The Leverage Problem Facing Today’s Dealerships

As dealership profits tighten, Dave Mondragon, Founder and CEO of AutoTrust Dealer Alliance, says many retailers are facing a leverage problem rather than an operational one. In this episode, Mondragon explains how collective scale can help independent and smaller dealer groups compete more effectively without giving up ownership.

Mondragon discusses how larger public groups use scale to lower costs, improve margins, and accelerate growth, while smaller operators often lack the same negotiating power. He outlines AutoTrust’s dealer-owned cooperative model, which aggregates member volume to secure better terms with vendors, lenders, and partners while returning profits to participating dealers.

Key discussion points:

• Why dealers may need more leverage, not more operational advice
• How collective scale can help smaller groups compete with public retailers
• AutoTrust’s 100% dealer-owned cooperative structure
• How vendor and lender partnerships can improve back-end profitability
• Why AutoTrust focuses on non-OEM opportunities like used and subprime financing
• How dealers can preserve independence while gaining scale advantages

Mondragon explains why the future may favor dealers who find new ways to scale collaboratively while maintaining local ownership.

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Transcript

Welcome And Guest Introduction

Jim Fitzpatrick 0:11

Joining us now is Dave Mondragon, founder and CEO of Auto Trust Dealer Alliance. Dave brings more than four decades of automotive experience, including leadership roles at Ford Motor Company and SP Global Mobility. And today he's focused on helping dealers rethink what's possible when they work together. Dave, thanks so much for joining us once again on the show. Jim, thanks for having me. We're excited to tell our story.

Why Dealer Groups Consolidate

Jim Fitzpatrick 0:33

Sure. So dealer groups have been consolidating for decades. What what problem are they actually solving through acquisition and consolidation?

Dave Mondragon 0:43

Well, first and foremost, it's all about scale. And the large public dealer groups are acquiring business because they can leverage their scale to bring down their prices, improve their margins, and really pay off the acquisition at a much faster clip than a normal acquisition might be for a regular dealer. I like to use the uh an example. Actually, I have a I have a copy of the article from CBT that was posted on LinkedIn,

Carvana Shows What Scale Can Do

Dave Mondragon 1:08

LinkedIn this week. And this was about Carvana and they move into new car sales. So let's take them as an example. They took a Solantis store, as you know, uh selling between 30 and 50 units per month.

Jim Fitzpatrick 1:18

Yep.

Dave Mondragon 1:19

Uh, and they turned that store into the highest volume store in the nation, or one of the highest uh volume uh Solanta stores in the nation. And they didn't do it by happenchance, they happenstance, they didn't do it because their dealers and their management team is better or stronger or smarter than the average dealer in the marketplace. Right. They did it because of their scale. They could leverage their leverage their national marketing footprint, their national scale, their national economies and efficiencies, and they are able to do that uh at really the peril of the other dealers in the marketplace. So if you're a competing Solantis dealer going against Carvana, how are you going to compete? Yeah, you're gonna have a very difficult time unless you uh unless you find a company or an opportunity like Autotrust that can leverage the collective cooperative scale of hundreds and hundreds of dealers to give you that same fighting power that the Carvana brand would have in the marketplace.

Dealers Have A Leverage Problem

Jim Fitzpatrick 2:12

Dave, you often uh say that dealers don't have a profit problem, they have a leverage problem. What do you mean?

Dave Mondragon 2:20

Well, first and foremost, most dealers don't need another consulting company tell them telling them how to sell cars and make more money. They already know how to run their business and they do it very well.

Jim Fitzpatrick 2:32

Yeah.

Dave Mondragon 2:32

What they need is a better way to monetize the scale they already have. Uh and that's what we do at Autotrust. We're helping them monetize their scale with a larger collective group. Again, we don't go in and change the way a dealer does business. They already know how to sell cars, they know how to sell FI, they know how to make a lot of money selling cars in FI and running their overall business. And in the back end of the business, they're very proficient as well in parts and service. What we help do is leverage that volume for greater efficiencies and uh profit opportunities for the dealers.

How A Dealer-Owned Cooperative Works

Jim Fitzpatrick 3:03

Auto Trust seems to be taking a very different approach. How would you describe your platform?

Dave Mondragon 3:08

Yeah. So first and foremost, we're a dealer-owned company. So uh 100% of the equity in this business is dealer-owned. So the only way you can own equity in this to be a member of Auto Trust Cooperative. Uh, second off, we don't buy dealerships. What we do is we aggregate our dealer member volume for leverage. Our goal is to give a dealer group with five stores or 10 stores or 20 stores the same leverage as a 300-store public dealer group. And that's what we're doing in the marketplace. Again, it's a dealer-owned company. So the the benefactors of this business are dealers, and we distribute that that opportunity and those profits back to our dealers.

When Scale Becomes Real

Jim Fitzpatrick 3:52

At what point does collective scale become meaningful?

Dave Mondragon 3:56

Well, it's a great question. Quite frankly, we're there today. Uh today we have more than 350 committed rooftops. So that's a huge number. Last time we spoke, I think we were around 150 to 200. Look, we just really started onboarding dealers in January. So NADA, we took off like a rocket, and now we're over 350. Uh, we're no longer talking about a concept either. Uh, we're operating at scale that changes the conversation, and that's with national partners, and we're delivering meaningful profits back to our dealers on a daily basis.

Jim Fitzpatrick 4:28

Yeah.

Dave Mondragon 4:29

So again, we're at that scale now and we're scaling more aggressively every day that we grow.

Jim Fitzpatrick 4:34

That's fantastic. So the economics sound compelling for dealers today. What are the expected major milestones in the next year?

Dave Mondragon 4:41

Well, first off, uh, significant new partners, significant dealer earnings, expanded dealer benefits. And by this time next year, we'll have well over 500 dealers on our platform. So think of the leverage. We'll be larger than the largest public dealer group at that point. And our goal is to have the same leverage, if not more leverage than the large public dealer groups. And we have 500 dealers speaking together, trust me, the industry will listen and we will get leverage in the marketplace. And that's not our goal. Our goal is to get to a thousand plus dealers. And if we can get to 500 within 15 months or 18 months, we can definitely get into it, get to a thousand dealers on our platform uh within the first three years.

Jim Fitzpatrick 5:19

Wow, that's fantastic. That's fantastic. And as you know, you know, the auto community, the

What Incremental Profit Looks Like

Jim Fitzpatrick 5:23

old auto, the network of auto franchise dealers out there, the average dealer, I think, owns just about two dealerships. We hear a lot about the publics, we hear a lot about these large dealer groups, but by and large, you're really uh for those mom and pop operations out there, I say that affectionately because I love them all. I was one at one time. Um, it's so much harder for them to compete against those bigger conglomerates uh in until something like this, right? It's a great point, and yes, it is.

Dave Mondragon 5:49

So our smallest dealer group has three stores, our largest dealer group has 35 stores. So we we scan we scan a very broad bandwidth of dealers out there, and their footprint is very broad. We help every dealer, though. Uh, the smallest dealer that we have on our platform, they can generate $50,000 of incremental uh revenue and profit on an annual basis. The larger dealers and the largest dealers, they're generating close to three-quarters of a million dollars

Preferred Lenders Without OEM Conflict

Dave Mondragon 6:16

of incremental profit on an annual basis. And again, we're not asking the dealers to do anything different. We're leveraging their volume in the marketplace for better efficiencies, better value, uh, and better margins on a daily basis.

Jim Fitzpatrick 6:27

Wow. The financial services program has received a lot of attention. What impact are dealers seeing with your preferred lender program? Yeah, that's another great question.

Dave Mondragon 6:37

It's all about getting more juice out of every squeeze. So uh we simply help dealers earn more from the contracts that they're already funding today. Uh, we get better terms and conditions, we get better spreads, we get better advanced policies. This is a win-win for our dealers and our customers. Now, to be clear, we're not looking to take any business away from OEMs. We are OEM friendly. Um, so it's it's uh we have a very clear line of delineation. A lot of companies will come in and say, move your business from the OEM to us and we'll help you make more money. We don't say that. They OEMs play a very specific role with our dealers, and we're supportive of that.

Jim Fitzpatrick 7:15

Yeah, I was just gonna say, what some people may assume that auto trust competes with their OEM programs, then, but that that's not accurate, right?

Dave Mondragon 7:22

No, it's not accurate at all. We're not asking dealers to choose between autotrust and their OEM partners. Uh OEMs uh play a very important role. They're subvening deals on the front end, uh, they're buying down rates, they're leasing, they're helping them with lease rates and residuals. The dealers need the OEMs as partners, and a lot of uh dealers have their floor plan with the OEMs. So it's a very important relationship, and they get benefits by sending more paper to them. What we want is the paper that doesn't go to the OEM. What we want are the deals, the FI contracts that don't go to the OEM. That's the business that we're in. So think of a I like to use the example of a Costco chip chicken. We all love the five-dollar Costco chicken. You know, you bring it home, and and if I was an OEM, I would say, okay, I'm gonna take the first slices off this. I'm gonna take the the breasts of the chicken, I'm gonna take the big juicy pieces, and they can have those. There's a lot of meat left on the bone, though, after they've taken that that their portion of the meat, right? And that's the used carb business, that's the subprime business, that's the business that's not going to the OEMs, uh, or that's the quick parts that somebody might need that they're gonna have to go to Napa or AutoZone or O'Reilly to get because they need a part within 30 minutes, and it's a it's uh non-branded, so it's not the brand that they deal with with the OEM, it's an off-brand for that dealership. So we give them access to all of these avenues and all these partnerships at greater discounts and greater incentives. Again, there's a lot of meat left on that Costco chicken when you bring it home after it's been carved up for the first time.

Jim Fitzpatrick 8:49

This might be a first for CBT News where we talk about

Scale Through Participation

Jim Fitzpatrick 8:52

Costco chickens and now and now I'm hungry. So for years, dealers for years dealers believed that the only way to compete with public uh groups out there was to really become one or become part of them. And is that still true?

Dave Mondragon 9:05

No, I I love the question because you know, there's the old saying, if you can't beat them, then join them. That's simply not the case. Uh our dealers, and we've talked about this before, uh, our dealers are the pillar of their community. They support the soccer teams, the baseball team, the Boy Scouts, the Girl Scouts. Uh, they are also the backbone of the franchise system. You know, let's not forget that the dealers finance every vehicle that sits on their lot before it's sold. Uh, so they have a lot of skin in the game. Uh, when I was at an OEM, we tried to run a deal dealer business, so we tried to acquire them on our own, we tried to run them, and we couldn't do that. We failed miserably because we didn't have skin in the game, we didn't have retail expertise, we didn't have that drive and determination and that commitment to the community. We brought flu people in to kind of work in the stores. That doesn't work.

Jim Fitzpatrick 9:52

Yeah.

Dave Mondragon 9:53

Uh, so it's really important that differentiation. The key here is that public dealer groups scale through acquisition. Dealers can now scale through participation and they can scale through participation in auto trust.

Jim Fitzpatrick 10:07

That's right. That's right. So,

The Five-Year Choice For Dealers

Jim Fitzpatrick 10:09

for dealer principals that are watching us have this interview today, what's the choice facing dealers over the next five years?

Dave Mondragon 10:16

It's a great question. We move forward. We don't stop, we don't, we don't pivot, we move forward. Look, there's a lot of change, there's a lot of headwinds in the industry. We have to tackle those on a daily basis. We have advisory committees, our chairman is a dealer. Uh, we work together to strategize, we leverage the the relationships and the economists from our partners. Our vision is simple. We want to give our dealers the same economic advantages of scale without giving up their independence. We don't want a dealer to have to sell out. We want their business to be sustainable, we want them to pass it on to the next generation. We're in the dealer business. We don't own this business. The dealers do. I work for the dealers, our team works for the dealers. It's really an important differentiation for our company. Nobody has a business like this where it's dealer-owned 100%, and we manage that business for them. We work for the dealers every day. The choice is not whether scale matters, the choice is how you're going to access it. And our dealers can access scale through auto trust. And we can create better efficiencies, better economies of scale, and greater profitability for every dealer that joins.

Jim Fitzpatrick 11:22

And that's from the first day on. It's uh, I'm gonna leave it right there. Wow, that says it all.

Headwinds And Clawing Back Profit

Jim Fitzpatrick 11:27

Dave Mondragon, founder and CEO of Auto Trust Dealer Alliance. Thank you so much for joining us once again on the show. I know that our dealers that are watching will get a lot out of today's. I'm sure you're gonna be getting some calls from dealers going. Tell me more, because as you know, right now, uh the dealer franchise uh is is actually under attack from every single angle, whether it be consumers or the FTC or, you know, so many other different things, so many elements out there, um, Carvana being one of them now. And uh, and of course, you've got VW with Scout Motors that want to sell direct. So, you know, dealers are out there trying to figure out how they can sustain in terms of profitability. And uh this certainly helps in a very, very big way if they can run their dealerships more efficient on less money because of the relationships that they've got with a company like yours and that buying power that you offer them. That's what it's all about today, right? 100% agree.

Dave Mondragon 12:19

And remember, it's a company like theirs, it's a dealer-owned company. I work for the dealers, our team works for the dealers, and we're trying to give them the same advantages of these large dealer groups. We don't want our dealers to sell out. Um, if they are gonna sell out, that's their accord. But quite frankly, we're gonna give them the tools and resources to stay profitable, stay sustainable, and pass their stores on to the next generation of family members that want to take over. Sure.

Jim Fitzpatrick 12:44

That's cool. I would I've said this before, Dave, in our interviews, but I would imagine that uh your phone never stops ringing with companies that want to do business with you to show you how low you can get on certain different services and products for your network of dealers, right?

Dave Mondragon 12:59

Yeah, we we do have a lot of activity on incoming calls, a lot of interest in our business, not just from dealers. The dealers are very interested as well. How can I save more money? Look, the the economy is very challenging today. There's a lot of ebbs and flows. The industry is was running at 16.3 last year, it's running around 16.1 as we know this year. We know profits are going to be down 12%. So how do I claw that back from it as a dealer? Well, heck, if I can start to give them 50 grand, 100 grand, 200 grand, 500 grand, or three quarters of a million opportunity without doing a lot different in their operation, why wouldn't they take advantage of that? They can claw back that 12% and actually gain on that. That's what we do by bringing our collective dealers together and leveraging their business together in a very unique way in the marketplace.

Jim Fitzpatrick 13:46

That's right. That's right. You know, the old adage is you you don't make the gross profit on the used car when you sell it, you make it when you buy it. The same is true here, right? Yep.

Dave Mondragon 13:55

You make it on that first sale, but you make it on the second and third sale too. You got to make sure the customer is happy and you're satisfying their needs as a dealer. That's right. That's what our dealers do. Yep.

Jim Fitzpatrick 14:04

Dave Mondragon, thank you so much for joining us once again here at CBT News. Very much appreciated. Thanks, Jim. Thanks.

Final Takeaways And Farewell

Jim Fitzpatrick 14:12

Thanks for watching Inside Automotive with Jim Fitzpatrick.