This week, the Federal Trade Commission in Washington, D.C. held a “workshop” to consider if the franchised auto dealership system is a good business model for selling cars. The answer to that seems obvious: Of course it is.
Take one question the FTC is considering, the regulation of dealership location. Would allowing more dealers of a specific brand to cluster more closely mean more competition? Of course not. Consumers do a lot of shopping online before they actually visit a dealership. They will know what kind of new car deals are available at dealerships in a wide area. Meanwhile, clustering dealerships too closely together would hurt a dealers’ chances of earning a decent profit from after sales services since convenience rules in that case.
I could go on. But ranting never produces much result. Instead, I’ll talk about something positive – this week’s issue, which is focused on the sell side of the deal, with excellent columns from two of our regular contributors.
Joe Aboyoun looks at special sale-side issues that can arise when a dealership has multiple owners or investors. This will become increasingly relevant as non-automotive investors partner with automotive investors as owners.
For example, non-compete clauses are common in a buy sell agreement, and a non-automotive partner may willingly agree to such a clause. But an automotive partner, who could be banned from the business for years, might insist on some special consideration if such a clause is included. And what about the case where a part-owner decides to stay on and work for the new buyer? These kinds of potential complications should be considered before even entering into negotiations, Aboyoun says.
Also this week, Louie Galbraith of DHG LLP lays out the benefits of sell-side due diligence. Though due diligence is usually associated with the buyer, sell-side due diligence is becoming more common. It can help a seller identify potential stumbling blocks to a high valuation for his or her dealership, and address those issues before a potential buyer even brings them up.
As always, we also have Transaction News.
Enjoy!
