By Kendall Rawls,
Director of Development,
The Rawls Group
The auto retail industry has seen its fair share of change and disruption over the years, but there has never been a period as volatile and transformative as the last few. Profits have hit historic highs, dealerships have been bought and sold in record numbers, and a new breed of big dealers is emerging. For many dealers, this has been a period of great opportunity and growth; for others, it has been a time of uncertainty and instability. So how can family and privately held dealerships remain competitive and profitable, and how should they plan for the future? We asked the experts, and here are five key growth strategies that family and privately held businesses should be implementing today:
1. Professionalizing the Family Business
Champ Rawls, a succession planner with The Rawls Group, shares:
Although dealers with a traditional mom-and-pop mentality can be successful, they will find it challenging to compete in an increasingly competitive market where well-capitalized private and public groups are looking to expand. For this reason, I strongly advocate for keeping the "family" in the family business, as this can give a unique edge in the local community. However, for the family business to be successful, it is essential to have a well-thought-out plan to ensure the successor, whether family or not, who is taking the reins has the resources, development, and support needed to succeed. This includes establishing job descriptions, performance policies, and a strategy for the business to ensure it can compete with larger consolidators.
Alan Haig with Haig Partners shares:
Owners of dealership groups of the future are going to have to be empire builders versus caretakers of the business. The next generation of owners, especially those taking over for their parents, need to be open-minded about expanding their executive/management team to help them run the business. They must develop, communicate, and agree on a clear strategy regarding the team required and how to retain and attract the right people.
Recruiting experienced managers will enable the organization to scale faster because dealers do not have to rely on themselves or their kids to run the day-to-day. Attracting entry-level positions should include communicating the potential money they can make over time and the career path available to them. If college kids understood how much money they could make right out of school and eventually work up to running or even owning a dealership, more would likely choose to enter auto retail. Those with less education can be trained in various dealership departments, earn a great living, and build a great career.
Jon Paul Davis with HHM CPAs shares:
Creating an organizational structure to support the family in its ownership and the operations of the dealership group can help transition to a more corporate mindset. And this can be both internal and external. Internally, a transition to a corporate structure with clear responsibilities can help the organization expand. If a family is already treating the company as if it were a corporation, for example, with annual meetings and performance evaluations, the transition to include outside talent to the internal team can be streamlined.
Externally, relying on advisors for certain roles, such as outsourced CFO, can help navigate a group from a smaller group to a larger one that can then leverage the collective to attract high-level talent to the management team.
2. Create a Development Game Plan
Champ Rawls, a succession planner with The Rawls Group, shares
It may sound cliché, but a strategic plan is essential for achieving whatever future you envision. First, start with determining your goals within your current footprint because you should not consider growth if you're not maximizing your current market's potential. If you can confidently say you are one of the top dealers in your area, then we can talk about growth.
Growing does not always mean adding to an existing portfolio. Instead, developing a successful acquisition strategy may include selling to buy more stores. For this reason, it is essential to create a Buy Box™. The Buy Box™ exercise strategically organizes your growth parameters, eliminates distractions, and allows you to zero in on the opportunities supporting your strategic plan. The process identifies your growth parameters, such as geography, brands, volume, etc. So, if an opportunity comes across your desk that does not fit within your Buy Box™, you can quickly decide to move on.
Growth requires capital, desire, and expertise, especially for those looking to grow from two to ten stores. In today's environment, plenty of capital is available for dealers looking to grow. However, acquisitions are complicated, and therefore, dealers who wish to expand must develop an acquisition strategy that is focused not only on the brands and locations/geography they desire but consider the culture and people dynamics that fit their current organization, talent to run the stores, and the desire to be working in the business and building a team of managers on who they rely on running the day-to-day.
My firm is starting to see more owners of dealership groups analyze options on where they can divest one or more stores to reinvest the capital back into the industry in areas that align with their strategic growth goals.
A development game plan should also consider the allocation of talent within the group. Creating a platform to support growth in the same market could help allocate time from the management team without allowing performance oversight in legacy locations. However, if acquiring an existing group of stores also allows a dealer to expand their team and acquire both franchises and talent, the need for geographic proximity to legacy locations diminishes. You must determine the strategic importance of each growth target to the overall group, knowing that it could be different for each opportunity.
3. Create Scale and Build Efficiencies
Champ Rawls, a succession planner shares:
Rooftop growth provides inevitable scale and efficiencies that inherently comes with stable and strong leadership. For example, a CFO of a two-store group will be more costly than a CFO of a 10-store group while providing the same services. You will have to recruit additional staff to support ten vs. two stores, but you don't need 10 CFOs for ten stores. Centralizing management can also provide for scale and build efficiencies as you grow. Add roles such as variable or fixed ops trainer, HR director, or positions that bring consistency to your communication.
Dealers who provide more choices to customers in their area than the Publix's or a national company will win locally. As Champ mentions, when a dealer gets to 10 or more stores, they can create more scale and efficiency by building key roles and centralized teams. The more dominant presence allows larger dealers to outperform smaller local stores in their market further. And those dealers will sell more cars per dealership and earn a higher net-to-sales profit margin. Greater profits fund further growth so auto retailers can continue growing and becoming more resilient.
Scale can help a dealer group leverage itself to acquire larger platforms. At a certain point, the collective of existing earnings can be the basis for leverage to purchase additional stores. Should a dealer look to purchase underperforming locations, the strength of a larger existing group can help provide comfort to a lender concerned about the target’s underperforming earnings. A larger dealer group can then better able to negotiate financing terms and negotiate other contracts, such as DMS, etc.
4. Culture
Culture is a key factor in business growth, as it establishes values, norms, expectations, and goals that guide how decisions are made and implemented. Without this, businesses can quickly become chaotic and disorganized. Developing a winning culture is essential to create a winning team and ensuring the success of a family business. It requires intentional effort and commitment but is necessary to future-proof the business. By nurturing a culture of shared values, respect, and trust, employees will feel empowered and more likely to stay with the business long-term, leading to increased productivity and creativity.
Alan Haig with Haig Partners continues to say:
Culture and growth go hand in hand. Whether a dealer is growing the business organically or through acquisition, having an environment in which people are proud to work is critical to building value in the business. If growing organically, you must have the right team in place who agree with the vision and values of the organization. If adding new stores to the current organization, ensure the culture of the target stores is a good cultural fit. Growing requires capital and people investments not only for success during integration but also for future years and perhaps decades.
A key component of culture is people and how they are appreciated within the collective group. It is difficult to create culture, though it is easy to recognize. There are dealer groups where it is evident that the entire management team is working together, though not necessarily always agreeing with each other. Making sure that the family’s vision for the organization is cemented first can help a professionalized team know in which direction to push. Creating a strong culture, which can be different between dealer groups, is key to creating an environment that helps facilitate talent acquisition and increased operational performance.
5. Clear Vision & Strategy
When it comes to business, the mission and vision are at the heart of what drives the company and its employees. Without a clear vision that everyone is working towards, the organization can become disorganized and unfocused, impeding its goals and objectives. It is essential, therefore, that the vision is well-defined and easy to understand and that it also is communicated to every employee. When employees have a clear understanding of the mission, it creates a sense of purpose and motivation, inspiring them to do their best work and take ownership of their tasks, ultimately leading to the company's success.
The pandemic has transformed how customers shop, forcing a shift in customer expectations and shopping experience, with the biggest being more initial online interactions. Therefore, it has changed the way dealers interface with customers. Dealers cannot operate in the same fashion as years prior, which means evaluating people, processes, and technology. Forward-thinking dealers need to focus on giving the customers what they want and how they want to be serviced. It all starts with the first touchpoint from the customer, which today is online. A world-class online experience is essential, and dealers should compare their current digital strategies and consumer propositions with what buyers are offered at larger online and publicly traded auto retailers.
Having the end goal in mind strengthens the group's vision and approach, which should include the final harvesting strategy and whether that is multi-generational.
Certain decisions are needed if the family desires to grow to a point where the group can IPO or create a more attractive acquisition target for another large dealer group.
Alternatively, suppose the family desires a multi-generational company. In that case, this could lead to certain decisions to create a management team to carry on the operational legacy of the family while allowing family members to enjoy the economic benefits of a large company.
Regularly revisiting the overall vision and strategy for the group is needed while working on timely, overall strategic planning. Being able to pivot appropriately and hopefully proactively can help a family group maintain its overall ambitions.
By staying ahead of the curve and making sure you are implementing the right strategies into your business, you'll be well-positioned to remain competitive in the auto retail industry in the years to come. It's up to you to stay informed and ensure you're taking advantage of the opportunities the changing industry offers.
Kendall Rawls knows and understands the challenges that impact the success of a family-owned business. Her unique perspective comes not only from their educational background; but, more importantly, from her experience as a second-generation family member employee of The Rawls Group - Business Succession Planners.