When dealer principals think about automotive retail M&A, they often focus on valuation, blue sky multiples, taxes, deal structure, and buyer demand. While all are important, the greatest challenge in today’s market is often securing OEM approval.

Reaching an agreement with a buyer is only part of the process. Every franchise transfer requires manufacturer approval, and OEMs are exercising far greater influence and control over who may acquire a dealership, where they operate, the capital they must commit, and how they fit within the manufacturer’s long-term network strategy.

In this article, we examine the key factors OEMs evaluate during an ownership transfer. Greg Gilmore of The Apex Group also shares practical insights and recommendations to help dealer principals navigate the approval process and improve the likelihood of a successful transaction.

The market has shifted

Historically, OEM approval was often viewed as procedural. If the buyer had the financial capacity and operational experience, approval was largely expected. That can no longer be assumed.

Today, manufacturers are significantly more strategic and selective. Consolidation among large dealer groups, EV investment pressures, facility modernization requirements, digital retail expectations, and evolving market representation strategies have elevated OEM approval to a different level. Manufacturers increasingly view dealership networks as strategic assets requiring active management, not passive oversight. For dealer principals considering a sale, this means the buyer pool may be smaller than it initially appears.

Right of first refusal (ROFR): The variable that changes everything

The most disruptive element in dealership M&A is often the manufacturer’s Right of First Refusal (ROFR). ROFR gives the OEM the legal ability to step into a negotiated transaction and effectively replace the buyer. In some cases, the manufacturer may acquire the store temporarily. More commonly, they assign the opportunity to another dealer group they prefer strategically. This creates enormous uncertainty.

A seller may spend months negotiating a transaction, sharing confidential information, conducting diligence, structuring financing, managing employee sensitivity, and navigating legal complexity, only to discover the OEM intends to redirect the transaction elsewhere.

Even when the economics remain unchanged, ROFR can delay closing timelines, create legal complications, disrupt relationships, increase employee anxiety, destabilize operations, and cause buyers to walk away.

For many principals, the emotional frustration is equally significant. After building a business over decades, losing control over who acquires it can feel unnerving and deeply personal. Yet from the manufacturer’s perspective, ROFR is about protecting long-term strategic interests. The reality is simple: The dealership may belong to the dealer, but the franchise belongs to the OEM.

Facility requirements are reshaping deal economics

Facility compliance has become a significant hurdle in dealership acquisitions. Many OEMs now require buyers to commit millions of dollars to facility upgrades as a condition of franchise approval, including EV charging infrastructure, image programs, digital retail capabilities, expanded service capacity, and showroom modernization.

These investments can materially alter a deal’s viability. A dealership that appears attractive based on earnings alone may become far less compelling once future capital requirements are factored into the acquisition.

As manufacturers continue investing in electrification and evolving retail standards, buyers must evaluate not only a dealership’s current profitability, but also the capital required to remain compliant and competitive. Sellers who underestimate these obligations often overestimate both buyer demand and valuation.

OEMs are evaluating more than financial strength

Financial capability alone is no longer enough. Manufacturers increasingly assess whether the buyer aligns with their long-term market strategy. This includes:

• Market share performance
• CSI scores
• Fixed operations performance
• Digital retail execution
• Leadership depth
• Business reputation
• Existing dealer network concentration
• Geographic market alignment

Some OEMs actively prefer larger regional groups, existing operators within the network, multi-rooftop operators with proven scale, and dealers already investing heavily in modernization. Others may resist excessive concentration or seek greater diversity within a market. In many cases, manufacturers are effectively shaping the future ownership structure of their dealer networks through approval discretion. This means the “best” buyer financially is not always the buyer most likely to receive approval.

Geography matters more than ever

Localized market representation has become increasingly important. Manufacturers closely analyze PMA performance, competitive positioning, demographic shifts, EV adoption trends, population growth, and service coverage.

A buyer who performs exceptionally in one market may still face resistance in another if the OEM believes the strategic fit is weak. This is why dealership transactions cannot be evaluated in isolation. They must be viewed within the broader context of the manufacturer’s network strategy.

Why some transactions collapse late

Generally, dealership transactions don’t fail because of valuation disagreements. Instead, they fail because OEM expectations were misunderstood, facility obligations were underestimated, buyer approval likelihood was overestimated, timing assumptions proved unrealistic, or strategic alignment was never established.

This becomes especially perilous if a transaction becomes public knowledge. Rumors alone can distract employees, resulting in lower productivity, impacting team morale, and create management instability.

The longer uncertainty persists, the greater the operational risk becomes. This is why experienced dealership M&A advisors spend substantial time evaluating OEM dynamics before a process formally launches.

Preparation changes outcomes

The strongest transactions are usually the ones that begin long before a principal decides to pursue a sale. Sophisticated M&A advisors work with the seller to proactively evaluate OEM strategic priorities, facility exposure, approval risk, capital requirements, potential ROFR concerns, and likely buyer compatibility.

This preparation helps shape buyer targeting, valuation expectations, timeline management, deal structure, and communication strategy. Most importantly, it reduces surprises.