Lots to ponder in days ahead

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With a new year around the corner, dealers need to figure out their long-term strategy

Is it just me, or has the pace of change kicked into overdrive?

2017 certainly has seen exponential exposure to our changing vehicle landscape, consumer adoption and, yes, emerging retail models.

2017 saw the fall of many sizeable retail organizations in North America. The likes of Toys “R” Us,, Sears and other brand name stalwart retailers have struggled and reduced their retail outlet footprint.

Many malls across North America have lost their anchor tenants, and the shopping malls, once the hub of retail activity, are now evolving to become community focused centres providing a community related experience.

Much has been written about how the future is upon us. As dealers, the pace of change will only escalate as time marches on. Certainly the recent pace of articles, thought leadership pieces, conference presentations, news flashes, government announcements and bloggers’ views and opinions, flooding all of our inboxes daily, is challenging our ability to focus on the here and now.

Never before have I had so many significant discussions with dealers about longer-range planning and decision making.

Although most dealers are by-and-large positive, there is nonetheless this overtone of uncertainty about where all this is headed. Coupled with some of the income tax changes recently proposed, then subsequently altered, many feel that the government is showing its DNA and they will be impacted eventually.

As such, many dealers are worried about preserving their wealth as they cope with the challenges presented by these uncertainties. Their concerns cover all aspects of being a dealer, namely, will my property hold its value if auto retailing shifts to other mediums, will my dealership profits decline should online sales of new and used vehicles take a stronger foothold, will my fixed absorption remain strong as I begin to service more EVs, will the governments sweep down and grab a bigger share of profits and accumulated wealth?

Much of the change centres around new vehicle technologies and the consumer adoption rates for those new technologies. Many capture these two broad concepts under the term mobility. To this you must throw in government regulation, and for franchised vehicle retailers, facilities is a massive issue.

The likes of  Toys “R” Us, Sears and other brand name stalwart retailers have struggled and reduced their retail outlet footprint

Mobility has been said to embrace the sharing economy, electric vehicles, connected vehicles and self-driving vehicles. All of these have both technical and consumer adoption aspects.

Just because technological advances can invent and build new vehicle capabilities, governments at all levels are challenged by moral dilemmas centred around autonomous vehicles, artificial intelligence and preserving human integrity and safety. Governments are also tasked with providing the infrastructure and rules to navigate large masses of population productively and safely while ensuring mankind is doing the right thing for our environment.

On top of all of that, we as dealers, must manage our long-term investments in real estate to provide the right facilities framework to meet the needs of our brands and our local consumers over the long haul. As dealers we are in for the long haul. Our brand and government leaders take a much shorter-term perspective.

We live in interesting times and we live in a world of growing uncertainties. It is easy to stand still and wait. If we do that, I am afraid the world will pass us by. As entrepreneurs we have always been risk takers, some of us early adopters, many others willing followers and yet still a few unwilling followers. That is human nature.

My phone has never been busier. Many dealers are wondering what to do. What steps should I take to preserve my family’s wealth?

Regardless of the size of your dealership, from the lowest volume dealer in Canada to the largest groups in the country, the issues are the same. Perhaps how you deal with them is different but the end game remains the same.

It is becoming abundantly clear that many dealers have procrastinated with ownership succession. It’s always a difficult responsibility to deal with properly, and many dealers have not. My advice, don’t wait, do it now. If you don’t, the cost of procrastination will be significant.

This significance will come in a few ways, namely:

  • the brands you represent could become very forceful causing you to lose control of that process;
  • tax rules could change making it costlier to make an ownership transfer;
  • acquiring the correct amount of life insurance becomes more difficult the older you get, and the biggest one in my mind;
  • the values of your business could be vastly reduced from today’s values, meaning, on a third party sale, proceeds could be much lower than expected.

Where are you going and what is the desired end game?  What steps do you need to take to get there?

The risk of fundamental business change is lower for large dealership consolidators due to the critical mass they control and their access to capital. All are multi-brand and as such they can implement the best of the best ideas, systems, process and retail formats to keep better pace with consumer preferences in the markets they operate in.

Smaller dealers, or multi-location dealers selling the same brand could be disadvantaged should they be representing a slow to adapt brand. Smaller dealers also will not possess the capital needed to implement new systems, process and facility upgrades needed to keep pace with brand direction.

In some of my discussions with dealer principals or group CEOs, we often talk about taking some chips off the table to reduce long-term risk. Perhaps sell some properties into a REIT, perhaps sell one or two stores or perhaps enter into a longer-term management buy-out.

In some other conversations, we often talk about strategic acquisitions or tightening up the group. Many groups have grown by opportunistic transactions rather than strategic ones.

Opportunistic transactions rarely provide the ROI that strategic ones do. Selling the stores that do not fit your group’s current direction makes a lot of sense and also provides additional unlevered capital to acquire some strategic opportunities.

Yet in some other discussions, family issues dominate and seem to act as cement shoes slowing the dealer’s ability to move forward. I have found through my experience that there is always a way to work through these issues. Often they are not cheap or easy but in the end dealers are normally much better off.

As in all times of change there are those that are fearful and others that see opportunities. What camp are you in?

With 2017 largely behind us, looking forward to 2018, I would urge all of you to take the time to think about your individual situations and what you will do in 2018 to make things better.

You will have all done your 2018 business plan and budget, but I am talking more long-term that that. Where are you going and what is the desired end game?  What steps do you need to take to get there?

As we move into a new year, let’s sweep out the old and bring in the new! Let’s either embrace the new world in which we find ourselves or get out of the way, so others can take your business to the next level.

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Canadian auto dealer