STUTTGART - The profit margin for dealer groups that sell more than 1,000 new vehicles a year in Germany stood at a mere 0.8 percent in 2008.
That is below the average profitability of dealerships selling 300 cars or less -- 0.95 percent.
"Dealer groups are not inherently more profitable per se than small dealers," said Willi Diez, director of IFA, an automotive research institute, at the presentation of a study, Optimization of Dealer Groups.
IFA did the study for Dekra, a German automotive inspection and testing company.
The profitability of large groups comes in below the average for all the dealerships that were studied. Very small dealerships are the most profitable -- mainly due to their low overhead, according to Diez.
Large groups apparently cannot offset their higher structural expenses with the cost advantages they achieve with bundled purchasing and other measures.
The example of the bankruptcy of the large Kroymans group demonstrates that size alone is no guarantee of success.
In just five years, the Dutch group grew from three to 19 locations in Germany. Revenues increased fivefold, from 75 to 366 million euros ($104 million to $507 million).
But profits didn't keep up, falling by more than 6 million euros ($8.3 million) in 2007. The share of owner equity trended downward as well, from 24.4 percent at the start to 12.8 percent.
"Kroymans became a victim of its aggressive growth strategy," Diez said.
Meanwhile, the inclination to expand has subsided considerably among large dealers with sales of more than 1,000 new cars a year.
While more than one group out of five (22.2 percent) planned to open more facilities within Germany in 2006, the figure is currently less than one in 10 (9.3 percent).
The German dealer giants' drive to expand abroad has also remained small.
One of the greatest risks to expanding dealer groups is the lack of a long-term brand and location strategy, according to Diez.
"Many groups grow through takeovers," he said. "And many gag in the process."
Many supposed bargains turn out to be money-losers if the acquisition doesn't fit into the company, for example.
It is crucial instead to carefully evaluate the takeover candidate and to integrate the operation quickly from an organizational standpoint.
Other dangers lurk around the multiple brand issue. Dealers who don't examine their portfolios on an ongoing basis risk cannibalizing their sales.
"Does it just bring additional costs and no income?" Diez asks.
With an average margin of 0.87 percent, multiple brand dealers are less profitable than those that sell just one brand (0.91 percent).
"Multiple brand retailing is no recipe for higher returns," he said.
The leadership structure frequently lags behind the group's growth as well. The transition from an organically grown structure to a new group structure is often lacking.
Diez says this principle applies: "As much centralization as necessary, as much decentralization as possible."