Shake off the summer slumber and let’s get back at it
It’s been an absolutely beautiful summer for most parts of Canada. The effect of hot, sunny weather however must now be pushed aside as we enter the fall selling season.
This selling season will have its challenges. Much has changed in the world, most of which is out of our control. What we can do is make sure we are ready to weather any storms brewing on the horizon.
We are coming off seven great years of dealership profitability. Dealer consolidation is running at a record pace and many dealer principals have deferred succession decisions.
The storm clouds I referred to above are caused by many cold fronts looming off our shores. The renegotiation of NAFTA, the lingering effects of the Trans-Pacific Partnership Agreement discussions, proposed new sweeping tariffs, uncertainties caused by Canada’s foreign policy and increasing interest rates (just to name a few), are all at play.
Protectionism seems to be a worldwide issue and the uncertainties caused by the geopolitical environment is the real wild card.
While all this is happening around us, Canadian dealers are being asked to invest more capital in their businesses. Dealers are being asked to double-down on the long-term without a clear vision of what the future — both short-term and long-term — might hold.
Top that off with the natural retail evolution shaping global retailing in general, and auto retail specifically, and you get something looking like a car with a flat tire trying to safely speed down the road.
As we all know the definition of a dealer has evolved.
In many instances, there has been a separation of ownership from management for many dealership consolidators. Many of today’s dealership locations are being led by professional general managers. The old adage of having the dealer principal’s name on the sign and the dealer principal working in the store is long gone. The dealership business out of necessity has become big business for many.
Yet there is still a very large number of single point dealers in Canada trying to represent the brand they are married to in the best way possible. And they are successful for the most part.
Their challenges are different today with many owner-managed dealerships competing with much larger organizations with far deeper resources and bench strength. The customer demands the same experience regardless of who owns the store. The brands demand the same investment and commitment regardless of who owns the store.
I believe a tipping point has been reached. It is safe to say, the big will get bigger and fewer owner-managed single points will exist in the future. It had been believed that dealer consolidation was for larger communities. As time passes, and capital remains accessible, this is turning out not to be the case.
Many smaller communities all across Canada have dealer groups that own three or more stores. In larger communities, some of the smaller groups are being acquired by larger groups. Well-run smaller dealer groups are now attracting the attention of some of the larger groups, regardless of the size of the community.
Even with all this acquisition activity taking place, single point owner-managed dealerships thrive. So what are these dealers to do?
From my perspective, 2018 has been a year where many dealer principals operating family owner-managed dealerships are beginning to take succession seriously. Many of these dealers are getting on in age and many have incredibly talented children very capable of taking over the day-to-day management of the dealership business.
Many however have not positioned their children to be the heir apparent in the eyes of the brand they represent. Many of these same dealers are avoiding setting up a proper succession, choosing instead to gamble on their future rather than securing a clear and concrete path to continued sustainable family wealth.
My advice to those that I speak with is simply: get on with it. Do what you need to do, get the documentation, tax planning, insurance and successor education and brand approval process in place and start sleeping better at night.
I can appreciate that many family situations are complex with second and sometimes third marriages, step children and in-laws. In some cases, partners have the effect of doubling the complexity. All the more reason to tackle this issue head on. Many dealers can clearly articulate what they don’t want, but get all tongue tied when asked what they do want. Delaying will not make the task any easier.
Here’s a quick review of what documentation should be in place:
- Current last will & testament;
- Current Powers of Attorney over property and personal care;
- Shareholders’ Agreement;
- Disability insurance;
- Key man life insurance;
- Business and real estate valuation and appraisals;
- Brand approval letter or addendum to your DSSA;
- Credible financial statements; and
- Key management employment contracts
Many dealers for some reason want to keep their plans secret. In my mind, that’s the worst thing you can do. Open family communication, although challenging at times, will save many hours, even years of turmoil should something happen to you. It’s like ripping off a band-aid — fast and swift generates the least pain. Don’t opt for the slow agonizing route.
As with most items of importance in life, they are best dealt with while you still have complete control. I suggest you just get on with it.
You will be interested to learn that large dealer groups do not have it any simpler. If anything, their situations are far more complex. They too, regardless of size, need to take the same steps as described above.
Now that summer is turning to fall, it’s time to focus on what is ultimately important. Let the work begin!
