Economies of scaleOrepass said multiple times that ACQ acquisition strategy does not result in economies of scale.
He said it like it's a fact. No economies of scale, period.
Well, it's not a fact. It's his biased opinion. I think he is dead wrong.
Exhibit A: Morningstar analyst report on Lithia Motors, a publicly traded dealership in the US. Lithia pursues the same acquisition strategy as ACQ.
[url=https://analysisreport.morningstar.com/stock/archive?t=LAD®ion=USA&culture=en-CA&productcode=CAN&docId=571868]Morningstar: We expect Lithia to generate excellent economies of scale[/url]
Yep, they say it right in the title. Excellent economies of scale. Google report title if you hit a paywall.
Exhibit B: Here's Lithia CEO on a conference call talking about the key differences between a large public company and the mom-and-pop shops. All of his points apply to ACQ.
Bryan DeBoer - Lithia Motors, Inc. - President, CEO
I think the biggest thing between the mom-and-pop that we buy and our selves is -- typically it's easy to get comfortable when you make $500,000 or $1 million. It's a pretty good living, right? Is that their sales volumes are typically not to the levels that we would see.
A lot of times they are not as risk acceptant, again, on used vehicles. In fact, a Missoula deal that we had, they had hardly any used vehicles in stock. In fact, they didn't even stock Toyota pickups because they had a Ford store that they stocked Ford pickups. So there is some mind blocks that you can quickly get into.
Staffing levels is typically a big issue, too. There is usually somewhere between 10% and 15% of additional staff that hasn't reached their productivity or hasn't been expected to, and there is a comfortableness of, whether it's friends or whether it's longevity within the stores, that we are able to accelerate and help succession planning occur a little bit quicker.
There are some economies of scale that we gain from the ma-and-pa. We do typically have a little bit lower interest rates. Some of our benefit expenses are slightly lower. And we have a little bit of centralization that can help things, primarily within the office functions. Outside of that, it really comes through building a belief within the stores that the sales teams and the service teams can find more customer base.
Exhibit C: Here's the same Lithia CEO on their recent acquisition in Hawaii:
Clustering store locations is exactly what ACQ does. Most of their stores are clustered in the West.
Exhibit D: We can discuss ACQ Internet strategy. They have a dedicated Internet team in the central office that looks after all of their dealerships. ACQ CEO commented how mom-and-pop shops typically lack Internet expertise. By bringing new dealerships on the common Internet platform, ACQ can boost same store sales and save on the Web development costs.
orepass, shall I continue? We can talk about pricing power, buying power, staffing levels, interest costs, back office expenses, etc etc etc.