Imagine your local independently owned car dealer going away. Sounds absurd?
Morgan Stanley auto analyst Adam Jonas said it's not only a possibility, but he thinks it could happen if self-driving vehicles take-off.
"In a world of fully autonomous cars, what will an auto dealer actually sell ... ?," asks Jonas in a note to investors. "Maybe nothing."
As a result, Jonas said he expects the 10,000 auto dealers in the U.S. could eventually consolidate into 10 mega-fleet managers.
"We see the business morphing into a 100% service model where the value of real estate and assets in the field will be critical to maintaining a safe, reliable, comfortable and nice smelling fleet," said Jonas.
Jonas' thesis comes on the heels of the country's largest auto dealer, AutoNation, striking a deal with Google's Waymo to service the tech giant's self-driving minivans. Right now, Waymo has 100 of those vans being tested in various markets around the country.
In late October, Waymo CEO John Krafcik said his firm is getting closer to putting self-driving cars on the road for public use, though he did not give a target date when that will happen.
"This technology has the potential to be transformative," said Krafcik.
That transformation could hit the dealers hard if Americans stop buying cars and trucks and start sharing cars through large fleet operations.
Erin Kerrigan isn't buying it. "Is the car dealer going to be a dinosaur and go away? No," said Kerrigan, who runs Kerrigan Advisors, which works with auto dealers looking to sell their businesses.
Right now, the average sales price for an auto dealership, including the property and the goodwill attached to the business, is about $17 million, up slightly compared to last year.
While selling cars and trucks is a crucial part of every dealership, the local auto dealer makes the majority of their profits servicing cars and trucks. Since there are almost 275 million cars and trucks on the road in the U.S., the demand for servicing those vehicles will not go away any time soon.
"It's a very aggressive assumption to think people will no longer buy cars," she said.
Jonas is not predicting the death of the auto dealer overnight. Instead, he expects the consolidation would not happen until 2035 or later, when self-driving cars would be a common sight on roads and highways.
"We call this the age of Megafleets — fleets owned and/or operated by a few players with big economies of scale," said Jonas.