Supply chain disruptions and challenging economic factors have led vehicle dealers to review core business operations in an effort to increase operational efficiencies. Still, to continue prioritizing sales, dealers must explore competitive opportunities for an evolving omnichannel sales environment with an increasingly digital presence.
While the need for large sales spaces continues to decrease due to increasingly precise production runs and shrinking on-hand inventory, the in-person experience can’t be ignored and the challenge to stand out against competition remains. Yet, operating profits continue to decline for retail dealerships, creating the need to tighten profit margins.
This creates an opportunity to finance modern and creative physical locations. But how can all of these business needs be met?
Utilizing Real Estate to Unlock Competitive Financial Opportunities
One option for dealers looking to differentiate their showrooms could be industrial zoning for real estate needs and the opportunity to create a more secure and dynamic indoor sales space, in combination with a more traditional “lot.” Imagine a large, climate-controlled warehouse-style showroom that allows for enticing displays of newer models surrounded by an efficient layout for service, used cars and plentiful customer parking.
This uncommon retail approach allows for strategic positioning along highly trafficked areas, including parts of major roadways, that are not inundated with other car dealerships or auto malls with the automotive-retail model.
In recent years, leading dealership owners have put an intentional and deserved focus on driving operational excellence without disregarding the importance of a well-rounded customer experience. Although the trend of online vehicle purchases likely will only increase, and while virtual showrooms are becoming increasingly common, the in-person customer experience can’t be neglected.
Possible Partners
Dealers can seek out commercial real estate brokers and banking partners who have adequate and beneficial experience in the industrial space. This can help fully vet options available, including previously unconsidered financing options and locations that would otherwise not be available. Industrial zoning can also result in a larger loan opportunity, thereby preserving precious capital because industrial/warehouse buildings are typically not considered a special-purpose property.
As such, a designation is commonly assigned to a car lot due to the difficulty in repurposing for another type of tenant or property owner that requires substantially higher equity to achieve a lower loan-to-value ratio and is also likely to have a more rapid amortization of their loan.
Additionally, if expansion or relocation of a dealership or group is a priority, a regional or community bank attuned to the traits and trends of the local market can support strategies tailored to the target demographic, which is often contained in a very tight geographic area around a neighborhood or surrounding region.
Proactive Approaches to Navigating Uncertainty
While many businesses are inclined to chase the lowest interest rate or wait for economic stressors to ease, industrial lending could help offset these factors.
The recent and still current spike in inflation resulted in price hikes across most industries, and car dealers have not been immune. Owner-operators continue to endure the impact with a need to mitigate and offset costs, including labor and benefits.While inflation rates are dropping slightly, higher prices are expected to last for the foreseeable future. Conversely, higher interest rates set to slow the effects are expected to come down, but no one can say exactly when.
Keeping this outlook in mind, industrial lending opportunities could be a way to navigate inflation while still taking advantage of growth opportunities. Strategic responses to inflation, such as relocation, can potentially drive higher revenues, even with higher interest rates on loans, which are only one piece of the lending puzzle.
Reimagine the Modern Dealership
Improving the in-store customer experience as rapidly as possible, combined with advancing digital tools, will benefit the car-buying process for the full gamut of customers. While digital sales platforms allow customers to remotely schedule maintenance, track services and diagnose issues, the modern automotive dealership understands every touch point with potential customer matters—simultaneously providing both a dynamic, multiplatform online presence and a vibrant physical sales space.
The traditional process of vehicle shopping will likely never fully return, and dealership owner-operators have a chance to help shape the present and future. The simple smile-and-a-handshake transactions have become less common, and the purchasing process now extends well beyond a sales lot.
While dealerships have a seemingly unspoken duty to offer online purchasing options, virtual showrooms and home delivery, their usage of commercial real estate remains a priority. An industrial space or warehouse model could prove not only affordable and financially beneficial but could also reimagine and modernize a dealership operation to stand out in a competitive and increasingly saturated market.
