Turbulent times call for a plan

Now is a good time to review yours

Conversations I have had with dealers over these past few months indicate that there is much confusion and concern… and just as much opportunity. I cannot recall a time where so many differing views exist on the short-term future depending on the brands you represent.

The last six months alone have produced many unique outcomes never before thought possible. There have been the bankruptcies of both Chrysler and General Motors in the USA, the avoidance of bankruptcy by Chrysler and GM in Canada, massive dealer network downsizing at GM and most recently the global events surrounding Toyota, threatening the very pillars of safety and quality that have been the hallmark of Toyota’s brands.

Many of the old “standards” have been shattered. As the industry works its way through the auto show season and tries to put on a positive face, what will be the impact on dealers?

The answer lies with the brands you represent. Some industry giants have begun to slide down the beanstalk, making room for potential future giants to climb up. And some of those future giants are well into their climb.

All of which makes fertile ground for dealership transactions. Bargain hunting acquirers are out looking for value-driven acquisitions while concerned sellers see a rosy future and have differing value expectations. At the same time, vehicle distributors are looking to shore up their Canadian dealer network footprints with new open points. It’s a dance and a lot of players are looking for partners.

Group proliferation

In the last six months, the number of large dealer groups has increased. By our unofficial count there are now approximately 95 dealer groups owning four or more stores in Canada, representing approximately 1,000 retail points – or more than 30 percent of all dealerships. And, by our estimates, they account for over 50 percent of all new-vehicle sales in Canada.

The dealer network is further stratified by approximately 180 small groups that own either two or three stores each, leaving approximately 1,800 single point single brand stores.

As a result, general managers, as opposed to the historical model of dealer principals, are operating more and more stores. Professional managers now run most of the country’s largest stores. Many former dealer principals now carry the title chairman, or president and CEO. Many operate from head office type facilities and not from dealerships.

The traditional dealer principal model has thus evolved with the blessing and often the encouragement of the distributors they represent.

I have indicated many times in these pages that succession planning involves both management and ownership. It is clear that for many dealer principals they have had to effectively deal with their own management succession. The transfer of the day-to-day management of retail operations appears to have been largely successful, looking strictly at the number of multi-franchise owners.

Ownership succession

Ownership succession, on the other hand, is not quite as easy. Many distributors express concern over the future of some large dealer groups that are dependent upon the leadership of one individual.

These same chairmen privately express similar concerns.

Building an empire is rewarding and fun. It keeps one challenged and young at heart. However, with the ownership transfer rules contained in most dealer sales and service agreements, unforeseen challenges are possible.

Professional management presumably will be allowed to continue to operate the stores, provided performance standards have been achieved. Ownership, however could present a challenge as distributors seek to protect and preserve their local market representation.

How can one avoid or at least minimize the impact of a sudden ownership succession? The answer is not an easy one. It involves working with the vehicle distributors you represent and making them feel comfortable with your contingency ownership plans. That means, of course, that you have contingency ownership plans.

As with all sound business moves, detailed advanced planning usually pays off. Ownership succession is no different. The better and more thorough the planning, the better the likely outcome.

Who, not how

What I am talking about here goes well beyond insurance and tax planning. Insurance and tax issues just deal with the “how.” Vehicle distributors, however, are not so concerned about the “how” but rather focus their attention on the “who”. A sound contingency plan must deal with “who” will be the future owners.

These are complicated matters and you must realize that situations change over time and as such your plan will also change. If you believe you currently have a good plan, do yourself a favour; take a quick read and see if the plan is still valid today under today’s circumstances.

What is often overlooked in planning is disability. Many will have insurance coverage. However, if you, the chairman and dealer principal are unable to work due to mental or physical incapacity, are there elements in your plan to effectively deal with this?

Your professional managers will be unable to consult with you and the vehicle distributors will demand a transition. This will also be a very stressful time for your family, as they not only must deal with your medical realities, they also will be forced into discussions with vehicle distributors, professional managers, bankers
and others.

If not now, when?

These are indeed turbulent times. Contingency planning on both the management and ownership side of the business require regular attention. Take the time now to review your plans and make sure they still work for you. If you do not have formal plans, or if your vehicle distributor has not approved them, there is no better time to get started than now.

We all play offence each and every day of our business lives, constantly trying to move the ball down the field and across the goal line. Every now and then however, we must review and practice the game plan and make necessary changes and amendments. With all the turbulence today, a review of the ultimate game plan in called for.


About Chuck Seguin

Charles (Chuck) Seguin is a chartered accountant and president of Seguin Advisory Services (www.seguinadvisory.ca). He can be contacted at cs@seguinadvisory.ca.

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