A new study finds dealers are bowing out of the industry but many are unprepared for what’s next
Almost 30 per cent of Canadian auto dealers say they expect to shut it down or leave the business in the next year, but few have a detailed plan of action to make it happen.
Those are some of the eye-raising findings from a new study from PwC and DesRosiers Automotive Consultants.
A further shocker is that three quarters of single point dealers in the 2011 PwC Automotive Dealer Trendsetter Survey say they hope to be completely out of their stores within 10 years. The survey’s authors say that this means that by 2012, there could be a complete changing of the guard at single point dealerships in Canada.
“With so many auto dealers planning to leave, the potential for further dealer consolidation and the rise in new owners is expected to be high,” says Damian Peluso, National Automotive Leader, PwC. “There’s going to be an unprecedented opportunity for existing dealer groups to acquire additional stores.”
This succession crisis could well fuel the already growing trend towards the big getting bigger that we are already witnessing across the country.
Bloodlines drying up?
One dealer we met with recently joked that he had earned his Ph.D in automotive retail: “Papa has Dealership,” he quipped.
But “keeping it in the family” might be desirable, but no longer feasible for a lot of retiring dealers.
The study found that 38 per cent of current dealers are not expecting to transfer the ownership of their stores to a third party. Almost three quarters (74 per cent) of dealers say they want to keep the business within the family tree (partly because 87 per cent say more than half their family’s wealth is tied up in the business.)
“The lack of planning and transition strategy is a contributing factor as to why the likelihood of a family succession will be unsuccessful,” says Dennis DesRosiers, President, DesRosiers Automotive Consultants. “Whether dealers are preparing to sell or not, good succession planning has never been more critical, given the economic instability we see in the world today.”
Just under half of all dealers (48 per cent) say they would still like to keep some level of equity ownership in the business even after retirement.
Survey highlights include:
• Forty-five per cent of auto retailers today do not have a succession plan. This marks little progress in the last 14 years as 48 per cent in 1997 said they didn’t have a succession plan;
• Only 50 per cent of dealers have a management transition plan in place;
• Less than 60 per cent of current dealers have discussed their transition plans with family members. Fewer than 25 per cent have discussed the plan with executors, nine per cent with Powers of Attorney;
• A little more than half (64 per cent) of dealer principals actually understand the financial consequences of their wills; and
• Dealers indicated that 91 per cent owned their property versus 76 per cent in 1997.
Even for those dealers who say they have succession plans in place, these are often “inadequate and incomplete” says Peluso. “The problem stems from defining what a succession plan actually is as it means different things to different people.”
Peluso says the situation hasn’t improved since the organization conducted similar research in 1997. “What’s concerning is the lack of discipline around succession planning and that we’ve only seen a marginal improvement over a 14-year period in the number of dealers who have a plan,” says Peluso. “Given the aging workforce, over the next few years there are going to be many transitions, so it can no longer be ignored.”
Dealers are getting older
The survey also found 54 per cent of dealers had owned their dealerships for more than 20 years — a 33 per cent increase over the 1997 figures.
