Consolidation Within the Auto Industry

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As our system of healthcare evolves in this country, I am continually amazed at how many market dynamics we share with other industries. Take the issue of too many hospital beds and too much laboratory capacity. With inpatient utilization declining, with laboratory reimbursement shrinking, both hospitals and laboratories are forced to: (1) find more patients; (2) shut themselves down; or (3) join up with other providers in the region to consolidate business resources in an economical manner.

In a nutshell, both hospitals and laboratories are in a consolidation phase. The number of hospital acquisitions, mergers, joint ventures, affiliations and alliances has reached record levels during each of the past three years. As individual hospitals come under common management, consolidation of laboratory services occurs sooner or later.

So it was with some interest that I read a recent Wall Street Journal story about consolidation of automobile dealerships. Yes, dear reader, the auto industry is going through a parallel process of consolidation similar to hospitals and laboratories. Market circumstances are almost identical!

Demand for new cars is flattening. New competitors (from Japan, Korea and Europe) have diminished market shares of the three Detroit automakers. Expenses of operating a dealership have increased faster than revenues. Thus, the auto industry is saddled with more dealerships than necessary. Already, several auto dealers are buying up individual dealerships and putting them under a common management umbrella (market consolidation). Now, both Ford and General Motors actively seek to consolidate dealerships in specific cities (intracompany consolidation). Ford will experiment with this new model in Tulsa and San Diego.

General Motors plans to buy 11 under-performing dealerships in California’s San Fernando Valley. These will be combined into four or five dealership locations, located in prime retail locations. The dealerships will pool inventories and spare parts, reducing costs. By sharing inventories of parts and cars, advertising jointly, and using a single body shop and management team for all dealerships, GM “hopes to save millions.”

I see parallels to our laboratory consolidation projects. In the San Fernando Valley, GM will operate a “core lab” (inventories of parts and cars, plus auto body shop) and stat labs (the four retail dealerships) under common management. Because of similar market problems in both industries, I wouldn’t be surprised if some management strategies used in consolidating auto dealerships might not be equally effective in consolidating laboratories.

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