As dealers brace for what comes next, they need to factor in their succession plans
As I sit here today and look back on the first few months of the year, I must say that the results are much better than expected for automobile dealers.
The tariff fears, originally thought to be detrimental at least in the short term, have proven to be helpful in creating demand for new and used vehicles. There isn’t a dealer I talk with who doesn’t say that so far this year, things are going very well.
The conversations eventually lead to the second half of the year and beyond. Where do you think the market is going?
The uncertainty remains substantial, and the lack of confidence in the overall economy persists. In many ways, dealers are waiting for the next shoe to drop and the economy and business to turn downwards.
In the meantime, however, they’re hoping to continue business as usual for the foreseeable future.
The uncertainty that dealerships have been experiencing has, out of necessity, prompted dealers to examine all aspects of their businesses.
As we are likely heading into a recessionary time, and the anticipated downturn in business occurs, dealers are preparing themselves for that eventuality.
If your brand is slowing down vehicle production, shifting production from one jurisdiction to another, or changing vehicle propulsion options, among other factors, this will ultimately affect you.
Many are looking to the used vehicle market to shore up retail activities. The used vehicle market is an interesting one, as it encompasses both the retail and fixed operations sides of the business.
To put it another way, it causes the dealership to increase its market share in the highest margin aspect of its business, fixed operations.
Auto dealers are at a very interesting place. On the one hand, we are franchisees, and we are dependent upon the strategic decisions made by our global brand partners.
Some of those decisions may favour Canadian operations, and others may not. As I’ve said many, many times before, not all brands are the same, and as such, dealers must be very aware of the decisions that are being made by the global parent companies of the brands you represent.
Those decisions will filter down to Canada, one way or another. If your brand is slowing down vehicle production, shifting production from one jurisdiction to another, or changing vehicle propulsion options, among other factors, this will ultimately affect you.
On the other hand, we are entrepreneurially managed local businesses, and there’s a need to consider our position in the communities we serve and the impact that our decisions will have on the future business in our local markets.
Some of you may be looking at potential layoffs or even downsizing. Seen in isolation, these decisions can be devastating to the future supply of talent that we may eventually need.
Also, there is an impact on our customer base that is concerned about the value of their used vehicle trade-ins down the road or their ability to secure servicing and maintenance for their vehicles. This affects all dealers, indirectly, and small market dealers directly. Your reputation in the marketplace is of critical importance to your long-term success. We must, however, preserve our bottom lines. It’s going to be a tough balancing act.
A lot has been written about succession over the years, and most of that material is still as valid today as it was then. The CADA has an excellent guide for you to follow.
Brand success and support are very important. Know that the brands sold in Canada are largely dependent upon the decisions made outside of Canada. On the world stage, Canadian volume is not as strong as it is in other countries, and as such, for some brands, Canadian dealers will feel the pressure in terms of new product supply.
Taking a glass-half-full approach to looking ahead, for some well-capitalized dealer groups, it’s time to go shopping for more stores. We are in a good period for dealership transactions, both from the perspectives of buyers and sellers. Real estate values are strong, and business values, although not at their peak generally, can still be strong, given your specific situation.
This is also a good time to shore up your succession plans. With values being somewhat under pressure, valuations could be favourable in a succession scenario. Many dealers have not adequately prepared for succession, and as such, this would be an ideal time to get that job done.
Back in 1996, Dennis DesRosiers and I surveyed the dealer body on the topic of succession and determined that there was a succession crisis that needed to be addressed. That was almost 30 years ago and although dealer principals have come and gone, there are still many dealerships with inadequate and outdated succession plans. I am going to ask you a simple question. Why is that?
A lot has been written about succession over the years, and most of that material is still as valid today as it was then. The CADA has an excellent guide for you to follow. There are certain things that must happen to affect a successful succession.
One of the most significant is gaining OEM approval for your successor. This can sometimes take up to a year or even longer to work through the OEM maze, so the sooner you start, the sooner you can accomplish your goals. Choosing a successor that is suitable and acceptable to your brand is of prime importance. There is no point in doing extensive tax and estate planning based on a faulty succession assumption. Don’t get me wrong, you should still have an extensive tax and estate plan, regardless of your age, just don’t base it on incorrect assumptions.
As you wait for the next shoe to drop, examining your operations and reducing any excess waste, streamlining your processes, testing your transaction options, or even dealing with your dealership succession plans, this period of time is a really important one. It should not be wasted. Don’t sit frozen only to be caught off guard by indecision.
