If you prove you can turn around a poorly-performing dealership, will the manufacturers be more likely to turn to you when they want to oust a dealership’s owner? Mark Rikess is betting they will. That’s how he figures he will be able to acquire up to 25 stores in the next three years.
“We think deal flow will come from the OEMs,” said Rikess. “If we turn around an underperforming dealership – the OEMs care about market share, we think they will come to us and offer more stores.”
Mark Rikess
Rikess is head of The Rikess Group and founder of a handful of companies offering dealership services ranging from one-price selling training to digital sales department staffing. Now, he aims to apply what he has learned from his years as a dealer and consultant to successfully creating and running a dealership group.
The new group, to be called the Customer First Group, is still just an idea. Rikess is negotiating with capital partners and talking to potential acquisitions. But he figures his first buy will occur within months.
He aims to acquire three to four stores in the first year, a store every other month in the second year, and nine to 12 stores in the third year.
After a store is acquired, Rikess will send in a “swat team” to basically live in the under-performing dealership. This team will come out of his client base, said Rikess. “We have the human resources to do the turnaround,” he said.
The turnaround relies on implementing the one-price selling method, among other changes.
“I would basically be dismantling the sales department and hiring a new department that sell cars our way,” said Rikess.
Rikess is confident he can find and train plenty of new staffers.
“If you pay a high salary they will be easy to attract,” he said.
The model is a $36,000 base salary with minimal commission. “When you are 25 that is a lot of money,” said Rikess. “We have this sales model in a number of dealerships,” he added.
The Group will also buy a lot of leads, have an aggressive internet presence, deliver cars to clients, and offer a 72-hour guarantee, among other turnaround tools.
Buying dealerships requires a lot of capital. Rikess said he is in discussions with five potential capital partners right now, including private equity and family office investors. They will be required to put up around $100 million over three years, he said.
“We are only talking with partners who have significant capital,” said Rikess.
He prefers to finally work with just one capital partner when putting together the group, said Rikess.
Customer First Group will be centered on five brands: Honda, Toyota, Nissan, Ford, and Hyundai. He has worked with all of them through his consulting business, which has trained over 200 dealerships, said Rikess.
“I have networked with all the OEs,” he said. “They are very aware of our [dealership group] business model, and very accepting of it.”
The dealerships he will be shopping for won’t be that pricey, he maintained, around $5 or $6 million for each. “There is not a bidding war for these underperforming dealerships,” asserted Rikess.
The big investors aren’t interested in these single-point underperformers, he added. He talked to George Soros about financing but was turned down, said Rikess. “Our approach is too small.”
Like mining for gold
Rikess, 66, is a former Chevrolet dealer from a family of dealers. He has been starting companies his whole life, he told Automotive Buy Sell Report. They include Digital Airstrike, which he co-founded.
The idea to start his own dealership group came to Rikess after a family office approached him about putting together a management company to acquire and manage dealerships. The family office didn’t like the model he came back with, however. So Rikess decided to seek out another capital partner and do it himself.
The plan could work, said Mark Johnson, president of MD Johnson Inc., a dealership buy sell advisory firm in Seattle.
“There is no reason it couldn’t be done, if he can find the stores,” said Johnson.
But the capital partner would require the manufacturer’s approval, added Johnson.
And as Johnson pointed out during a recent Automotive News webinar, the manufacturers aren’t too keen on private equity. “There is a misalignment between what the investors and the manufacturers want,” he said.
Family offices are more popular with the manufacturers, Johnson said during the webinar, because “family offices have a long-term outlook.”
Finding stores to acquire will be the biggest hurdle, said attorney Leonard Bellavia, of New York-based Bellavia Blatt & Crossett, PC.
For one thing, there aren’t that many underperforming stores in today’s hot market, he pointed out. And there is a lot of money going after any available dealership.
“There are not that many stores to sell and there are a large number of private office buyers out there,” said Bellavia. “It is just not that easy. It is like mining for gold.”
