deals driver q32019 - auto trends and transactionsdevelopment of autonomous vehicles and connected...
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Automotive dealers of tomorrow – the profitability challenge
The automotive dealer model in Canada is experiencing disruptive change. Online shopping, autonomous driving technologies, connected cars and the rise of Mobility as a Service (“MaaS”) are all expected to impact dealer sales and profits. Original Equipment Manufacturers (“OEMs”) and dealers should respond to these disruptors by working together to re-define the operating model of tomorrow. In this article we review ways in which these disruptors will impact dealer profitability, and discuss how OEMs and dealers can react to these changes.
Development of autonomous vehicles and connected cars
There is still a long way to go for OEMs, suppliers and policy makers to reach fully autonomous vehicles, where no human interaction is required. In the meantime partial or conditional automation technologies, available in cars that consumers can already buy today, are becoming increasingly widespread. Many of these technologies are to enhance driver safety and reduce collisions. These technologies will also reduce the volume of crash repairs and, in turn, the lucrative high margin collision repair businesses of dealers and collision repair centres.
In spite of this, the impacts on dealer profitability of new technologies are not all negative. The increasing complexity of the systems in cars will increase the need for specialized vehicle maintenance and servicing, and likely also increase the time required to conduct any requisite collision repairs. With the increase in connected technologies in vehicles, data collected from vehicles can be leveraged to predict required maintenance and to provide diagnostic efficiency. Currently,
data collected from connected vehicles is not directly available to dealers. OEMs and dealers will benefit by working together to determine how this data is best utilized and monetized.
Rise of MaaS in urban areas
Another new technology expected to impact dealer profitability is the rise of MaaS. The convenience of hailing a ride using a smartphone is prompting urban consumers to question whether they need to own a car. The rising utilization of MaaS will contribute to a reduction in car sales, and ultimately, dealer sales volume.
With increasing demand for MaaS, OEMs will likely sell more vehicles to fleet management companies rather than selling to consumers. Though the delivery of vehicles to these ride hailing operators will likely still be via dealers, with dealers continuing to receive PDI payments from OEMs, it is a less profitable business than sales of vehicles to consumers. In addition, some OEMs have started to sell directly to ride hailing services and fleet managers, disintermediating the dealer completely.
Q3 2019
Automotive trends and transactions
Deals Driver
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1
Fleet managers typically obtain much higher utilization rates per vehicle than consumers. The pivot to increased ownership of vehicles by fleet managers and away from consumers will reduce the overall car park of vehicles in use for the same number of miles driven.
OEMs including BMW, Volvo, Lincoln, Cadillac and Porsche have also responded to this shift towards MaaS by starting to experiment with subscription models. These models offer a choice of vehicle, as well as maintenance and insurance for a bundled monthly fee.
The impact on dealers, to the extent they have not already been disintermediated, is reduced car sales volume and increased pressure on profits. Notwithstanding, there will always be consumers who choose to own a car or who live in rural areas without easy access to MaaS.
Online shopping is changing consumer behaviour
As shopping moves online and consumers become more sophisticated, they have more information about car features, quality and pricing. Consumers can quickly compare advertised deals and financing offers between and within brands. This gives consumers a higher degree of confidence when bargaining at dealers. In spite of this increased confidence, a 2014 Edmunds survey of 1,000 adults found that on average Americans find buying a car or truck more stressful than getting married or going on a first date. The antiquated model of discounting list prices on an ad hoc basis is threatening dealer profitability and customer loyalty. This is expected to result in changes to the dealer sales model. Certain dealers in the US have begun to experiment with no haggle pricing as a means to combat shrinking dealer margins on new car sales and capture the new generation of buyers.
Changing consumer shopping preferences also suggest movement towards an omni-channel distribution network. The ideal consumer shopping journey will include a mix of online and physical resources. Seamless transitions between online interaction and a physical store will be key to ensure a great shopping experience.
Development of a seamless omni-channel shopping experience
In an omni-channel model, consumers expect to be able to switch between channels, potentially at multiple points in the process, and they expect the process to be seamless. Currently the ability to move seamlessly between browsing for cars online, booking an appointment at a
dealer, then continuing the face to face interaction without repetition is rare. This is challenging as there are many stakeholders (OEMs, dealers and suppliers) and legacy IT systems involved. Each of these parties should have involvement in building the future omni-channel shopping experience and be equally accountable to ensure a seamless transition at every step of the journey to car ownership.
Showrooms and test drives
The dealer store of the future may look physically bigger, serving a broader geographic range, and reducing the number of actual dealers. The larger dealers will likely have a greater emphasis on repair and maintenance as the complexity of drivetrains and driving aids continues to grow, while well-educated consumers require less showroom space to make their buying decision. Stand-alone retail showrooms will likely be smaller with a focus on providing a high standard of shopping experience.
Test drives will continue to be an essential part of the shopping journey for driving enthusiasts. OEMs could be more involved in test drives and in the showroom, as they present an opportunity to increase brand awareness, build brand loyalty and improve the shopping experience. This is also a new way for OEMs to get to know their consumers. Many OEMs in other markets (Europe and China, for example) have started the process of creating lifestyle stores, pop-up stores, or even vending machines where consumers use facial recognition technology to check out a vehicle for a test drive.
Consolidation of the dealer network
Dealers with low sales volume, especially in urban areas most impacted by the increasing prevalence of MaaS, will have reduced profits, making it more difficult for them to invest in digital channels and technologies. This in turn will further negatively impact their sales performance and profit potential. Dealer consolidation is one way to alleviate this problem. Service centers including trade-in and used car dealers could also be consolidated or relocated to lower cost areas.
The process of dealer consolidation has already started, but the pace will need to pick up dramatically for the remaining dealers to retain sustainable levels of profitability amidst these disruptive changes.
While all of these megatrends are coming to disrupt the automotive industry, they are evolutionary rather than revolutionary. Dealers and OEMs need to work closely to respond to the changes.
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2
1. Reflects the reclassification in February 2019 of the financial statements for the 12 months ended December 31, 2017.
Source: Capital IQ as at September 30th, 2019
Automotive EV/LTM EBITDA Last 3 years
GM
Magna
Johnson Controls
Ford
BMW
Toyota
Daimler
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
22.0x
24.0x
26.0x
28.0x
30.0x
Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19
1
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4
Public Comparable Companies (C$M)
Source: Capital IQ as at September 30th, 2019
Capitalization LTM Multiples NTM Multiples
Company CountryMarket Capitalization
Enterprise Value ("EV")
EV / Revenue
EV / EBITDA P/E
EV / EBITDA EV / EBIT P/E
American Axle & Manufacturing Holdings, Inc. United States 1,224 5,857 0.6x 4.3x n.m. 3.9x 7.8x 3.4x
BorgWarner Inc. United States 10,028 12,080 0.9x 5.8x 10.0x 5.6x 7.6x 9.1x
Cooper Tire & Rubber Company United States 1,735 2,168 0.6x 4.8x 19.2x 4.8x 8.4x 11.8x
Cooper-Standard Holdings Inc. United States 915 1,664 0.4x 4.9x 4.8x 4.1x 7.6x 8.2x
Dana Incorporated United States 2,751 6,173 0.6x 5.0x 9.4x 4.3x 6.2x 4.4x
Dorman Products, Inc. United States 3,432 3,425 2.6x 13.8x 23.3x 13.2x 16.3x 20.6x
Ford Motor Company United States 48,382 37,198 0.2x 2.4x 17.0x 2.2x 3.9x 6.7x
General Motors Company United States 70,840 71,365 0.4x 4.0x 6.0x 2.3x 4.7x 5.5x
Gentex Corporation United States 9,287 8,698 3.6x 11.0x 16.9x 10.5x 12.9x 16.0x
Gentherm Incorporated United States 1,794 1,900 1.4x 10.6x n.m. 9.4x 13.5x 18.0x
Harley-Davidson, Inc. United States 7,373 7,678 1.1x 6.6x 13.4x 6.1x 7.9x 10.4x
Johnson Controls International plc Ireland 46,233 52,363 1.3x 8.4x 6.9x 11.0x 14.9x 17.8x
LCI Industries United States 3,043 3,412 1.1x 10.0x 17.1x 8.7x 11.8x 14.8x
Lear Corporation United States 9,528 11,765 0.4x 4.5x 8.6x 4.5x 6.1x 7.5x
Linamar Corporation Canada 2,810 4,760 0.6x 4.3x 5.4x 4.2x 6.6x 5.6x
Magna International Inc. Canada 22,052 28,336 0.5x 5.2x 6.9x 5.2x 7.7x 8.1x
Martinrea International Inc. Canada 945 1,831 0.5x 4.0x 6.1x 3.5x 5.7x 4.7x
Nexteer Automotive Group Limited United States 2,739 2,539 0.5x 4.2x 6.7x 3.2x 5.2x 6.9x
Tenneco Inc. United States 1,341 9,039 0.4x 5.5x n.m. 4.2x 7.3x 2.7x
Tesla, Inc. United States 57,119 70,526 2.2x 23.1x n.m. 17.4x n.m. n.m.
The Goodyear Tire & Rubber Company United States 4,434 13,172 0.7x 6.2x 7.5x 5.6x 9.8x 7.1x
Thor Industries, Inc. United States 4,129 6,091 0.6x 8.1x 23.1x 6.8x 9.3x 10.1x
Visteon Corporation United States 3,055 3,345 0.9x 13.0x 28.0x 8.9x 13.6x 17.6x
Valuation Multiples Summary
Group Average 1.0x 7.4x 12.4x 6.5x 8.9x 9.9x
Group Median 0.6x 5.5x 9.4x 5.2x 7.8x 8.1x
Group Maximum 3.6x 23.1x 28.0x 17.4x 16.3x 20.6x
Group Minimum 0.2x 2.4x 4.8x 2.2x 3.9x 2.7x
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5
Precedent transactions (C$M)
Source: Capital IQ
Valuation Multiples
Country of Target
Closed Date
Enterprise Value
EV / LTM Sales
EV / LTM EBITDA Target Acquirer
YTD Q3 2019: Top 10 Transactions
Johnson Controls Power Solutions (nka:Clarios, LLC)
Caisse de dépôt et placement du Québec; Brookfield Business Partners L.P.
United States 30-Apr-19 15,344 1.5x 6.9x
Magneti Marelli S.p.A. Ck Holdings Co. Ltd. Italy 2-May-19 8,715 n.a n.a
Erwin Hymer Group SE Thor Industries, Inc. Germany 1-Feb-19 2,928 n.a n.a
Clarion Co., Ltd. Faurecia S.A. (nka:Faurecia S.E.) Japan 1-Mar-19 1,799 0.9x 9.7x
Global Auto Care Business of Spectrum Brands Holdings, Inc.
Energizer Holdings, Inc. United States 28-Jan-19 1,631 2.7x 10.5x
Tower International, Inc. Autokiniton US Holdings, Inc. United States 30-Sep-19 1,370 0.7x 7.7x
Roof Systems Business of Inteva Products Inc.
CIE Automotive, S.A. United States 6-May-19 990 n.a n.a
China Automotive Industry Engineering Co., Ltd.
Sinomach Automobile Co.,Ltd. China 4-Apr-19 513 n.a n.a
Groupe Mécanique Découpage S.A. Asia-Pacific Electrical Group Co., Ltd
France 18-Sep-19 425 0.4x 4.8x
TA Holdings Europe B.V. Financiere SNOP Dunois S.A. Belgium 1-Mar-19 385 0.4x n.a
2018: Top 10 Transactions
GKN Limited Melrose Industries PLC United Kingdom 26-Apr-18 15,830 0.9x 9.3x
Federal-Mogul LLC Tenneco Inc. United States 1-Oct-18 6,816 0.7x 7.2x
Stevens Holding Company, Inc. Altra Industrial Motion Corp. United States 1-Oct-18 3,650 3.1x 13.4x
Camso Inc. Compagnie Générale des Établissements Michelin
Canada 18-Dec-18 2,170 1.7x 11.8x
Substantially All Assets of Takata Corporation Key Safety Systems, Inc. Japan 10-Apr-18 2,087 n.a n.a
ZKW Holding GmbH LG Electronics Inc.; LG Corp. Austria 31-Aug-18 1,622 0.9x n.a
Sage Automotive Interiors, Inc. Asahi Kasei Corporation United States 27-Sep-18 1,407 2.2x n.a
L'Orange GmbH (nka:Woodward L'Orange) Woodward Aken GmbH Germany 1-Jun-18 1,054 n.a n.a
Aventics GmbH Emerson Automation Solutions Germany 17-Jul-18 796 1.5x n.a
INA Bearings India Pvt Ltd. Schaeffler India Limited India 22-Oct-18 709 3.4x 24.6x
2017: Top 10 Transactions
Mobileye N.V. Intel Corporation Netherlands 21-Aug-17 20,195 42.0x 120.2x
Harman International Industries, Incorporated Samsung Electronics America, Inc.
United States 10-Mar-17 12,036 1.3x 10.4x
CLARCOR Inc. Parker-Hannifin Corporation United States 28-Feb-17 5,753 3.1x 17.2x
Metaldyne Performance Group Inc. American Axle & Manufacturing Holdings, Inc.
United States 6-Apr-17 4,376 1.1x 6.9x
Calsonic Kansei Corporation KKR & Co. L.P. (nka:KKR & Co. Inc.); KKR Asian Fund II L.P.
Japan 23-Mar-17 4,050 0.3x 5.2x
Adam Opel GmbH Peugeot S.A. Germany 1-Aug-17 1,618 0.1x n.a
FTE automotive GmbH Valeo SA Germany 31-Oct-17 1,196 1.6x n.m
Ahlstrom Oyj Munksjö Oyj (nka:Ahlstrom-Munksjö Oyj)
Finland 31-Mar-17 1,052 0.7x 6.2x
Robert Bosch Starter Motors Generators Holding GmbH (nka:SEG Automotive Germany GmbH)
China Renaissance Capital Investment; Zhengzhou Coal Mining Machinery Group Company Limited; Chizhou Zhongan Zhaoshang Equity Investment LLP
Germany 31-Dec-17 817 0.4x 7.6x
AutoChips Inc. NavInfo Co., Ltd. China 2-Mar-17 775 n.a n.a
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6
© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7
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