Investing in car dealerships: how to do it right - investing
The pecuniary characteristics of the coup? dealership are attractive:
". . . moderate advance and risk and high returns. Franchised new car dealer revenues have grown at a 7. 2% yearly rate since 1992, about twice the rate of GDP. Moreover, this development has come with only moderate risk, as the dealer body didn't lose money (on a pretax basis) for a distinct year in the last twenty - even all through the 1989-1991 conscientiousness down-cycle. Finally, even though major changes in the auto industry's structure, dealer profits have remained high, with pretax ROE averaging 26. 1% over the last twenty years". [MerrillLynch, April 19th, 2004 Account on "Automobile Dealers". ]
Athletes from more or less every major sport have invested in new car dealerships: Rick Hendrick, Roger Penske, John Elway, Troy Aikman, Evander Holyfield, Arnold Palmer, Michael Jordan, Scottie Pippen and Alex Rodriguez to name a few.
The idea isn't new. Johnny Lujack, 1947 Heisman Cup winner and Chicago Bear Pro-Bower, happening a affair in 1954 that would in the long run enlarge to 16 franchises; apply over 40 acres, with sales of over 10,000 vehicles and $150 million, per year. Lujack retired from the auto affair after about 50 years as a lucrative dealer.
WHEN IS THE RIGHT TIME?
"This is the time you have been coming up for", information Greg Gilmore in the June 2005 issue of Dealer Magazine. Dealer Executive reported that last year (2004) ranked as the 4th best for new unit sales by franchised new-vehicle dealers. Total dealership dollars exceeded $714 billion, up more than 2% from 2003.
The fact is that anytime is the right time. In 1991, in the depths of an automotive depression, John Elway asked me, prior to signing his buy contract, if "this" (1991) was the right time to buy. I told him that it is how you buy it and how you sell it that count. That year he made a $20 million investment. At the time he had a free Mazda store on Arapahoe Road, in Englewood. I sold the Mazda charter for him and Nissan gave him its charter to put in the old Mazda building. Brusquely thereafter, I put all together a new transaction that had John buy the Mazda store on 104th Avenue, in Thornton. John then terminated Suzuki and put the Mazda store with his Oldsmobile and Hyundai franchises. After that he bought one more dealership (a Ford franchise) and then, in 1995, sold the full embalm to Democracy Industries for $86 million.
A lot of citizens were frightened to buy a dealership in 1991 and accepted wisdom that John took a big gamble. But, he didn't "gamble". He structured his purchases and sales correctly, and then capitalized on his investment.
For example, even though GM and Ford lost money (as they did in 1991), being dealers made millions, according to NADA (National Auto Dealers Association) and Automotive News statistics, the be an average of dealers' pretax margin varies connecting one and two percent of their total sales. Why? The dealers capture a broader affair base than the manufacturer. While the manufacturer makes its money on new car sales, the dealers have the added consider of the parts departments, ceremony departments, used car departments, finance departments, indemnity departments and, in some instances, body shops. Consequently, while the manufacturer is needy upon each year's new car sales, a dealer's accomplishment is based more on the total digit of vehicles in operation.
DOES THE DEALERSHIP'S Account MATTER?
A little, but don't be demoralized by it. After Jimmy Vasser won the CART racing contest for Target, I put all together a transaction for Jimmy to buy a dueled Chevrolet-Toyota franchise, in Napa, that lost money for the before 10 consecutive years. I put Jimmy at once with a dealership boss and Jimmy's dad, who had some before used car experience, signed-on as used car manager.
Subsequently, after going to dealer drill and casual because of the chairs, Jimmy's dad took over as Broad-spectrum Manager; the store thrived; and Jimmy not only bought the dealership land and facility, but bought the Ford store in the next town, and is at present house a new Toyota store so that his Chevrolet and Toyota franchises can have branch out facilities.
WHAT DOES IT TAKE TO BE SUCCESSFUL?
Good advice. Good counsel is both central and hard to find. In the words of Trace Armstrong, past head of the NFL Players Association: "There's just so much bad counsel out there being given to these guys. It's certainly kind of scary. " [Reported by Eric Fisher, March 27, 2000. ]
As with the Entertainment and Sports Industries, there is so much money in the car business, that every person wants to get a piece of it. Consequently, every person thinks he or she is an authority in analyzing and structuring deals, when in fact they just want to be a insurance broker that gets a appointment from the deal. Sidebar: New car dealership revenues reached more or less One Trillion Dollars in 2004. The dealerships and dealer associated industries checking account of over 15% of the Gross Inhabitant Effect of the United States.
HOW TO Construct A Doing well TEAM?
An depositor needs a team. Generally, it's the same team they have, supplemented by an knowledgeable in the car business. Don't get lulled into a false sense of guarantee that constancy is synonymous with the "factory" or "bankers".
For example, Ford made one of its black dealers (a famous person athlete) the point man, brokering meetings with boss executives and performing as a intermediary amid the business and Jesse Jackson. He mediated disputes among Ford and its dealers, and he promoted the business in communal appearances. He even had a close connection with some Ford ancestors members.
"He had some links in high places," said John Clissold, a retired Ford Acknowledgment executive. "[The head of Ford Credit] was a very brawny supporter. " But, when agitate came, it didn't matter. Affair was business. " . . . one factory executive comfortable with the location summed up the dominant affection at corporate headquarters: '[the superstar] was headed for a cliff and we weren't going over with him. '" [Story by Bill Vlasic and Mark Truby / The Detroit News Sunday, May 26, 2002. ]
The fact is that the factory and bank employees have a duty to do what is best for the factory or bank, not what is best for your client. It's the law. They have a legal obligation to their shareholders - no affair how nice or how close your client is to them.
Financial statements and an accountant are not enough. Your client needs a component of your team that is a scholar of the industry. A profitable automotive account can be licensed and comply with every assumption of accounting, yet still convey a false brand of success. There are so many nuisances in important and structuring automotive transactions, that your client needs an connoisseur in the field who can clarify both what automotive deal is best for the participant and what is the best way to get it.
So while your team may consist of accountant, attorneys, agents and managers that are first-rate at their jobs, except a undergraduate of the conscientiousness is added (someone who does nobody but build up buys and sells everyday), a key ingredient to accomplishment will be missing.
Think of it in terms of any sport or business. If a anyone wants to conceive a contest team in a actual sport, is it formed with ancestors who play the game 50% of the time, 75% of the time, or a big cheese who plays it everyday?
Remember: The nicest thing they ever said about Richard Nixon was: "He looks like a used car salesman. "
John Pico holds a Doctorate of Jurisprudence, is a vice head of Automotive Advisors of America, Inc. and in the last 33 years has accomplished over 1,000 dealership transactions. In addendum to lecturing about export and advertising car dealerships, Mr. Pico has available two books and many articles on the subject. For more tips, sources and a list of references and experience, go to http//:http://www. automotiveadvisors. com
© Automotive Advisors of America, Inc.
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