The financial characteristics of the automobile dealership are attractive:
".... Moderate growth and risk and high return. Franchised new car dealer revenues have grown at a 7.2% annual rate approximately twice the rate of GDP. Moreover, this growth come with only moderate risk, since 1992, if the dealer body does not lose money (on a pre-tax basis) for a single year in the last twenty - even during the 1989-1991 industry down-cycle Finally, despite major changes in the structure of the automotive industry, dealer profitability remained high, with. pretax ROE averaged 26.1% over the past twenty years. " [Merrill Lynch, April 19, 2004 Report on "Automobile Dealers".]
Athletes from almost 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 is not new. Johnny Lujack, 1947 Heisman Trophy winner and Chicago Bear Pro-Bower, started a business in 1954 that would eventually expand to 16 franchises spread across 40 acres, with sales of more than 10,000 vehicles and $ 150 million per year. Lujack retired from the auto business after nearly 50 years as a successful trader.
WHEN IS THE RIGHT TIME?
"This is the time you have been waiting for," says Greg Gilmore in the June 2005 issue of Dealer Magazine.
Dealer Executive reported that last year (2004) ranked as the 4th best for new sales unit by new franchise dealers. Total dealership dollars exceeded $ 714 billion, an increase of more than 2% from 2003.
The fact is that when is the right time. In 1991, in the depths of a car depression, John Elway asked me, prior to the signing of the purchase contract, as "this" (1991) was the right time to buy. I told him it's how you buy and how you sell that count. That year he made a $ 20 million investment. At the time he had a Mazda store on Arapahoe Road, Englewood. I sold the Mazda franchise for him and Nissan gave into the old Mazda building. Him its franchise Shortly thereafter, I put together another 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. Then he bought another dealership (a Ford franchise) and then, in 1995, sold the whole package to Republic Industries for $ 86 million.
Many people were afraid to buy a dealer in 1991 and thought that John took a big gamble. But he did not "gambling". He structured his purchases and sales correctly, and then capitalized on his investment.
For example, although GM and Ford lost money (as they did in 1991), individual dealers made millions, according to the NADA (National Automobile Dealers Association) and Automotive News statistics, the average dealers pretax margin varies between one and two percent of their total turnover. Why? The dealers capture a broader business base than the manufacturer. While the manufacturer makes its money on new car sales, the dealers have the extra power of the parts departments, service departments, used car departments, finance departments, insurance departments and, in some cases, bodyshops. Consequently, while the manufacturer is dependent on the sale of new cars each year, the success of a dealer is more based on the total number of vehicles in use.
DOES IT MATTER DISTRIBUTION AGREEMENT'S HISTORY?
A little, but do not be intimidated by it. After Jimmy Vasser won the CART racing championship for Target, I've put together a transaction for a Jimmy dueled Chevrolet-Toyota franchise, in Napa, that lost money for the last 10 consecutive years to buy. I put together a dealer manager Jimmy and Jimmy's father, who some previous used car experience, as used car had signed-on manager.
Then, after a visit to dealer school and passing the chairs, Jimmy's father took over as general manager, the store flourished, and Jimmy not only bought the dealership land and facility, but bought the Ford store in the next town, and builds currently have a new Toyota store so its Chevrolet and Toyota franchises can separate facilities.
WHAT IS TO BE SUCCESSFUL?
Good advice. Good advice is both important and difficult to find. In the words of Trace Armstrong, former president of the NFL Players Association: ".. There is just so much bad advice that is given to these guys is really a bit scary" [Reported by Eric Fisher, March 27, 2000.]
As with the Entertainment and Sports Industries, there is so much money in the car business, everyone wants to get a piece of it. Consequently, everyone thinks he or she is an expert in analyzing and structuring deals, when in fact they just want a broker who receives a commission from the deal.
Sidebar: New car dealership revenues reached nearly a trillion dollars in 2004. The dealers and dealer related industries represent over 15% of the Gross National Product of the United States.
HOW TO CREATE A SUCCESSFUL TEAM?
An investor has a team. In general, it is the same team that they, supplemented by an expert in the car business. Do not be lulled into a false sense of security that loyalty is synonymous with the "factory" or "bankers".
For example, Ford made one of his black dealers (a superstar athlete) the point man, brokering meetings with senior executives and acting as a link between the company and Jesse Jackson. He mediated disputes between Ford and its dealers, and he promoted the company in public appearances. He even had a close relationship with some Ford family.
"He had some friends in high places," said John Clissold, a retired Ford Credit executive. "[The head of Ford Credit] was a very strong supporter." But, when the trouble came, it did not matter. Business was business. "... A factory executive familiar with the situation summed up the prevailing feeling at headquarters:" [Superstar] was heading for a precipice and we were not going on 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 matter how beautiful or how close your client is for them.
Financial statements and an auditor are not enough. Your client needs a member of your team, that's a student of the industry. A profitable automotive statement can be certified and comply with all the principles of accounting, but still bring a false impression of success. There are so many obstacles in defining and structuring automotive transactions, that your customer needs an expert in the field who can determine both car deal is best for the athlete and what is the best way to get it.
So while you may include auditors, lawyers, agents and managers team who are excellent at their jobs, unless a student of the industry is added (someone who does nothing but structure buys and sells each day), a key ingredient for success will fail.
Thinking in terms of a sports or business. If a person wants to make a championship team in a particular sport is made with people who play the game 50% of the time, 75% of the time, or someone who plays it every day?
Remember: The nicest thing she ever said about Richard Nixon was:. "He looks like a used car salesman '
Mr. Pico served as a court appointed "Consultant to Debtor" in bankruptcy, a court-appointed mediator "in automotive disputes, the" Court appointed Arbitrator / Appraiser "in partnership disputes, a" Court Approved Consultant to Receiver "in a check -kiting case as a "Superior Court Mediator" in dealership / lender litigation and is recognized as an expert witness in both state and federal level.
He has consulted on upside positions for more than $ 50 million from trust position of over $ 4 million and an overdraft of $ 30 million. Since 1972, Mr. Pico than 1,000 dealership transactions, whose combined values exceed a billion dollars delivered. In 1986, he authored and National Legal Publishing Company published the nation's first book on buying and selling Automobile Dealers. You can view his biography on
Joshua J. Pico, who both studied and co-author of this article is a graduate of Johns Hopkins University, has been working on both domestic and import dealer sales.
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