What single element defines a successful dealership?
Is it simply about having the right franchise or having a high-volume location or sole market representation? Maybe it's having a strong fixed-operations department or great customer service?
These all are assets, but none of them alone can determine true long-term success.
In dealership sales and acquisitions, a hard look at the numbers generally guides the decision-making process and the evaluation of a particular location's potential for success.
When determining if a dealership is worth pursuing as an acquisition, buyers tend to focus on the franchise, location, real-estate value and profitability. While these certainly are important elements in assessing a potential transaction, they are too limited in scope.
More often, the elements of a successful dealership are reduced to a small number of factors and an overly simplified formula that can often have very little relationship to the actual performance of the operation.
Consider the fact that there are retail markets where Chevrolet outsells Toyota, where Hyundai outsells Honda, and where Lincoln outsells Lexus. There are markets where a Kia dealership has twice the profitability of a Mercedes-Benz store or where a Ford dealership makes 40% net to gross.
While the results may defy a conventional profile, all of these stores have a common element: they all have an exceptional dealer operator. The entrepreneurial element is often the most disregarded component.
One of the greatest traps that prospective buyers fall into when evaluating a dealership acquisition is the failure to evaluate the leadership element within the organization.
We have witnessed acquisitions in which the new ownership immediately will replace the general manager, then find itself trying to regain traction in the market.
On other occasions we have found the exact opposite approach. There are some dealerships that are predestined for success regardless of who is at the helm.
There are stores around the country that will make a lot of money in spite of leadership challenges. Profitability can sometimes cover up certain weaknesses that often start at the top.
For many dealerships, profits can lead to a sense of complacency that is unfortunately not recognized until it is too late and costs a dealer too much.
Consider the following scenario. Many import and luxury stores that thrived in the years leading up to the economic crisis discovered that they were under questionable leadership once the market turned downward.
Now they find themselves questioning missed opportunities of years gone by.
I've worked with many dealers in the last 15 years. I have seen day-to-day functions of hundreds of different operations of varying size, location, franchise brand, personnel and profitability.
As I look back and consider the best performing dealerships, the common element among them was not some of the conventional metrics used, but rather the quality of leadership.
Consider the top-performing dealerships that you know. Is their success more about franchise and location or entrepreneurial spirit of the individual dealer?
More than likely you will find the top dealerships are run by active dealers who are fully knowledgeable about every aspect of the business.
You will find that this dealer knows the name of every employee, and is never complacent with the performance of the dealership. For these individuals, attitude is everything and failure is simply not an option.
So, it comes down to leadership. Every dealership is unique and each can have varying elements that may predispose it to success or failure. But great leadership is a constant.
Phil Villegas is a Principal at Dealer Transactional Services, LLC. (an affiliate of Morrison, Brown, Argiz & Farra, LLP) in Miami, Florida. He can be reached at [email protected] or 305-318-8515.
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