Numerous celebrities have invested in car dealerships: Paul Newman, Rick Hendrick, Roger Penske, John Elway, Evander Holyfield, Arnold Palmer, Michael Jordan and Alex Rodriguez to name a few.
Many, such as Johnny Lujack, Heisman Trophy winner and Chicago Bear Pro-Bower, and John Elway, NFL Hall of Famer and Superbowl MVP, have made millions; and many have lost millions.
New car dealerships are not "passive" investments. Total dealership revenue in 2007 exceeded Seven Hundred Seventy Billion Dollars.
Dealerships are comprised of several businesses under one roof. For each "department" in a dealership, a separate "industry" exists in your city. Drive down the street and you will see used car lots, parts stores, aftermarket stores, finance companies, mechanic shops, quick lube centers and so forth.
Agents and managers should not get lulled into a false sense of security. Buying and Selling dealerships is not a "simple, or easy" task and, if anyone says otherwise, they don't know what they are doing.
In the car business, there is so much "cash flow" (in 2003 the the "average" dealership's revenue reached over $32 million), that mistakes generally do not reveal themselves until months, or years after they are made.
When a dealership goes broke, it has probably been doing things wrong for two to five years before manifesting its condition to the unsophisticated. One celebrity dealer, with over a dozen franchises, selling almost 30,000 new vehicles annually and generating over half a billion dollars in total sales, received the dealer of the year award one year and found the factory auctioning-off his furniture and equipment two years later. He and his agent relied upon the wrong people for advice.
So, forget how good an athlete, celebrity, sports manager or sports agent may be their respective fields or professions, the retail automobile business is a different animal than any other business.
To be successful in the car business, outside investors should consult with a neutral party, knowledgeable in the retail side of the industry for advice when buying and selling a dealership.
---- Factory People and Lenders Don't Count because: (1) they are on the wholesale, versus retail, side of the business; and, (2) no matter how congenial and helpful they may appear to be, they have their own agenda that may not necessarily coincide with an investors'.
It is the factory/distributor employee's job to keep a “point” open in order to sell their products to dealers while protecting their own company and its shareholders. In almost all instances, factory people are officers or employees of public companies and, as such, they have a duty to their shareholders to do what is best for the shareholders, not what is best for the dealer, or the dealership's investors.
For factory and credit company people to place a dealer's interests above those of its own company and its own shareholders, could be misfeasance. It is up to the investor's advisors [the Sports Manager, Sports Agent, Attorney and Accountant] to recommend a conflict-free, knowledgeable expert that will protect their client's interests.
---- Employees at the Dealership Don't Count because, like the factory and credit company people, employees have their own agenda. Remember, "general managers buy and sell vehicles for a living; not dealerships." The average dealer buys or sells less than 10 dealerships in a lifetime. Our people have combined for more than 1,000 transactions. Consequently, if the dealer and our people each learned just one thing on each transaction, Automotive Advisors would have acquired over 990 more bits of information than the average 50 year dealer. And, when looking for advice, the better bet is usually "experience".
---- THE FACTORY OFFERED YOU NEW POINT --- FREE!
Athletes and celebrities often think they are getting a deal when the factory offers them a "new point". Opening a New Point is not all it is cracked-up to be. Generally, regardless of the fact that the factory (or distributor) “gave” you the point, be prepared to pay bluesky in the form of early losses and non-equity investment costs.
When buying a dealership that is operating, the day one takes possession there are vehicles lined-up in front of the service department, you parts department has a strong retail and wholesale business, your technicians are busy, you phone number is in the yellow pages and, in general, the public knows you are there and you begin with a core of customers.
When opening a new point, the investor must fully capitalize the store for both sales and service volumes that will not exist for at least nine to twelve months. You might get some "new car" traffic the first few weeks, but trust me, there will not be a line in front of you parts and service departments.
People are creatures of habit and, although the demographics may warrant a new point, and even though you may be a "superstar" athlete or celebrity, wooing other dealer's existing customers to your store will prove a long-term challenge.
In many instances it's the second owner of a "new point" that makes the money because the first owner went broke building and developing it. On the other hand, the factory/distributor won because it got someone to build the building and develop a new outlet to market its shareholders' goods, while at the same time, having YOU assume 100% of the risk involved in the financing of the project.
What if you already have experienced people advising you?
If they are "independent" of the dealership, are "knowledgeable" in the "retail" end of the business and have been "successful in structuring purchases and sales" (the more, the better), then you are on the right path. If they are lacking any or all of those qualities, then it would be a good idea to get someone on your acquisition and advisory team that fits the bill. Someone like us.
Remember: Just as there is no "easy" way to win a game, there is no "easy" way to buy or sell your dealership, or to be successful in the car business. There is a name for people who don't believe that. It might take a year, or it might take five years, but eventually, they call them "broke."
©Automotive Advisors of America, Inc.