Succession Planning is one of the most critical yet often overlooked aspects of owning and operating an automotive dealership. It’s not just about preparing for the future, it’s about ensuring success today and setting the foundation for long-term stability and growth.

Succession Planning should be a high priority for every dealer principal, as it involves “planning for success,” and at some point, every dealer principal must address several questions associated with the future state of the dealership business:

1. Do I plan for growth through acquisitions?
2. Does my business operate at its full capacity?
3. Do I exit & capitalise on our success?
4. Do I consider transferring ownership to family members?
5. Do I transfer to current leadership through an Employee Stock Ownership Plan (ESOP)?

Addressing these questions requires more than casual contemplation—it demands a structured, strategic approach supported by expert guidance.

I will examine each of the 5 questions above in this four-part article series, considering Succession Planning as seen through a strategic lens, offering actionable insights into building a robust succession framework.

Let’s start with question #1:

Do I Plan for Growth Through Acquisitions?

When the dealer principal is considering growth through acquisitions, several key factors must be carefully evaluated to ensure a successful expansion. Below, I will discuss what I believe are some of the most impactful factors to consider.

1. Strategic Fit

• Market presence and location: Evaluate whether the target dealership is in a desirable geographic location that complements or enhances the current dealership’s market reach.
• Brand alignment: Ensure that the brands align with the existing dealership’s strategic growth initiatives.

2. Financial Health and Performance

• Revenue and profitability: Analyse the financial performance of the target dealership. Consider historical revenue trends, profitability, debt levels, and any financial red flags.
• Valuation: A clear understanding of the target dealership’s value based on its earnings, assets, liabilities, and market conditions is crucial.
• Cash flow and working capital: Evaluate the target dealership’s working capital requirements, ensuring it is matched with positive cash flow to guarantee an expected ROI.

3. Cultural Compatibility

• Employee and management integration: Consider the culture of the new dealership and how it may integrate into your existing organisation. A dealership you’re contemplating acquiring may have a healthy, unique, and vibrant culture. It could be a detriment to devalue that culture and force employees and management to adopt values that seem foreign or even opposite to what they are used to. In other words, minimise disruption.
• Retention of key talent: Identify key personnel who are critical to the dealership’s success and consider retention strategies to keep them post-acquisition.

4. Legal and Regulatory Compliance

• Franchise agreements: Ensure that the acquisition aligns with existing franchise agreements. Manufacturers may have specific requirements or restrictions on dealership ownership, so it’s essential to understand these terms before proceeding.
• Regulatory issues: Check for any outstanding legal or compliance issues that could create problems during the acquisition process, i.e., environmental concerns, legal disputes, or pending investigations.
• Due diligence: Conduct thorough due diligence to uncover any hidden liabilities, pending lawsuits, or tax obligations that could affect the business after the acquisition.

5. Brand and Customer Base

• Customer loyalty: Assess the strength of the target dealership’s customer base and loyalty. A strong, established customer base can be an asset when expanding into a new market or region.
• Brand reputation: Understand the target dealership’s reputation in the community and industry. An acquisition should ideally strengthen your brand rather than bring negative publicity or customer attrition.

6. Synergies and Operational Efficiency

• Cost savings and economies of scale: Identify potential cost savings from consolidating operations (i.e., shared marketing expenses, economies of scale in inventory purchasing, or reduced overhead).
• Operational integration: Evaluate the logistics of integrating operational systems, such as accounting software, inventory management, and customer relationship management (CRM) systems.

7. Impact on Existing Operations

• Disruption to current business: Assess how the acquisition will affect your existing dealership or group. For example, will it strain resources, distract management, or impact the quality of customer service at the current locations? Can you “service” the new location with your current organisational resources? Assess what you need to add to your HR, business management, and other support functions.
• Expansion and scalability: Consider whether the acquisition helps you expand your capacity to serve more customers, sell more cars, or offer additional services (i.e., repairs, finance options, F&I products and services).

8. Financing and Capital Requirements

• Funding the acquisition: Determine how the acquisition will be financed—whether through internal funds, loans, or other financing methods. Assess the cost of financing and its impact on cash flow and profitability.
• Financial projections: Create detailed financial projections for the new combined dealership to ensure the acquisition will yield positive returns and achieve the desired growth.

9. Post-Acquisition Plan

• Integration strategy: Have a clear plan for how you will integrate the dealership into your existing operations. This includes aligning marketing strategies, operations, and customer service practices.
• Branding and marketing: Assess and outline a plan for how you will handle the branding of the newly acquired dealership. In addition to continuing doing business as “Brand X of City,” an assessment should be made to weigh the pros and cons associated with rebranding the business locally to leverage and extend your business name. The better option may be to keep operating under the name of the existing dealership, if that is an option, considering brand recognition, customer loyalty, and goodwill in the local community.

10. Risk Assessment

• Economic conditions: Consider the broader economic environment, including interest rates, consumer behaviour, and industry trends. A downturn or shift in consumer preferences could impact the success of the acquisition.
• Competitive landscape: Assess the competitive dynamics in the region or market where the acquisition is taking place. Will you be facing stronger competition or gaining a strategic advantage?

What’s Next?

In the next article, I will address question 2, namely “Does my business operate at its full capacity.” An owner of an automotive dealership or group is constantly assessing whether the business is maximising its potential given its resources and the current conditions in the market. That should be a constant, regardless of what lies ahead and what the preferred outcome of strategic Succession Planning may lead to.

Planning for tomorrow starts today. Mach10 Automotive offers dealerships strategic advisory services, including Succession Planning, to ensure success today and set the foundation for long-term stability and growth.

Want to go Mach10? Request a consultation

George Pero
George Pero is an extraordinarily 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, a Dealer Advisory firm offering a 360-degree suite of services, including dealer performance improvement, succession planning, and M&A.

Contact Us