Given that all new light vehicles in the United States are ultimately sold through domestic car dealerships, the success of imported brands only affects the distribution of revenue within the industry. New Car Dealers in the US\u0003October 2015 16 WWW.IBISWORLD.COM\b Products & Markets Business Locations 2015 West New England AK 0.2 Great Lakes WA ND MT 1.9 Rocky Mountains ID OR 1.4 West NV 0.5 1.8 SD 0.6 WY 0.5 MN 0.5 0.6 Plains CO 0.9 KY 1.2 9 OK 1.5 NC 3.4 TN AZ NM 1.4 0.7 Southwest TX 6.9 HI 0.3 Additional States (as marked on map) 1 VT 2 NH 3 MA SC Southeast 5 CT 6 NJ 7 DE 8 MD 1.5 0.8 2.9 2.1 0.3 0.3 1.7 1.2 MS AL 1.6 1.6 GA 2.8 1.0 LA 1.5 FL 5.4 Establishments (%) 4 RI 0.4 AR 8 0.8 2.2 8.8 7 WV VA 2.6 1.6 2.4 CA West 4.1 MO KS 1.4 OH 2.3 4.3 6 5.0 IN IL 1.0 UT PA 3.4 1.7 0.7 1 2 3 NY 5.3 5 4 MI 2.6 IA NE 0.3 WI ME MidAtlantic 9 DC 0.0 Less than 3% 3% to less than 10% 10% to less than 20% 20% or more SOURCE: WWW.IBISWORLD.COM New Car Dealers in the US\u0003October 2015 17 WWW.IBISWORLD.COM\b Products & Markets Distribution of establishments vs. population 30 20 10 Southwest Southeast Plains New England Rocky Mountains Establishments Mid-Atlantic Great Lakes 0 West New car dealerships can be found in every state but are dispersed mostly according to population. The state with the highest number of new car dealerships is California, which also has the nation's largest population. Texas and Florida, the second and third most-populated states, respectively, have the second- and third-largest number of new car dealerships. California accounts for 8.8% of industry establishments, and the remaining top five most-populated states (Texas, Florida, New York and Pennsylvania) make up 23.1% of establishments. The proportion of new car dealerships in a particular state or region is also driven by personal incomes and vehicle preferences. For example, new car dealerships selling imported vehicles such as Honda are heavily situated on the coasts, where three in four coastal consumers purchase imports. This is in contrast to the estimated 66.0% of Plains region consumers who purchase % Business Locations Population SOURCE: WWW.IBISWORLD.COM domestics. Similarly, dealerships selling premium vehicles such as MercedesBenz are heavily situated in the West and Mid-Atlantic regions where personal incomes are highest. WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 18 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization Market Share Concentration Level \u0003 Concentration in this industry is Low\u0003 \u0003 Key Success Factors I \u0003 BISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: Cost Structure Benchmarks The New Car Dealers industry is highly fragmented, with 32.6% of industry operators employing fewer than 20 people. Consolidation has gained pace over the past five years, with larger publicly traded dealership groups absorbing small dealerships. Widening profit margins and advantageous cost structures will propel additional growth of large dealer groups because they can spread fixed costs over many dealerships and can centrally coordinate marketing, purchasing and labor activities, which reduces expenses. While consolidation continues, though, the industry will remain highly fragmented, with the top four industry players accounting for less than 6.2% of industry revenue in 2015. Provision of superior after sales service Providing parts, repair services and vehicle trade-ins enhances revenue and profitability. Since these services are more expensive at a new car dealership than at an independent shop, high service standards will be key to a dealer's success. Internet presence Car buyers increasingly turn to the internet for research and pricing information. A study by internet research company Compete found that 53.0% of automotive consumers want to purchase their parts and accessories online. Use of high volume/low margin strategy Consumers are taking progressively longer to purchase a new car, spending a significant amount of time comparing prices. Dealerships that provide low prices will increase traffic and volume sales. Profit The economic recovery has significantly boosted industry profit, as measured by earnings before interest and taxes. Cost-cutting and a revival in sales generated profit of 0.3% of revenue in 2010. In 2015, new car dealers are expected to bring in profit of 0.4% of revenue, driven by rising sales and low floor plan financing rates. Shortages in fuel-efficient vehicles could also bolster profit margins, as new car dealers can increase prices. Purchases Inventory purchases are the largest expense for a new car dealership. In 2015, new car dealers spend an Superior financial management and debt management New car dealers are extensive users of debt capital, exposing them to considerable risk when the economy suddenly weakens. Even as new car sales drop off, dealers must still pay interest on their debt-purchased inventory. estimated 86.7% of their revenue on vehicles held for sale. Spending in 2015 represents a return to historical levels, enabled by high overall sales. However, while demand for new car sales has increased during the postrecessionary period, it has not trended upward at a pace that automakers expected. Consequently, automakers are continuing to increase spending on incentives (e.g. cash discounts off the vehicle price given to dealerships or customers) to boost sales for new cars, thus decreasing the purchasing cost for industry operators. Nonetheless, according to the National Automobile Dealers Associations (NADA), automakers have scaled back incentives WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 19 Competitive Landscape in 2015, increasing costs for dealers. Dealers also stock auto parts, tires and accessories for use in their growing parts and repair service businesses. Wages New car dealerships require salespeople, technicians and office workers to operate. In 2015, wages will account for an estimated 6.9% of industry revenue, down from 7.7% in 2010. Labor costs have been volatile over the past five years, reflecting depressed sales volume and layoffs. According to data sourced from NADA, the average new car dealership spends 20.6% of payroll on salespeople, 26.1% on parts and repair service employees and the remaining share on office workers. Parts and repair service workers account for a growing share of revenue and payroll. Marketing and advertising Beyond wages and purchases, new car dealers must maintain substantial advertising efforts to draw in customers. In 2015, advertising spending accounts for 1.0% of revenue. According to the NADA, the average advertising cost per-vehicle-sold was $608.00 in 2014. While overall spending has been consistent, spending-by-medium has changed substantially since 2002. In 2002, new car dealers spent 46.7% of their ad budgets on newspapers; in 2014 (latest data available), newspapers only accounted for 14.9% of advertising expenditures. Most of this loss was to internet and direct mail ads. In 2002, the typical dealership spent 5.0% of advertising dollars on internet ads. In 2014, the internet accounts for 26.3% of advertising expenditure. Sector vs. Industry Costs Average Costs of all Industries in sector (2015) 3.2 8.9 100 Industry Costs (2015) 0.5 n Profit n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other 7.0 80 Percentage of revenue Cost Structure Benchmarks continued 60 71.6 86.0 40 20 0 0.8 4.3 9.3 1.9 1.1 4.1 0.2 1.1 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 20 Competitive Landscape Basis of Competition Level & Trend \u0003 Competition in this industry is H \u0003 igh\u0003and the trend is Increasing\u0003 \u0003 Barriers to Entry Level & Trend \u0003 Barriers to Entry in this industry are M \u0003 edium\u0003and Steady\u0003 \u0003 Internal New car dealers experience stiff competition, particularly in large metropolitan areas, where there are dealers of every car make and even multiple dealers selling the same make. Dealers principally compete on new vehicle prices, but also compete through warranty, credit offerings and sales experience. Quality of customer service in the parts and repair business is a significant point of competition within a franchise's dealer network; poor customer service can drive customers to other dealerships within the franchise to get their car serviced without violating manufacturer warranties. Customer service quality will become a more important basis of competition as parts and repair services grow as a revenue source. New car dealers also compete on brand offering as customer preferences for a particular brand shift year to year. Within the industry, dealer groups are continuously growing market share over independent dealerships. Dealer groups are able to operate on lower profit margins due to cost-savings from marketing expenses, improved credit terms and inventory management. For example, in 2009, during bankruptcy restructuring, General Motors (GM) and Chrysler terminated franchise contracts with a significant number of smaller dealerships, favoring The New Car Dealers industry experiences moderate barriers, including state regulations, manufacturer franchise agreements and start-up costs. Every state has different licensing requirements and regulations for new car dealers. For example, in California, the largest new car market, prospective new car dealers must submit to background and credit checks, obtain a surety bond and provide a current franchising agreement. more profitable dealer groups, and in 2012, GM sued franchises that allegedly have failed to meet target sales figures. External Externally, new car dealers experience competition from independent leasing companies, online purchasing services, warehouse clubs, used car dealers and private sellers. Leasing companies can operate with lower overhead costs and avoid franchise fees, enabling them to undercut dealer prices. Online pricing services enable customers to request price quotes from competing dealers, forcing dealers to cut profit margins. Warehouse clubs, such as Costco Wholesale Corporation, offer wholesale pricing on most vehicle brands. Used vehicle sales were comparatively resilient in 2009 due to financing difficulties stemming from tight credit markets and a weak economy. A slow and extended broad economic recovery, with persistently high unemployment, is expected to maintain the relative importance of used vehicle competition in 2015. On average, used vehicles cost about half the price of new vehicles. Other external competition includes oil change centers, tire stores and independent service shops, with which new car dealers compete for parts and repair service revenue. Barriers to Entry checklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance High Low Mature Low Low Heavy Medium SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 21 Competitive Landscape Barriers to Entry continued Additionally, dealer licenses and franchise agreements must be renewed annually. Franchise fees, which vary by brand, number of stores and distance from other franchises, cost an average $25,000 per year, with reduced fees for dealerships owned by women or ethnic minorities. Most car makers limit the number of franchises within metro areas, making it difficult for new businesses to attain a franchise agreement. The industry also requires high upfront capital investment in inventory purchases and dealership lots. Industry Globalization Although the New Car Dealers industry has close ties with international automakers, primarily those in Japan, Germany and South Korea, new car dealers themselves have limited international presence; however, some dealer groups such as Penske Automotive Group (Penske) have expanded abroad. Almost half (45.3%) of Penske franchises are abroad, primarily in the United Kingdom. Level & Trend \u0003 Globalization in this industry is Low\u0003and \u0003 the trend is Steady\u0003 \u0003 New Car Dealers in the US\u0003October 2015 22 WWW.IBISWORLD.COM\b Major Companies AutoNation Inc. | Penske Automotive Group Inc. | Other Companies Major players (Market share) Penske Automotive Group Inc. 1.4% 96.0% Other AutoNation Inc. 2.6% Player Performance AutoNation Inc. M \u0003 arket share: 2.6% \u0003 Industry Brand Names\u0003 Power Champion AutoWay Bankston SOURCE: WWW.IBISWORLD.COM In an industry with no true major players (defined as companies with 5.0% market share or greater), AutoNation Inc. is the largest industry company and the United States' largest automotive retailer. Established in 1996, AutoNation has headquarters in Fort Lauderdale, FL and employs about 24,000 people. Operating in three business segments (domestic, import and premium luxury), it owns and operates 293 new vehicle franchises and 232 dealerships. AutoNation categorizes its dealerships by types of brands sold: domestic, import and premium luxury. Domestic covers General Motors, Ford and Chrysler brands. Import includes vehicles manufactured by Toyota, Honda, Nissan and Hyundai. Premium includes Mercedes, BMW, Lexus and Cadillac brands. In 2014 (latest data available), imports drove the company's new vehicle sales, followed by the domestic segment (33.0%) and premium luxury segment (31.0%). The company's dealerships operate with different branding for each market. For example, while AutoNation is known as Power in Southern California, it is known as Champion in Houston. AutoNation sells vehicles under every major vehicle brand available in the United States. The company's Florida, California and Texas dealerships account for about 66.0% of total revenue in 2014. AutoNation's business model emphasizes delivering a positive customer experience, leveraging the company's scale and increasing productivity. Finding and retaining customers is central to the company's success. For example, the company increased revenue in 2014 by providing customers with sales menus that list all fees and vehicle prices. Moreover, the company's use of customer relationship management software enables employees to have immediate access to customers' information, including the last vehicle they AutoNation Inc. (US industry-specific segment) - financial performance* Year Revenue ($ million) (% change) Operating Income ($ million) (% change) 2010 12,461.0 16.8 496.6 13.3 2011 13,823.3 10.9 572.0 15.2 2012 15,667.5 13.3 645.3 12.8 2013 17,517.6 11.8 740.3 14.7 2014 19,108.8 9.1 820.8 10.9 2015 21,224.4 11.1 927.1 13.0 *Estimates SOURCE: ANNUAL REPORT AND IBISWORLD New Car Dealers in the US\u0003October 2015 23 WWW.IBISWORLD.COM\b Major Companies Player Performance continued purchased and the terms of their lease. Their online customer communication further contributes to effective marketing within the internet marketplace. The company's centralized nature promotes more efficient inventory management, which helps decrease operating expenses by minimizing interest-carrying costs. Financial performance In the five years to 2015, AutoNation's revenue is estimated to increase at an Player Performance Penske Automotive Group Inc. M \u0003 arket share: 1.4% Penske Automotive Group Inc. (Penske) is the second-largest new car dealer group in the United States. The company includes 327 automotive franchises, of which 179 are located in the United States, while the remaining 148 are in the United Kingdom and Germany. Headquartered in Bloomfield Hills, MI, the company sells new and used vehicles, provides repair and maintenance services and offers third-party finance and insurance products. Penske is the exclusive US distributor of Daimler AG's Smart ForTwo minicar. The company also has a 9.0% limited partnership interest in the Penske Truck Leasing Co. LP, which leases and rents more than 200,000 vehicles in North America, South America, Europe and annualized rate of 11.2% to $21.2 billion. While demand for new vehicles grew, it did not return to prerecession levels. In 2010, 53.0% of revenue came from new vehicle sales, but by the end of 2014, this percentage increased to 57.0% (latest data available). New vehicles sales are expected to account for a greater share of overall revenue as domestic economic conditions continue to improve, such as rising disposable income. In addition, new vehicle sales are anticipated to benefit from looser credit standards. Asia. Established in 1990 as the United Automotive Group, Penske Corporation purchased the company in 1999. It employs about 22,100 people. Penske uses a standardized website format for its dealer franchises that enables customers to view the company's entire vehicle inventory in addition to vehicle reviews, prices, photos and specifications. The company created its centralized and standardized website format to enhance customer loyalty and ease-of-use. Financial performance In 2014, the company posted revenue of $17.2 billion in total global revenue. Sales of premium brands comprise the majority Penske Automotive Group Inc. (US industry-specific segment) - financial performance* Year Revenue ($ million) (% change) Operating Income ($ million) 2010 6,749.6 N/C 159.6 N/C 2011 7,280.4 7.9 186.2 16.7 2012 8,257.7 13.4 233.7 25.5 (% change) 2013 9,244.1 11.9 276.4 18.3 2014 10,478.1 13.3 307.5 11.3 2015 11,168.4 6.6 353.3 14.9 *Estimates SOURCE: ANNUAL REPORT AND IBISWORLD New Car Dealers in the US\u0003October 2015 24 WWW.IBISWORLD.COM\b Major Companies Player Performance continued of company revenue. In 2014, premium brands, which include Audi, BMW, Mercedes-Benz and Porsche, made up 72.0% of company revenue. The dependence on premium luxury vehicles is the company's attempt to minimize cyclicality by shifting away from weaker US car brands. Furthermore, premium brands often have higher profit margins. Penske's strategic approach helped the company outperform its peer group over the five years to 2015. Over this period, Penske's industry-specific revenue is expected to increase at an annualized rate of 10.6% to $11.2 billion. Penske's premium brand concentration has grown, which helped bolster revenue. The company's parts and service segment, which accounts for 10.0% of total revenue and 41.0% of gross profit, has also expanded revenue; Penske's plan to increase same-store sales in the future revolves around increasing the capacity of service bays rather than showrooms. Other Companies The New Car Dealers industry in the United States is highly fragmented, with the two largest industry participants holding a combined market share of 4.0%, leaving smaller companies to make up the bulk of the industry. In 2009, many small dealerships went out of business; however, many operations have since restructured operations. As a result, many industry operators have turned a corner since the recession and experienced growth in the five years to 2015. (56.1%) dealerships, which the company has focused on acquiring in recent years. Sonic is expanding its e-commerce segment to more efficiently integrate systems, customize dealership websites and improve marketing effectiveness. In 2015, revenue is expected to amount to an estimated $9.4 billion, with the majority of revenue being generated from new vehicle sales. Sonic Automotive Inc. Estimated market share: 1.1% Sonic Automotive Inc. (Sonic) sells new and used vehicles, provides repair and maintenance services and offers finance and insurance options. Established in 1997 with five dealerships, the company has since grown to 118 franchises that sell 25 different brands of cars and light trucks in 13 different states. It also operates 19 collision repair centers. Headquartered in Charlotte, NC, the Fortune 500 company employs about 9,300 individuals. More than 80.0% of Sonic's revenue comes from its import (31.1%) and luxury Group 1 Automotive Inc. Estimated market share: 1.0% Founded in 1997, Houston-based Group 1 Automotive Inc. owns and operates 149 franchises, 116 dealerships and 28 collision centers in 15 states. The Fortune 500 company, which also operates in the United Kingdom, continues to expand. For example, in 2014, the company completed 19 franchise acquisitions. At the same time, the company is reducing operating costs by closing underperforming facilities. During that same year, Group 1 Automotive closed seven dealerships and one franchise in the United States. The company has 11,978 employees. In 2015, industry-relevant revenue is expected to total $8.7 billion. New Car Dealers in the US\u0003October 2015 25 WWW.IBISWORLD.COM\b Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance Capital Intensity Level \u0003 The level of capital intensity is Low\u0003 \u0003 New car dealerships require salespeople, technicians and office workers to operate. Labor costs have been volatile over the past five years. For example, wages are expected to account for 6.9% of industry revenue in 2015, down from 7.7% in 2010. This segment's decline has been were largely due to wage growth not keeping pace with revenue growth. Many industry operators are incorporating inventory management systems, which is further reducing the need for labor. Industry depreciation costs are low. By classifying vehicles as short-term assets, new car dealers tend to avoid significant depreciation expenses. Service equipment and the physical dealership are the industry's primary Capital intensity Capital units per labor unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Retail Trade New Car Dealers Dotted line shows a high level of capital intensity SOURCE: WWW.IBISWORLD.COM long-term assets. The industry spends about $0.03 on capital for every dollar spent on labor. Tools of the Trade: Growth Strategies for Success Investment Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan. Car & Automobile Manufacturing New Car Dealers Traditional Service Economy Used Car Dealers Auto Mechanics SUV & Light Truck Manufacturing Automobile Wholesaling Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. Capital Intensive Labor Intensive New Age Economy Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products. Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM New Car Dealers in the US\u0003October 2015 26 WWW.IBISWORLD.COM\b Operating Conditions Technology & Systems Until recently, the industry's fundamental of Technology Change is Low\u0003 \u0003 Revenue Volatility Level \u0003 The level of Volatility is Low\u0003 \u0003 prices for new vehicles. At the same time, the medium is also increasing sales volume. For example, operators can increase traffic to their dealerships through cost-efficient internet marketing, using their respective websites, affiliate programs with third-party websites or pay-per-lead vendors. Over the past 10 years, dealer service companies such as TrueCar, Kelley Blue Book and AutoTrader have begun offering website development, training and leads to new car dealers. New car dealers are subject to low revenue volatility, most strongly influenced by consumer sentiment and household wealth. As economic conditions improved and consumer confidence rebounded following the recession, industry revenue followed suit. Volatility is also affected by the price of major input costs, such as crude oil. The price of crude oil has been volatile over the past five years, contributing to slight revenue volatility, as volatile prices have made it difficult for consumers to plan their vehicle purchases. As the price of fuel increases, consumers are more apt to purchase fuel-efficient vehicles. A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly. Volatility vs Growth 1000 Revenue volatility* (%) Level \u0003 The level business operations had not changed significantly. The introduction of electronic diagnostic equipment and inventory management systems has improved the efficiency of repair services and purchasing, respectively. Additionally, the advent of the internet is rapidly altering the way consumers shop for vehicles by providing an alternate marketplace of information for new vehicles and their pricing. A digital marketplace helps consumers better negotiate lower Hazardous Rollercoaster 100 10 New Car Dealers 1 0.1 Stagnant -30 -10 Blue Chip 10 30 50 70 Five year annualized revenue growth (%) * Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM New Car Dealers in the US\u0003October 2015 27 WWW.IBISWORLD.COM\b Operating Conditions Regulation & Policy Level & Trend \u0003 The level of Regulation is H \u0003 eavy\u0003and the trend is Steady\u0003 \u0003 Industry Assistance Level & Trend \u0003 The level of Industry Assistance is M \u0003 edium\u0003and the trend is Steady\u0003 \u0003 New car dealers operate in a highly regulated industry. Dealers must comply with state and federal regulations that cover licensing, franchising and liability. For example, dealers must renew franchise and state licensing agreements annually. Franchise agreements protect a dealer's exclusive right to sell a specific brand within a specified radius. Most states also require dealers to assume liability or offer returns for used vehicles that exhibit defects within 30 days of purchase. Car dealerships are particularly susceptible to customer complaints and state attorneys general can revoke a dealership's license under certain circumstances. These regulations are in addition to workplace and employment practice laws applicable to most businesses. The industry also encounters environmental regulations relating to emissions and discharges from their service and repair business operations as outlined in the Clean Air Act and the Clean Water Act. Regulations from the Federal Trade Commission (FTC) and the Internal Revenue Service (IRS) can significantly affect operations. Beginning November 1, 2009, new car dealers became subject to new privacy regulations from the FTC known as the Red Flags Rule, which requires new car dealers to establish identity theft prevention programs and to train all employees to be in compliance. Identity thefts resulting from noncompliance exposes the dealer to additional liability. Also, the IRS has announced plans to phase out use of the Last-in First-out (LIFO) inventory accounting method for car dealerships, which will reduce new car dealers' capacity to defer income taxes. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, could lead to additional indirect regulation of automotive dealers through the regulation of auto finance companies and other financial institutions. New car dealers do not typically receive direct assistance in the form of subsidies or special incentives. However, the economic downturn was an exception. For example, the 2009 Car Allowance Rebate System, informally known as the Cash for Clunkers program, offered consumers a reduction of $3,500 to $4,500 for new vehicles in exchange for older ones. This program expired on September 30, 2009. Additionally, the federal government financially helped companies such as General Motors and Chrysler, during their 2009 bankruptcies. The General Motors Acceptance Corporation (GMAC) loans, now almost entirely owned by the federal government, greatly improved credit availability for new car dealers and their customers. The Term Asset-backed Securities Loan Facility (TALF), instituted by the Federal Reserve, also helped improve credit flows to new car dealers by purchasing bundled securities of car loans, among other asset-backed securities. TALF stopped lending in 2010. While new car dealers do not receive much assistance from the government, they do benefit from industry associations. Established in 1917, the National Automobile Dealers Association (NADA) is a new automotive dealer trade association. The organization's members include about 16,000 new car and truck dealers, with 32,500 domestic and international franchises. NADA provides different services to members, including advocacy, education and research. The group also serves as an intermediary for auto dealers and manufacturers. WWW.IBISWORLD.COM\b New Car Dealers in the US\u0003 October 2015 28 Key Statistics Industry Data 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank Revenue ($m) 811,464.0 793,019.2 651,246.4 546,297.3 609,728.3 663,367.0 719,421.7 775,662.7 800,187.2 809,627.0 822,466.1 830,288.0 843,319.9 864,674.7 887,526.4 1/154 8/1373 Annual Change 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank Revenue (%) -2.3 -17.9 -16.1 11.6 8.8 8.5 7.8 3.2 1.2 1.6 1.0 1.6 2.5 2.6 107/154 966/1373 Key Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank IVA/Revenue (%) 7.89 7.80 7.69 8.26 8.33 8.07 7.80 7.71 7.63 7.59 7.58 7.54 7.55 7.53 7.53 151/154 1355/1373 Industry Value Added ($m) 63,988.4 61,837.7 50,072.8 45,107.8 50,816.3 53,527.3 56,080.9 59,797.3 61,033.8 61,481.0 62,323.9 62,641.7 63,702.1 65,113.5 66,869.0 3/154 53/1373 Establishments 25,964 24,370 24,200 22,936 21,927 21,327 21,277 21,390 21,863 22,021 22,266 22,361 22,500 22,692 23,058 53/154 276/1373 Enterprises 22,478 20,908 20,742 19,526 18,578 17,883 17,870 17,875 18,197 18,240 18,405 18,432 18,525 18,652 18,938 48/154 268/1373 Employment (People) 1,158,275 1,137,524 1,125,163 940,917 926,256 938,437 975,429 1,010,052 1,033,961 1,035,907 1,049,967 1,050,908 1,065,319 1,086,065 1,111,699 4/154 35/1373 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 60,742.6 58,665.5 53,328.9 45,107.8 47,157.9 49,547.2 51,764.3 54,367.7 55,912.6 56,194.2 57,071.6 57,275.4 58,173.4 59,521.6 61,117.4 2/154 26/1373 Domestic Demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Industry Value Added (%) -3.4 -19.0 -9.9 12.7 5.3 4.8 6.6 2.1