Auto dealers need succession advice

March 21, 2012 | Last updated on March 21, 2012
3 min read

Do you have a car dealer as a client? There’s a 1-in-3 chance they will be retired in the next year, according to the 2011 PwC Automotive Dealer Trendsetter Survey. The report says 30% of dealerships will be out of business in the next 12 months.

Those that survive may be looking to you for advice on business expansion.

Auto dealers surveyed by the PwC, excluding dealerships controlled by groups, also clearly expressed their plan to be completely out of their business within 10 years, meaning that there could be a complete “changing of the guard” at single point dealers across Canada by 2021.

“With so many auto dealers planning to leave, the potential for further dealer consolidation and the rise in new owners is expected to be high,” says Damian Peluso, national automotive leader of the PwC. “There’s going to be an unprecedented opportunity for existing dealer groups to acquire additional stores.”

The possibility of “new blood” taking or acquiring dealerships is also expected to increase, but 38% of current dealers are not expecting to transfer ownership to a third party.

Instead, 74% would like to keep the business within the family since 87% have more than half of their family’s wealth tied up in their business, including the related real estate.

In spite of the widespread desire to hand the dealership down to a family member, less than half of those surveyed have faith that this goal will actually be achieved.

“The lack of planning and transition strategy is a contributing factor as to why the likelihood of a family succession will be unsuccessful,” says Dennis DesRosiers, president of DesRosiers Automotive Consultants.

“Whether dealers are preparing to sell or not, good succession planning has never been more critical, given the economic instability we see in the world today.”

The survey found that 45% of auto retailers today do not have a succession plan—only a slight improvement from the 48% in 1997.

In addition, only 50% of dealers have a management transition plan in place, with less than 60% of current dealers have discussed their transition plans with family members.

Fewer than 25% have discussed the plan with executors and only 9% have discussed the future with their powers of attorney.

Not surprisingly, based on the survey data, little more than half (64%) of dealer principals actually understand the financial consequences of their wills.

Peluso adds, “Of those dealers who have plans in place, many of them are inadequate and incomplete, and the problem stems from defining what a succession plan actually is, since it means different things to different people.”

Awareness and education about succession planning is key. With a plan in place, families can ensure that their family wealth is protected and put into the right hands.

“Once dealer principals have put a plan in place they need to properly educate those impacted by the plan such as family members and employees across all levels,” says Peluso. “A lack of awareness about succession planning can lead to a less than optimal plan and significant challenges down the road.”

Click here for a copy of the full survey.