Money looking for a home

With our arguably unique position looking across the whole of the automotive distribution sector from a forward-looking perspective, we occasionally get asked to comment or advise on possible opportunities to invest in the sector.  These requests come from a number of sources.  Most come from private equity funds and others who have capital available, but little or no direct knowledge of the sector.  Some come from players who are involved in the sector, but perhaps not in the target market or that particular part of the value chain.  Like others, we also see existing players or new entrants come in with bold ideas and big investments, often with little chance of building a viable business in the long term.

What is clear from this is that there is no shortage of investment capital for the distribution sector.  It is also generally true that with some notable exceptions like dealers investing in other groups to consolidate and extend their reach, the potential investors are not looking to invest in traditional bricks and mortar businesses.  They have seen the many reports that talk about disruption in car ownership and car retailing, and want in some way to take a position in that disruption.  That may be in mobility start-ups, new online channels or some of the underlying technology that the start-ups and channels might need, for example around big data analysis.

It is also often true that the potential investors are not well-informed on the industry – a sector in which they are considering become involved.  They make a simple read-across from other forms of retail to automotive and assume that the same trends will apply, that similar solutions will be relevant.  They also assume that all markets are similar – that because a concept has worked in the US, it will also work in a European market.  They often also assume that because some very large, potentially disruptive businesses have emerged – for example the e-commerce stars like Uber or the various mobility businesses funded by the OEMs – that this proves that there is a solid business case underlying them.

The reality in many cases is very different.  There are genuine differences between automotive and other forms of retail, it is not simply a case that we are blinkered and have failed to see the light.  There are structural differences in how markets work that need to be recognized, and will only change as the result of broader economic or societal change.  And there are many reasons for investors – OEMs or others – to invest beyond the immediate viability of the underlying business.With our arguably unique position looking across the whole of the automotive distribution sector from a forward-looking perspective, we occasionally get asked to comment or advise on possible opportunities to invest in the sector.  These requests come from a number of sources.  Most come from private equity funds and others who have capital available, but little or no direct knowledge of the sector.  Some come from players who are involved in the sector, but perhaps not in the target market or that particular part of the value chain.  Like others, we also see existing players or new entrants come in with bold ideas and big investments, often with little chance of building a viable business in the long term.

What is clear from this is that there is no shortage of investment capital for the distribution sector.  It is also generally true that with some notable exceptions like dealers investing in other groups to consolidate and extend their reach, the potential investors are not looking to invest in traditional bricks and mortar businesses.  They have seen the many reports that talk about disruption in car ownership and car retailing, and want in some way to take a position in that disruption.  That may be in mobility start-ups, new online channels or some of the underlying technology that the start-ups and channels might need, for example around big data analysis.

It is also often true that the potential investors are not well-informed on the industry – a sector in which they are considering become involved.  They make a simple read-across from other forms of retail to automotive and assume that the same trends will apply, that similar solutions will be relevant.  They also assume that all markets are similar – that because a concept has worked in the US, it will also work in a European market.  They often also assume that because some very large, potentially disruptive businesses have emerged – for example the e-commerce stars like Uber or the various mobility businesses funded by the OEMs – that this proves that there is a solid business case underlying them.

The reality in many cases is very different.  There are genuine differences between automotive and other forms of retail, it is not simply a case that we are blinkered and have failed to see the light.  There are structural differences in how markets work that need to be recognised, and will only change as the result of broader economic or societal change.  And there are many reasons for investors – OEMs or others – to invest beyond the immediate viability of the underlying business.