DETROIT -

The economy is strong, the automotive industry is doing well and the market for buying and selling dealerships this year promises to be brisk. 

So predict dealership brokerage firm managers who helped facilitate over 200 dealership sales transactions last year. 

While noting that the market ultimately dictates what’s going to happen, the managers also said they believe the industry will continue to see major dealership consolidation this year with Asbury Automotive Group leading the way.

Asbury of Duluth, Ga., announced in December it was paying $1 billion in cash to acquire the 20-franchise Park Place Dealerships group in the Dallas-Fort Worth market. The deal is expected to close in March, Asbury chief executive officer and president David Hult said during the company’s Feb. 3 earning’s conference call.

“David Hult and his team have dove deep to really to see where this industry is going, where is the market going over the next 24 months, the next 36 months and they made a decision to invest a billion dollars of shareholder money for one acquisition, not spread out across the country,” said Dave Cantin, CEO of the Dave Cantin Group, in New York City.

“I think in 2020 we’re going to see some more consolidation, some larger platform acquisitions announced. I’m expecting a very successful year.”

Erin Kerrigan, founder and managing director of Kerrigan Advisors, a sell-side advisory firm in Irvine, Calif., believes 2020 will be “a very active year; potentially a record year” for dealership buy/sells.

“The credit markets are still strong and supportive of financing very large transactions,” she said. “And the industry has proven that even with a sales plateau we can grow earnings and so investors and buyers are very excited about making acquisitions.”

Through the third-quarter of 2019, 161 dealership transactions were completed, down 10 percent compared to the same period in 2018, Kerrigan said. But, the transaction pace picked up in the fourth quarter and the number of completed transactions exceeded 200, though the final tally for 2019 was not available as of mid-February, she added.

Aging dealer body

Alan Haig,  president of Haig Partners in Fort Lauderdale, Fla., said his practice is seeing a lot of activity. An aging dealer body is one reason.

Many of the nation’s dealerships were established in the 1970s and 1980s by entrepreneurs who are now in their 70s and 80s who want to retire, he said.

Some dealers don’t have anyone to whom to pass their businesses.

But in many cases, the next generation isn’t interested in taking over the family business or the business has gotten so big, so complicated and so expensive it makes more sense to sell it than try to pass it on to a child or divvy it among children.

“I think this generation of people have seen their parents — primarily their fathers because it’s still a male-dominated industry — spend six, seven days a week at the dealership, working mornings, evenings, weekends and holidays,” Haig said.

“(Young adults) today are looking for more a work-life balance,  and so they’re not sure they want to sacrifice a family life for their career. So it’s ‘let’s sell it, and I can invest that money and do something else’.”

Too big to hand down?

Here’s another reason: many families realize that the best option is to monetize their business rather than to try to transition it to the next generation, Kerrigan said.

“Many of these businesses that started out with the current leader and a few dealerships now are as much as billion-dollar enterprises,” Kerrigan said.

“I think they’ve gone to a size and complexity that it’s less common to see businesses that size transition within a family. Not every family has someone that can run a business that large and complex.”

Cantin said succession problems arise in family-owned dealership groups when a single person oversees duties that are typically handled by a say, a COO, a CFO and a human resources manager.

A proper management structure makes it easier for a child or general manager to take over such a business, he said.

 “These larger companies are more successful, with more stores, for one reason: They have processes in place and there no one person running the show,” he said. “It’s multiple people who own their lane and they know their responsibility and they do it over a dozen, two dozen, 100 or 200 dealerships.”

Technology impact

A couple of years ago, concerns over mobility brought some sellers to the market, because they thought electric and autonomous vehicles and ride/car sharing would dramatically change the retail automotive business model.

But many of those concerns have dissipated, Haig said.

“People don’t believe that autonomous vehicles are going to happen for quite a while in any meaningful number; there may be a few running around in very specialized uses,” he said.

“The subscription model has been challenging to make work. People believe what is going to most likely happen is what has happened in the past: that people are going to buy and lease vehicles.”

What has impacted dealers, Haig said, is consumers’ ability to use the internet to gather information that helps drive down front-end margins.

To pick up the slack, dealers now put more emphasis on F&I, fixed operations and used-vehicles, he added.

“There’s not as much of a threat from technology as they had feared,” Haig said. “That’s probably why the public companies’ stock prices have recovered over the last year and why a company like Asbury has confidence to make a billion-dollar acquisition.”

Adapting

Sonic Automotive, of Charlotte, N.C., is among the public dealership groups that are adapting to the changing retail landscape.

In October, during Sonic’s third-quarter earnings conference call, its CEO David Smith, outlined the company’s plan to expand its used-vehicle business and said, “We’ll be ramping up our growth strategy as we open EchoPark locations in major metro markets in California, Georgia and Florida that will give us a nationwide footprint by the end of 2020.”

In December, Sonic announced the opening of its ninth EchoPark Automotive, stand-alone, used-vehicle store in Long Beach, Calif.

And Asbury still has it eyes on acquisitions.

In its Feb. 3 earnings conference call, Hult said Asbury broadened its Colorado footprint with the acquisition of a Chrysler, Jeep, Dodge and Ram store in Denver in January.

He also said the company’s main focus in 2020 is not so much on acquisitions such as Park Place and more on deleveraging and reducing its costs and debt.

But “certainly soon after that, we’ll be looking hard at the Colorado market and looking for opportunities,” Hult said.