A version of this article appeared in the May 2016 edition of San Diego Dealer Magazine.
The NADA Convention & Expo is always a busy place, with dealers networking, attending workshops and presentations, and hearing the latest news. This year’s convention included all that, but there was also a common theme to many conversations. Here are the questions we heard most at the convention, which took place March 31–April 3 in Las Vegas:
- What are you going to do with your dealership investment?
- Are you growing? Are you selling? Are you bringing the next generation into the dealership?
Questions about valuation, mix of franchises, and location inevitably come up with those buy, sell, or transition discussions. They included:
- Should we be all middle-market, or should we blend in luxury franchises?
- What are the multiples? Are they still climbing, or have they leveled out?
- How do multiple state income tax and regulations affect our decisions?
Many of these questions weren’t being asked in the past. Dealerships didn’t span multiple states, didn’t calculate the impact of franchise concentrations, and generally expected the next generation to be excited about owning a piece of the family dealership business. The complexity of the business today, along with the competition that’s continuing to build its automotive groups, have created some new challenges—and those challenges are primarily centered on people.
Finding Great People
The discussion beyond the buzz of buying or selling was about finding people—general managers (GM), chief financial officers, and controllers—to manage growth and new locations. As the industry changes from so many single-point or small group enterprises to 10- and 20-store groups and beyond, the management team needs to be able to cope with a different set of challenges.
The need for higher-level expertise in the industry is increasing. To that end, it’s interesting to note that dealers are looking outside the automotive industry for their leaders. Some have brought in talent from other industries and provided access to formal training or used internal job shadowing. This is a costly and time-consuming process, but so is internal growth.
While the public sees dealerships as product focused, dealership owners know people are the key to growth and profitability. Smart management of franchise mix, building location, and design are arguably the results of having the right people. There’s plenty of evidence that a great GM can generate more net profit consistently, regardless of the franchise or other factors, such as the age of the building. We’ve seen new management and processes brought in after a sale increase profitability by significant multiples. Things could have gone the wrong way on those acquisitions without the right people to put those changes in place.
When the next-generation family becomes involved in dealership operations, there are typically issues that arise. These center on understanding how longtime managers will be involved in their training, how to clearly define their roles, and how compensation supports such initiatives. Family succession continues to be a recurring theme for many groups.
The conversations that stretch to growth plans in the next five years aren’t about which new service department equipment to buy, which software system works better, or which F&I product is more profitable. It seems that developing and keeping the right team of people—and growing that talent so your organization can expand and be more sustainable and profitable—was at the center of all the buzz.
We’re Here to Help
If you’d like to learn more about transitioning a dealership or managing other industry challenges, contact your Moss Adams professional.