ADVANTAGES AND CHALLENGES OF OPERATING RURAL DEALERSHIPS

We engaged in a discussion with Kyle Chase, Vice President of the Prairies and Partner at DSMA, to gain a comprehensive understanding of the current state of rural dealerships. Kyle shared valuable insights on the unique advantages and opportunities these dealerships offer. From strong community ties to less competition and lower operating costs, there are numerous compelling reasons to consider investing in rural stores.

1. What are the key advantages of purchasing a rural dealership, and how does it compare to other types of businesses in terms of stability and long-term growth potential?
A rural location offers several geographic advantages that can significantly enhance business operations and profitability for a dealership. One of the most notable benefits is the potential for brand monopoly. In a rural setting, the absence of nearby competitors allows you to capture and dominate the market share within your specific area. This exclusivity positions your dealership as the primary, and often sole provider of automotive services and products, ensuring a steady stream of customers who rely on you for their needs.
Additionally, the rural environment fosters stronger community ties. As you build relationships with local residents, your dealership becomes the trusted go-to destination for everyone in the community. This trust and loyalty translate into repeat business and positive word-of-mouth referrals, further solidifying your market position.
The reduced competition and robust community connections lead to uninterrupted success and enhanced visibility for your dealership. The unique geographic advantages of a rural location enable you to establish a prominent presence, ensuring that your business remains top-of-mind for local consumers. This not only drives consistent sales but also contributes to long-term profitability and growth.

2. How does the rural setting of a dealership influence customer demographics, purchasing behaviors, and overall market demand for products and services? What strategies can be implemented to effectively capitalize on these factors?
Rural locations offer a family-friendly atmosphere and the opportunity to establish deep roots in the community. This setting attracts clients from urban areas who appreciate the trusting, friendly, and detail-oriented environment of a rural dealership. Without the hustle and bustle of competitive urban stores, customers can take their time to shop and address their needs thoroughly.
Customer preferences in rural areas tend to differ from those in urban settings. While there is often less demand for sports models, there is typically a higher demand for SUVs, which are more suited to rural lifestyles and practical needs. This demand shift presents an opportunity for rural dealerships to focus on stocking and promoting larger vehicles that cater to their clientele’s preferences.
While the demand for EVs may be lower in rural areas due to concerns about charging infrastructure and long-haul capabilities, rural dealerships can still thrive. Strong community ties foster customer loyalty and lead to repeat business, offsetting potential disadvantages. Additionally, staying informed about technological advancements and aligning with OEM strategies can help manage inventory challenges and meet evolving demands.
Overall, the positive relationships and trust built in rural communities contribute to long-term sales success and customer satisfaction. Effective strategies include personalized customer service, community engagement, and proactive adaptation to industry trends.

3. In terms of infrastructure and logistics, what are the advantages and disadvantages of operating a dealership in a rural area, considering transportation, supply chain management, and access to utilities and services?
Operating a dealership in a rural area offers distinct advantages, particularly in terms of employee retention and loyalty. While it may be more challenging to fill specialized positions, such as those for mechanics with specific skills, once these positions are filled, employees tend to remain long-term. In rural areas, staff are less likely to be poached by competitors, leading to a stable and loyal workforce.
Although transportation and supply chain logistics can incur higher costs due to greater distances from urban hubs, these costs are manageable and do not impede the dealership’s operations. Accepting slightly higher delivery fees is a minor trade-off for the ability to dominate a larger market share with less competition.
Overall, the benefits of employee stability and market dominance in rural areas outweigh the logistical challenges, making rural dealerships a valuable and strategic business opportunity.

4. Considering broader economic trends and market fluctuations, why is now the right time to sell?
There are several compelling reasons for rural dealership owners to consider selling at this time. Many dealers may face the prospect of costly store image renewals, with grace periods nearing their end, or lack a robust succession plan. Additionally, detaching from strong community ties can be emotionally challenging, as these dealers have often become integral parts of their communities throughout their careers.
However, current market conditions present a unique opportunity. Gross revenues for dealerships have reached all-time highs in recent years. With rising interest rates, now is an optimal time to realize substantial profits and capitalize on the value of the dealership.
Moreover, while multiples in major metropolitan markets differ from those in rural areas, there is a significant advantage for buyers in rural markets due to the lower cost of Goodwill and real estate. Rural stores often come with more affordable land and building costs, making them attractive investments. For those looking for a valuable deal, rural dealerships offer a unique opportunity to stand out and become a vital part of the local community.

At DSMA, we have a selection of rural dealerships that would interest potential investors. If you are looking to explore these opportunities, we encourage you to reach out to us for more information and to find the perfect fit for your investment goals.

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