Prime Motor Group recently acquired Volvo of Southborough in Massachusetts. It is the beginning of an expansion strategy for the New England-based dealership group, a strategy greatly aided by Capstone Automotive Group’s recent acquisition of a majority stake in Prime.
The move – taking a majority investor – was necessary to survive and thrive in the new reality of today’s retail auto industry, Prime CEO David Rosenberg tells Automotive Buy Sell Report.
David Rosenberg, CEO of Prime Automotive Group
“I believe our industry is going through a change,” he says. “We are going to need to make capital investments in technology and in other initiatives. In order to be able to afford these investments, you need to have access to capital.”
One initiative Prime is taking: the development of proprietary customer-friendly software to streamline operations. The biggest pain point for customers in the car-buying process is the time it takes to consummate a deal, says Rosenberg.
“If we embrace technology, we can significantly shorten that time,” he says. “Also, we can take the process online and sell online.”
The online experience has to be consistent with the offline experience, says Rosenberg. Consumers spend hours online doing research and negotiating a price. That same process shouldn’t be repeated in the dealership.
He also says technology can create more transparency on the sales process, for example customers should know how much of the new car price is the trade-in allowance.
Prime may also experiment with new ownership models such as clubs that allow members to change cars fairly frequently. Capstone is committed to spending money on such initiatives. A single point or small family-owned dealership group would have a hard time justifying that volume of expenditure, says Rosenberg.
Prime will use its new access to capital to fund more traditional moves as well, including opening its own body shops. And, it will nearly double it staff size over the next few years.
Those new employees will need to be familiar with and comfortable with technology, but that doesn’t mean just a certain age group, says Rosenberg. Everyone uses technology, he says, and the employee makeup in sales and service needs to be “the mirror image of the customer that is coming in.”
Spoke and hub
Prime Motor Group is Capstone’s first investment in New England. Rosenberg has retained a “significant membership interest” in Prime Motor Group, and the former majority owner Abrams Capital is also still an investor, says Rosenberg.
He plans to be involved with Capstone’s expansion outside of the Prime platform, as well. Capstone also owns dealership platforms in Texas, New Jersey, Connecticut, and New York. It will be looking for platform purchases in the smile states as well as tuck-in acquisition to existing Capstone platforms in the Houston and Pittsburgh markets, says Rosenberg.
Prime Motor Group currently consists of 27 rooftops representing some 18 passenger vehicle brands as well as Airstream recreational trailers and Sprinter commercial vehicles.
Capstone favors the “spoke and hub” strategy in its additional acquisitions, meaning Prime will look to add dealerships or dealership platforms within a two- to three-hour drive of its base in Massachusetts, says Rosenberg. Rhode Island is the next state Prime looks to enter.
It targets a minimum 15 percent unlevered return, he says, though for Toyota, Honda, or Subaru franchises it might go a bit lower. Luxury brand multiples need to start coming down, says Rosenberg, because of the significant margin compression they are seeing.
“Look at what some luxury brand dealerships are making in return on sales,” he says. “It is not as good as some non-luxury [brands].
Having said that, he adds, “We love Mercedes [and] we love Porsche. Even with reduced profits you can still do very well with fixed ops and the existing customer base.”
