Automotive News Canada - June 2022 - 19

can have a huge and negative impact on the business if nobody knows who
is in charge or what to do. If this does happen, seek immediate guidance
from a professional. Ask your banker, accounting firm, M&A partner and manufacturer
for support.
Q: Is succession planning handled differently when the plan is to keep the
business within the family versus transfer it to an
outside entity?
Ahmad: Yes. Transitioning ownership to a party outside
the family requires a completely different strategy
and a different corporate structure from transitioning
ownership to someone within the family.
When the successor is a member of the family, the
succession plan tends to be a lot more complicated, primarily
because of tax issues. When a family member
inherits a business, he or she will have to deal with
inheritance tax and tax liability issues. This requires
more planning upfront. If the successor is outside the
family, the sale tends to be more straightforward.
Q: What succession planning considerations that
dealers confront today didn't exist years ago? In that same vein, what
considerations appear likely to emerge in the years ahead as the automotive
landscape adapts to online retailing, electric vehicles, and such?
Ahmad: Years ago, manufacturers were not quite as involved in the transfer of
business ownership. Today, manufacturers are very engaged in these transactions,
and most have a rigorous approval process.
Also, transaction costs have risen a great deal. When we represent dealerships
that sell for over $100 million, the financial structure and approvals needed for
figures such as these take some planning and a well-articulated strategy.
The cost of real estate is another consideration. When a successor takes over a
dealership, real estate must be appraised at fair market value, which can result
in a significant property-tax increase.
Other issues include human resources, labor laws and litigation issues.
Employee lawsuits are much more prevalent than they were years ago, and
these can affect the succession plan.
Finally, successors need to consider the future
of retailing and whether the changes will be
affordable.
"
Q: What are some common mistakes that
dealers make or factors they overlook
when they are creating a succession plan?
Ahmad: Not keeping key players involved
throughout the process. Most problems
tend to occur when a succession plan is
announced after the fact.
Another mistake is not having the right
corporate structure in place before
implementation or being transparent
about any outstanding potential
liabilities.
Q: What do the automakers look
for in a solid dealership succession
plan?
Ahmad: It is our opinion that manufacturers
look for a candidate with the knowledge
and operational experience specific to this
industry. It is important to note that manufacturers
often provide support to dealers to prepare and prequalify
a successor.
Chisholm: Other things automakers appear to look for are the propensity
for good customer service (CSI), community involvement, leadership
skills and whether the brand will be represented by the successor. Naturally,
the relationship between the candidate and the manufacturer will also play
an important role.
Q: What are the factors to consider if a succession plan involves a crossborder
transaction?
As a rule, successful
business owners know
how they are going to
get out of the business
even before they get
into it.
"
- John Chisholm
Ahmad: Cross-border transactions don't usually present any problems. The
primary issue is expertise and resources, as well as knowing the local market.
Q: Once you have a succession plan in place, how and how often should
you evaluate the success of the plan for possible
revision?
Ahmad: It is healthy to reevaluate a plan often-
annually, perhaps. It is often best for all advisers or
key players to thoroughly go through the review process
with you.
ABOUT THE PANELISTS
FARID AHMAD
Founder and Chief Executive Officer
With more than 35 years of auto industry experience in
Canada, the United States and the UK, Farid is considered
a genuine industry expert by dealers and automakers
alike, with his finger on the pulse of the automotive
marketplace across North America. He was educated in the UK and is a graduate
of Brooklands College and the prestigious NADA Academy, a program that prepares
current and future dealership leaders.
JOHN CHISHOLM
Director, Canadian Sales
John's 35 years of retail experience began in the service department of his
father's Chrysler dealership. He has owned several highly successful, award-winning
dealerships, and his automotive passion led him to become president of
the Ontario Automobile Dealers Association (OADA) and join the Canadian
Automobile Dealers Association (CADA). He is intimately aware of the emotions
and financial logistics involved in succession and growth opportunities, having
undergone the buy/sell process several times in his own career.
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