By Loyd Rawls
Most owners and leaders of privately-held dealerships are wondering what’s going on with the publicly-held dealership groups as they engage in consolidation. These consolidators generally look down upon the privately-held dealerships as competitors because “I previously fired most of their employees”. Furthermore, there is general resentment that the local “dealer club” has been disrupted by “hired guns” working for a hieratical potentate, neither of whom have any idea of the sacrifices required to build a successful dealership.
However, before those of you who own between 1 to 30 roof-tops assume the consolidators are circling the drain, you should consider they have a plan. If you do not understand their “game”, one day you may discover the water is about to boil and your goose is cooked without ever understanding what happened.
Trust me, the consolidators are not as dumb as they may appear. They fully understand the retail automobile business is becoming less lucrative, more complex and more expensive. They understand they cannot compete with you head to head. They lack the pride-driven passion of a business family and they cannot adopt your loyal, hyper-productive key managers into their culture.
They are willing to pay less and get less because what you consider mediocre the consolidators and their Wall Street bag men consider to be good. You want 20% pretax return on your investment where they are pleased to get 8% after-tax because they leverage their earnings 15 to 20 times on Wall Street. They embrace contracting margins by relying on their brand selection, location, and economy of scale to drive their earnings.
They are assuming after having it so good for so long, neither you nor your “soft” children will sacrifice to pay those extraordinary managers and internet nerds who will be the foundation of your Succession Success™. They fully understand that as your extraordinary managers retire with you, the business will be less lucrative and the pie will get sliced among your blended families and successors. Faced with the reality that contracting earnings will not duplicate your lifestyle, your successors will eventually answer the call from their bird dog broker.
Consolidators also embrace the increasing complexity of the business. They are devoting significant resources to figuring out incentive programs, rebates and subsidies within minutes of hitting the website. They understand that this complexity is the manufacturer’s way of culling the weak and antiquated. The consolidators have recruited a battalion of nerds to achieve a technical advantage and aggressively showcase this advantage through websites, social media and strategic alliances.
While you continue to proclaim the glass is half empty (“damn this business has become too complex!”) they proclaim the glass to be half full by breaking the code to complexity. They are even leveraging their computer experts by pursuing partnerships with big-boxes and “buying services” that they believe will devalue your franchise. They don’t want to beat you, they want to eliminate you and, only where necessary, pay the big bucks to own you.
As you get older and your children continue to attempt to do things the way you have always done them, the consolidators are reinventing their business. Most important as you and your colleagues are fading into the sunset, they anticipate that your political clout with both the manufacturers and the State regulators will decline and they can begin to take relief from the complex franchise laws that you have relied upon as your advantage.
The consolidators also understand the reality that the business is becoming more expensive. They even take pride in being part of the effort that has driven up “no-brainer” franchise prices. They are not spending their money or putting their family’s jewels at risk. They have no problem allowing a third party own the real estate which provides them more powder to blast away at those lucrative urban brands that don’t require entrepreneurial talent for success.
They are not distributing dividends to help children buy new homes, up-size their beach house or score that jet. They are reinvesting all their leveraged earnings back into select urban brands recognizing that with the millennial movement into cities and the power of the internet, the masses are coming to them.
As expressed, the consolidators have a strategy; the core of which is the assumption that you do not have a strategy. They assume most of you are looking for opportunities to get deeper into the game without recognizing that the rules of the game are changing. In a rapidly-changing environment survival is the predicate to succession.
I contend that considering the rapidly-changing circumstances of the retail automobile business and the points made above, the only way you can expect to achieve Succession Success is to respond with your own well-thought-out game that enthusiastically embraces every current or anticipated threat to your business. You must develop the mentality of a “jar-head”, run to the fight, not away. Subsequently you can reverse the field and make the consolidators ask, “what’s their game?”
Loyd H. Rawls, Chairman of The Rawls Group, has specialized in succession planning for closely-held, businesses since 1973. Well respected in his field, Mr. Rawls has published numerous articles and publications on this subject such as “Seeking Succession: How to Continue the Family Business Legacy.” “The Succession Bridge: Key Manager Succession Alternatives for Family Owned Businesses,” “Estate Planning Heartburn Relief,” and “Family Business Heartburn Relief.” For more information visit www.rawlsgroup.com.