The automotive industry has always been cyclical, but today’s market conditions present a new set of challenges. With a 25% tariff being imposed on all imported vehicles, dealer principals must rethink their long-term strategies. The question is no longer just about operational efficiency – it’s about survival and securing the best path forward. For many dealers, this means making critical succession planning decisions now, before market conditions change significantly and ultimately make the decision for the dealer against their will.

The tariff’s impact on dealership profitability

The 25% tariff on imported vehicles will disrupt an already fragile industry. Dealerships and groups that represent brands and models that are heavily or exclusively built outside the U.S., including GM, Stellantis, Toyota, Lexus, Audi, BMW, Porsche, Hyundai, and Kia to name a few, will see a sharp increase in costs. The expected retail price hikes will inevitably trickle down to consumers, potentially stalling demand and reducing dealership profits.

Furthermore, rising costs will impact financing. The average monthly car payment in the U.S. has already reached record highs, with interest rates showing little sign of relief. As affordability declines, dealers selling predominantly imported models may face longer inventory turnover, reduced margins, and a more challenging competitive landscape.

The case for immediate succession planning

Given these conditions, dealer principals will be smart to assess whether now is the right time to capitalize on their success and exit. Waiting too long in a declining market could mean losing millions in dealership value. The decision to sell, pass the business to family, or transition to existing management team members requires strategic foresight.

Key questions every dealer would be wise to ask include:

• Should I position my dealership for growth through acquisitions, or is it time to sell?
• Is my dealership operating at peak performance and profitability?
• Would a family succession plan ensure long-term success?
• How will these tariffs affect my dealership’s value if I wait to exit?

Valuation in a shifting market

A dealership’s value isn’t determined by past performance alone, it depends on future profitability and opportunities to improve performance & efficiencies. With compressed margins and declining demand for higher-priced imports, valuation multiples will shift. Buyers will scrutinize profit trends over the last 12-24 months while considering proforma driven evaluations to determine the market value of an acquisition.

If a dealer’s revenue remains stable but net profit is declining, the valuation multiple may be lower than expected. This is why proactive financial analysis and optimization are critical before entering a sale process.

Selling smart: Why timing matters

Market dynamics dictate that selling a dealership is not just about finding a buyer but securing the right one. Many sellers delay, believing they can hold out for peak valuation, but in a declining market, waiting can backfire. A well-prepared dealership with optimized operations, clean financials, and a clear succession plan will attract higher offers and smoother transactions.

Confidentiality is key. Dealership sales must be carefully managed to prevent employee unrest and market speculation. This is where working with attorneys specialized in automotive and M&A advisors becomes invaluable. They help dealers navigate valuation, find qualified buyers, and structure deals that maximize returns while minimizing disruptions.

The role of expert advisors

Successful succession planning requires collaboration with key advisors:

• M&A experts: Help position the dealership for a high-value sale and navigate the complexities of deal structuring.
• CPAs & financial advisors: Ensure tax-efficient structuring and accurate valuations.
• Legal teams: Handle manufacturer approvals, franchise agreements, and regulatory compliance.

Without expert guidance, dealership owners risk undervaluing their business, facing prolonged negotiations, or dealing with manufacturer pushback that could derail a deal.

Looking ahead: The urgency of action

With tariffs expecting to impact profitability, dealers should be proactive in updating business plans now. Owners of highly sought-after premier franchise brands such as Toyota, Lexus, Porsche, Audi, BMW, Land Rover, Subaru, Honda, Hyundai and Kia may have a certain valuation in mind. All things being equal, a 25% tariff will impact profitability – even for dealer principals who own dealerships representing these brands.

Whether selling outright, transitioning to family, or to existing management team members, the time to act is before market conditions worsen further. Those who wait too long may find their dealership’s value significantly diminished, making a successful transition far more difficult.

For dealer principals, succession planning is not just a long-term consideration – it’s an immediate business strategy. The smartest operators will recognize that, in times of uncertainty, proactive decision-making ensures not only their legacy but also their financial future.

Author: George Pero

George Pero, President & CEO of Mach10 Automotive, is an accomplished leader in the automotive industry. George began his career in the automotive retail sector, where he held various management positions. George’s career achievements include successfully launching, operating, and selling Auctions In Motion (“AIM”), a regional “mobile” auction company that brings the auction to the dealer. George has extensive knowledge & expertise in mergers & acquisitions in the automotive sector, having overseen more than $1 billion in transactions. His sales and general management experience coupled with his success in M&A activities led George to establish Mach10 Automotive, an automotive M&A firm offering a full suite of dealer performance optimization services.