Succession planning is often seen as the elephant in the room. But it shouldn’t be. We talk to different second generation dealers about the process, asking them how it went and what life is like on the other side
One thing we can be certain of in life is change. And how we prepare for that change can often mean the difference between sinking or swimming. When it comes to auto retailing, sooner or later the time will come for dealers to step aside and either hand the reins of their business on to family members or trusted associates, or choose to sell their assets to third party interests.
According to Rick Gauthier, president and CEO of the Canadian Automobile Dealers Association, when it comes to succession planning, the problem, is that many dealers might feel they are so involved with running their stores and dealing with the multitude of tasks required to do so, that they don’t know where to begin when it comes to succession plans. It can also be hard to make the big decisions, such as — who would want to run my store when I’ve gone? Who is capable of doing it? And perhaps most importantly, who can I trust to do it well to ensure the business will continue to prosper and grow?
WORRYING STATISTICS
Gauthier says that CADA first began looking into the issue of succession planning back in 1997. “Back then, we discovered that 48 per cent of dealers didn’t have a plan in place,” he says.
“When we looked again in 2011 we found the number had barely moved — 43 per cent still didn’t have a plan.” Gauthier says the situation is even more troubling when factoring into account failure and success rates for second and third generation businesses. “According to the Canadian Association of Family Enterprises, statistics show that 70 per cent of businesses fail in second generation ownership and 90 per cent in third generation hands. When you apply the math, based on 43 per cent that means that potentially we could lose 900 of the 3,300 dealers in this country, so naturally we’re very concerned.”
To help dealers in the process, CADA recently published a Dealer Succession Planning Guide as part of its Canadian Dealer Network Series. “We see our role as educators,” says Gauthier, “to de-mystify the issue and give dealers the opportunity to to think about the things they need to do.” Yet while succession planning might seem to be this big black cloud on the horizon, it doesn’t have to be.
There are a number of individual dealers and dealer groups that have successfully transitioned to next generation ownership and as a result have continued to grow. In this story we talk to a few different second generation dealers and show that while putting in place succession plans might seem daunting, if done right it can ensure a bright and prosperous future for the business.
Michael Croxon, president, New Roads Automotive Group, Ontario
Born into a General Motors dealer family, Croxon is the youngest of three siblings and although his brother and sister pursued different paths than the family business (Bruce is a successful businessman and star on the TV show Dragons’ Den while sister Shelia, coached Canada’s synchronized swimming team to three Olympic Games), Croxon chose to follow in his father’s footsteps and has managed to grow the original business and acquire further franchises. Today, New Roads includes General Motors, Kia and Subaru stores within the Greater Toronto Area.
And perhaps what’s even more interesting, is that Croxon started out, very, very young, not often seen as a recipe for success. “I worked in the family dealership [North York Chev-Olds] during my summers back in the mid-1980s. My first job was in service and then I learned the accounting side of the business, about debits, credits and how to commission car deals but I found that it wasn’t for me. So my dad put me on the sales floor.” Croxon found that selling was his calling and armed with knowledge he’d already gained, he gradually took on more and more responsibility. “I became a new car manager and then a general sales manager.” By the early-1990s Croxon senior was looking to retire and already had a plan in place about the future of North York Chev-Olds.
“There were actually two options on the table,” Croxon says. “One was for dad to retire and sell the dealership to Roy Foss, which would have been easy but he told me that he wanted me to take over. I was the youngest child and the last hope,” he chuckles. Nevertheless despite being only 26 at the time Croxon says that he was lucky that his father turned out to be a great mentor, something that he believes was crucial to helping him succeed. “I was blessed in having a guy who knew how the business worked and what needed to be done to ensure the transition went as smoothly as possible.” Croxon says that the process was scary at times, though his dad gave him the chance to acquire shares in the business and use what he calls some “creative financial mechanisms,” so Croxon could hit the ground running. “There are always going to be risks,” Croxon says “but if you start the process early, you have an understanding of what the expectations are and you give your children enough rope to grow, then it is more likely that you’ll succeed when it comes to succession.”
Sean O’Regan (left) pictured with brother Patrick.
Sean O’Regan, president of O’Regan’s Auto Group, Nova Scotia
Sean O’Regan’s story is an interesting one. Sean’s father Paul, who trained as a school teacher, did along with his brother Stephen, build a hugely successful auto retailing empire from a family run service station and used car lot. But the family history and the car business goes back further still, as Sean explains. “My grandfather, S.E. O’Regan originally founded the business in Parrsboro, N.S. back in 1915. However, when the Trans Canada Highway came along in 1956 and bypassed the town of Parrsboro, he elected to sell the business, so that was one type of succession or exit plan, however he kept his used car licence. My father, Paul, became a schoolteacher but took a leave of absence in the early 1970s, due to my brother having a heart condition. It was then that he started selling used cars.” Growing up, O’Regan remembers working at the family’s Irving service station. “We had this used car lot across the street,” he says. Bit by bit the business grew, so by the time Sean joined full time in the early-1990s, O’Regans had several new car franchises in the Halifax/Dartmouth area including General Motors, as well as Toyota, Lexus and Mazda stores.
“I was in high school when I first started,” says O’Regan. “There was by no means any certainty that I would one day be running the business but I was good at it and gained positions of increasing responsibility.” One thing O’Regan notes is that the idea of keeping the family together was very important and anything that could cause it to fragment, either by selling the business or as a result of an unsuccessful transition to the next generation, was something the O’Regans clearly wanted to avoid.
Based in part on his own experience, O’Regan is keen to emphasize the fact that dealers need to take a long hard look at the dynamics of the business and the strengths and weaknesses of each potential candidate, when thinking of handing over the reins. “People can contribute to the business in different ways,” he says, “so it’s important to note that a good financial plan for the business is not the same as a succession plan, there are many different factors to consider.”
O’Regan believes that bringing in a third party who will take an objective view of the potential candidates for succession is key to ensure the transition will go smoothly. “When you’re family it can be really difficult to assess the strengths and weaknesses of each potential candidate. In our case we worked with a succession specialist [Dr. John Fast] for eight years before the actual transition took place.”
Philippe St. Pierre (left) with father Jean-Marie.
Philippe St. Pierre, VW DE L’OUTAOUAIS, Gatineau, Quebec
Philippe St. Pierre, is another second generation dealer, who recently took over from his father, Jean-Marie. The family began working on a succession plan in 1997 and Philippe worked his way up the ladder in preparation for taking over when the time came. He says that a big part of ensuring the transition went smoothly, was that “communication remained open and honest. Our biggest concern was to preserve the family relationship,” he remarks.
St. Pierre says that when it comes to either selling the businesses or passing it on to your children, there are different factors you need to consider. Having witnessed both strategies, he says that many dealers don’t often factor in aspects of the business such as the benefits they will forfeit when they sell. “Things like the vehicles, gas cards, etc, they underestimate their actual cost of living once the dealership is gone.” St. Pierre also cautions that when courting a third party buyer, there are factors or conditions that buyer might want, which the seller didn’t factor in, or that any offers on the store might be significantly less than what the seller thinks the business is worth. On the family side, the transition process will often see the seller retaining more benefits, while the buyer (often younger family members) will have a better idea of what they’re actually getting into.
“A family purchase may end up costing more,” says St. Pierre “and both parties should be aware that selling in the family doesn’t mean rent for life and the boss isn’t the boss until the last payment has gone through.”
St. Pierre says there must be a written plan that covers everything, from profit sharing, to manu-facturer trips, to vehicles. “In many cases the parents will have worked very hard to build their business and it will often serve as a major part of their retirement, a good plan will also factor in for both good times and bad times. How will a dealership survive if it is poorly capitalized and suffering from heavy losses?”
When it comes to the OEM there’s also no guarantee that the manufacturer will approve, even if you think your candidate is the most suitable to take over. There are situations when an OEM will reject the succession plan, often because the candidates in question weren’t pre-approved, or the OEM feels they aren’t qualified for the job. Dealers can try to settle disputes through the National Automobile Dealer Arbitration Program, or mount a court challenge but is that really a path you want to do go down? “Different manufacturers have different clauses,” says O’Regan “since every brand and every dealer situation is different. You need to make sure that you comply with the rules and terms laid out in the franchise agreement.”
When asked what is perhaps the most important factor of all when considering a succession plan, those we interviewed agreed unanimously. “Start early,” they said “and take your time to do it right.”
