To Be Or Not To Be? That Is The Question
By Sheldon Sandler
There is a lot to think about for car dealers who might be contemplating whether to stay or sell their dealerships. Certainly you'll want to consult with affected family members, as well as your trusted advisors like lawyers and accountants. One of the best-sounding boards is probably fellow dealers who have similar experiences and concerns. However, understandably, you might be a bit reluctant to reveal such sensitive considerations to other dealers within your circle. As an alternative, we decided to share with you condensed versions of our conversations with dozens of dealers facing the same quandary. One thing is for sure: In many cases, the decision is not entirely a financial one. There is a lot of emotion here.
Our one presumption is that lightning is not striking. No one is coming totally out of the blue with a great offer that is too good to turn down. This guide is meant for reality and tough choices, not fantasy and easy ones. Of course, each situation will have its own nuances, but this is meant to illuminate some of the pros and cons others in your situation have considered. I hope it helps.
Don't sell now
·This is my identity. I'm the big kahuna in my town. Everyone at the country club respects my business acumen and success. If I sell the dealership, I'll be just one more retired guy sitting around the pool, smoking a cigar and planning my move to Boca.
·Children in the business. Hey, we're talking about my legacy here. I want to keep the business in the family. It has supported us well, and we have family members dependent on the dealerships for their living. My sons/daughters are young and have been promised that they would get the dealerships on my retirement. If I were to sell the dealerships to a stranger, it would create too much upset and consternation with our extended family.
·Good times are finally here. I survived the late '80s and early '90s and lived to tell about it. Now that times are the best ever with no end in sight, I'll be damned if I'm going to give it all up. This is too much fun to ride off into the sunset just yet.
·No real changes coming. Yes, I've heard those Chicken Littles who forecast that the sky is falling. First it was the used car super stores and kiosk selling. Then it was public consolidation. Next it was the Ford Retail Network and the other one-price factory-owned and operated miscarriages. Now it's the Internet and direct sales by manufacturers. Guess what? We're still here making more money than ever. I'm a proven businessman and I've always been able to adapt and survive and more often than not prosper.
·I'm ready for the next downturn. I'm a realist. Business conditions won't remain this strong forever. Higher gas prices could impact my SUV sales. Steeper interest rates could soften the demand of impulse purchasers. Nevertheless, I'm ready for it. Downturns never last for more than three or four years at the worst, and I can absorb the damage. Besides, it would give me a chance to buy out some of the weaker players in my market.
·Low prices. Two years ago, my friend got eight times earnings in "blue sky" for a deal only half as profitable (or well-located, franchised, respected, etc.) as mine. Now, with the public players out of the market, I can't get stupid money any more. If I took what was available today, after taxes, I wouldn't be able to maintain the same levels of cash flow. In fact, with the prices available now, all I have to do is hold on for another three or four years to achieve the same cash I'd get if I sold today.
No time like the present to sell
·Time to move on. Life is too short. There is more to do in life than be a car dealer. I just had my second serious operation in the past three years and the day-to-day grind of the business doesn't seem like fun anymore. I'd like to smell the roses before it's too late. I could use the money to invest in start-up dot-com ventures or maybe buy the Hatteras and take that two-month cruise I've only dreamed about for 30 years.
·No children available or interested. I did a great job of educating my kids. One is a cardiologist in town and the other a successful lawyer in New York. I've got no one else to take over the dealerships and without my constant attention, I'm afraid that things will go south quickly. I really don't have confidence in any other alternative better than selling. I want to do it now while the market is still fairly good.
·The best times are behind us. Get out while the gettin' is good. After six (or is it seven?) years of sensational results, the party surely must end sooner than later. It makes more sense to sell at the top of the market than to wait for the bottom and then try to get out when it's too late. This business is just an economic asset, not a passion. I save that for my grandchildren.
·The best times are behind us (number two). I've got a great Lexus store and I'm afraid that we're too dependent on Rx 300s-at least in the short run. I love Toyota and I've made a ton of money over the years, but the competition is starting to have an impact. Grosses are evaporating like a boiling pot of spaghetti. Now that I've made it, I don't want to give it back. I've been there and done that when I was younger. It's time to find less risky things to do than be a car dealer.
·The times are changing. So far we, the traditional private dealers, survived all challenges. Yes, Huizenga got a lot of publicity, but he's not proven to be much of a car dealer. I knew that the factory store concept was doomed to fail. Franchise laws have stood up to umpteen challenges. The Internet doesn't look to me like it's going to heavily impact my business. My concern is not that we will suffer any direct hits, but inevitably this business model is under attack and we might die from our many wounds. This is a slow war of attrition that I don't want to fight when I can still declare victory and take my winnings.
·Diversify Assets. I've made a lot of money over the past several years, but as the business has grown, I've kept a lot of it reinvested right here. Now the manufacturers have imposed new facility requirements, which are going to require even greater investment. Further borrowing against the business is unpalatable to me at this point in my career. Actually, I'd like to liquefy my investment in the dealership-not make a further commitment to it.
·High prices. No, they're not what they were two years ago, but I've made a lot of money and built the value of the dealerships during that time. Had I sold even at those high prices, I'm not so sure I'd be ahead right now anyway. My opinion is that, with all the uncertainty out there, the value of traditional dealerships is going to fall back to traditional one to two times "blue sky." The time has come for me to get a good dealif not a great one. I think things are only getting worse from here on in.
Concluding
Deciding to sell can be a tough decision. Keep in mind, though, that in these robust times dealerships are still quite valuable. To paraphrase Will Rogers, "They ain't making many of them anymore." If you would like to discuss the potential for your dealership in the market, feel free to contact my office for a consultation in total confidence. You will have no obligation.
Sheldon Sandler is CEO and a founding partner of Bel Air Partners. Bel Air advises its clients on capital market transactions including Initial Public Offerings, REITs, franchise loans, private placements and mergers and acquisitions. ssandler@dealeronline.com
