Auto Dealers
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Succession planning taking front seat
For many owners of auto dealerships, it’s the hardest decision they will ever make; when and how to transition out of a business they may have spent decades building into a thriving success.
Timing is obviously a key factor, but only one of many that need to be considered in a succession plan, says Chris Schaufele, national leader, Dealerships with MNP, one of Canada’s leading professional services firms.
“Other factors include the size of the dealership or group, the profitability of the store(s), the dealer’s goals and intentions with regards to their legacy, family dynamics or wishes, and timeline before retirement,” he says.
The key is to start succession planning early to ensure the smoothest possible transition out of the business, says Mr. Schaufele.
“Even if an owner has no obvious family heir, there are several other options for succession,” he says. “For example, key management or staff looking to stay involved in the business, or an owner could consider selling to a consolidator, or another dealer or group looking to expand their presence in a particular market or to enter that market.”
The key adds Mr. Schaufele, is to explore options as early in the process as possible.
“The most important part is beginning the process, but a succession plan is a fluid document that will evolve over time,” he adds. “Talk to your trusted adviser and engage a succession planning specialist as soon as possible to get the conversation started and the process moving forward. If you do not have a plan in place, it is never too late to start one, but do not delay,” he says.
Brett Franklin, president, MNP Corporate Finance, says the size of the dealership or dealership group plays a key role in the options available to owners.
“The larger the dealership or group, the more difficult a transition to management becomes,” he says. “The size and therefore value of the dealership may have increased substantially over the years, which means there are limited management teams with the ability to execute on a purchase. There could also be a substantial amount of the owner’s personal wealth tied into the business, so a transition to family members could also be difficult.”
Mr. Franklin, whose role includes facilitating the sale of companies and providing support with business acquisitions, corporate restructuring and transactional due diligence, says there is far more to the sale of a dealership then just agreeing on the blue-sky value.
“A competitive M&A process will not only drive the highest amount of goodwill, but it will also create an environment where the prospective buyers are competing for the dealership,” he says. “All buyers see value differently, and bringing a number of good buyer options to the table will always drive the best result.”
MNP partner Eddie Burello, who worked closely with the Zanchin family in their transition of Ontario’s Zanchin Auto Group to the next generation, agrees that the succession process is never really complete.
“Whatever it is, the way you tell your story online can make all the difference.
As with any business, you should start thinking about your exit the day you buy it. A proper succession plan is essential to any business, especially if you hope to transition to family. ”
“It morphs into different processes and initiatives,” he says. “As Andria (Zanchin) and Laura (Zanchin) take control of the business, they’re going to want to see different initiatives, go in different directions. And so, the process continues and we at MNP keep abreast of the information they’re looking for to make business better. Clients will often come back to get insight as the business evolves into different directions, and because people operate differently, it will draw on our specialties in various fashions.”
Joe Zanchin founded the Zanchin Auto Group with a single Honda store in Woodbridge, Ontario, in 1978. Today the group has over 37 dealerships across Ontario representing 19 auto brands.
Mr. Zanchin credits MNP with facilitating a smooth transition of the business to his daughters.
“What I like about MNP is that they give you that personal attention. I’ve never experienced that before. My daughters took over the business so that it would be able to continue, and I hope they do even better. But with MNP behind them, they will succeed,” he says.
Mr. Franklin says the Zanchin family’s experience with MNP illustrates the importance of good succession planning.
“Dealers often want their legacy to carry on into their retirement, and may struggle passing their dealership to a group, who, while very well intentioned, may not run your store exactly like you did. ”
“As with any business, you should start thinking about your exit the day you buy it,” he says. “A proper succession plan is essential to any business, especially if you hope to transition to family. Most owners of dealership groups started out with one dealership. They learned the business on a smaller scale before adding other stores. It’s a completely different scenario when you hand over a multi-store group to a family member. The training and skills required to run an operation of that size takes a number of years to learn, so that needs to start well before the current owner steps away.”
A good transition plan is equally important if the owner opts to sell to a consolidator or larger group, says Mr. Schaufele.
“That type of sale is often cited as a dealer’s ‘retirement plan,’ but still requires ample planning and forethought before attempting such a transaction,” he says. “If your store is in a sought-after geographic market, or your franchise is with a highly valued OEM, this could be an especially attractive option for both parties.”
Mr. Franklin says there are a number of mid-sized regional groups that are looking to expand in order to compete directly with the large consolidators.
“These groups can be an excellent option when dealers are looking to transition their stores,” he says. “Like many industries, the owners’ view of prospective buyers often shapes the types of buyers they are comfortable dealing with.”
Mr. Schaufele points out that large groups often have sophisticated procedures and processes in place to facilitate the negotiation and undertaking of a transaction, which helps to expedite the process.
“However, it is important to make sure you have a team of trusted advisers in place to ensure your needs and goals are also met,” he says. “Larger groups often also have significant resources such that a transaction is less likely to get held up by financing issues.”
Factors to consider in selling to a larger group include a dealer’s legacy in the community
“In many cases, the dealership carries the family name, sentimental branding or other personal connections,” says Mr. Schaufele. “Dealers often want their legacy to carry on into their retirement, and may struggle passing their dealership to a group, who, while very well intentioned, may not run your store exactly like you did.”
Of course, not all dealership owners are ready for immediate transition out of the business, and some may even be struggling financially to stay afloat in the current economy.
“Dealers are currently facing significant challenges on many fronts; operationally, logistically and financially,” says Mr. Schaufele. “These range from significant supply chain issues, pressures on customer demand as a result of rising interest rates, squeezing of their margins due to those same interest rate increases affecting costs of their floor plan, inflation affecting most other costs, personnel challenges as dealers and all businesses continue to struggle to attract and retain top talent.”
He says MNP is ready to help dealers achieve their financial goals.
“Whether it be working with our performance improvement team, our skilled team of business advisers, digital advisory team, tax planning professionals and many other groups within the firm, our teams have specialized and in-depth knowledge of the automotive industry and are uniquely positioned to help dealers identify opportunities for cost savings, logistical improvements and efficiencies, or digital solutions to help automate inefficient manual processes,” he says.
Mr. Franklin says it’s never been more important for dealers to keep a watchful eye on expenditures and do what’s possible to keep operations lean and efficient.
“Having a trusted adviser like MNP in your corner in the current business environment can help you face down challenges and adversity, improve your dealership’s agility and adaptability, and embrace new opportunities by thoughtfully challenging the way things have always been done in order to optimize the organization’s performance,” he says.
By the numbers:
4,420 New car dealers in Canada
$152-B Canadian new car dealer revenue for 2023
$34.4-M Average revenue per business
$3-B Total profit for the new car dealer sector
2% Average profit margin
$687,900 Average profit per business
146,900 Number of people employed by new car dealers
33 Average employees per business
$1-M Average revenue per employee
Source: IBIS World: New Car Dealers in Canada September 2023
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