Retail Forum Dealer Discussions - S5

DEALERSHIP CONSOLIDATION TREND
EXPECTED TO CONTINUE INTO 2022
Spurred by sky-high valuations driven by record levels of
revenue and profits, the auto industry is enjoying a record
year for dealership buy/sells in 2021. And experts on a
Retail Forum: Dealer Discussions panel predict the consolidation
momentum will continue into 2022 as owners
who've been sitting on the fence realize there may never
be a better time to sell.
" I think the mega-deals and the flurry
of other transactions that are taking
place is
forcing people to make a
decision one way or the other, " says
Stephen Dietrich, a partner at the law
firm of Holland & Knight.
David Hudson, CEO of the Hudson
Automotive Group, headquartered in
South Carolina, agrees. " I think that
right now, a lot of factors are creating
a good opportunity for folks to make
a decision on whether to get in or get
out, " he says.
" So if you've been
waiting to get out
for the last few
years, now is the
time to get out. "
Jon Briggs
Cavender Auto
Family
" Certainly, profits are very good, the business is
very strong, interest rates are low and there's obviously
discussion about and potential for looming tax-code
changes as well, " he continues. " So I think it's kind of an
ideal time for some folks that have been thinking about
whether or not they want to either exit the business or be
a consolidator and grow their business. "
Jon Briggs, CFO and a partner at the Texas-based
Cavender Auto Family, says he believes that dealerships
must either evolve and grow or get out of the market. " So
if you've been waiting to get out for the last few years,
now is the time to get out, " he says.
Kevin Kutschinski, president and CEO of Foundation
Automotive, based in Calgary,
Alberta,
agrees
the
momentum will continue. But he also cautions that the
unprecedented valuations of dealerships, driven in part
by large, well-capitalized publicly owned auto groups,
may not be sustainable.
" I personally think there's going to be an (negative) effect
going forward on the exit values, " he says. " I think the publics
are creating a little bit of a false ceiling right now. "
5
Regarding the potential for more blockbuster mega-deals,
Dietrich believes a few more may be forthcoming. But overall,
he expects a larger volume of smaller buy/sell deals, " not
the big whales that currently are being landed. "
Moreover, Dietrich says the potential for further price
increases is greater if the issues affecting the auto industry
remain as is or become more volatile.
But if some of these issues - such
as the pandemic and supply-chain disruptions
- level out and the business
environment normalizes, prices could
level out.
But there's more than just record valuations
motivating owners to sell. Lack
of succession planning factors in, as
does a demographic of aging owners
who, as Kutschinski puts it, have " run
out of runway...they just don't have
the wind in their sails anymore. "
Briggs agrees, adding that the auto business
is very competitive. As such, it's easy to fall
behind if owners no longer are motivated.
" If you're not getting better every day, then you're falling
behind, " he notes. " And when you wake up each day and
see your peers are moving past you and how much work
you have ahead of you to catch up, it's another motivation
to sell. "
While maximizing a sale price is important, there's also
a strong emotional component in play. Because owning
a car dealership is so personal, finding a buyer who's a
good cultural fit and who will be a good steward of the
business and its employees is as important as the sale
price, Dietrich says.
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