Think Before You Buy

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It seems as if every dealer is talking about, or reading about, how to buy another dealership or run multiple stores. I don't hear much talk about why they should do it in the first place, or the strategy behind it. Instead I hear: "If the next guy can do it, so can I" or "If I can run one store well, why not two or three?" It's almost a herd mentality. And in today's soft market, more stores are available in your territory, or at least within driving distance.

But the fact is, dealers who buy an additional store often regret it. For every dealer I know who expanded his footprint in his marketplace, I know one who scaled back and sold one or more of his stores. "It was just too much" or "It just didn't work out like we thought," they say. The ego factor disappears as they realize they have to be in several places at the same time. Family time disappears, headaches multiply, and riding time vanishes. (But it sounded like a good idea at the time.)

So what goes wrong? In many cases dealers fail to strategize as thoroughly as they should. They become victim to the Ready-Fire-Aim approach to business failures. They listen to their 20 group buddy who told them how easy it was to buy a store at a steal, how the bank was eager to finance it, how the OEM was pushing for it based on his track record, and how his GM encouraged it so he could have his own store to run. They all made it sound like a walk in the park. And all those articles in the trade journals about companies such as Ride Now, America's PowerSports and others made it appear so easy. So why not?

Adding a second store may double the profits of the first (at least on paper), especially when you consider "all those efficiencies" of spreading your overhead over two stores and managing two vs one. But the daily issues are not double; they're more like triple or quadruple. Some of you remember when your second or third child came along. It wasn't a linear level of complexity, now was it?

Consider how long it took you to get everything right at your first dealership: hiring, advertising, traffic logs, F&I, inventory, service, budgeting and so on. Well, all those must be duplicated at each store. Plus, each dealership brings with it its own set of challenges. And just because you could do it once doesn't mean you can duplicate it, and replicate it a third and fourth time, and continue to manage it effectively over time.

The biggest challenge of adding dealerships is the people factor. Even if you have good department managers, a solid GM, and a son or daughter who's dying to run his or her own store, it's no guarantee of success. If you expect those great managers to manage the second or third store just as the first, it may tax their talents and sap their energy. Then you might have to "demote" them back to one store again or, worse, let go a formerly great manager who's burnt out.

All this assumes you have the capital to pull off an acquisition. It's tempting when your finance source steps up with the capital to buy a competitive dealership that you're convinced is underpriced. How can you pass that opportunity? I'm not suggesting you do, only that you spend the time, energy and resources to study and analyze thoroughly all the issues (see box).

Seek out dealers who have pulled it off successfully. Just as important, find a few who haven't. As always, seek legal and accounting advice.

Finally, consider this: Most dealers haven't tapped the full potential of their own store. In fact, the majority of the shops the big consolidators have acquired hadn't reached much above 60 percent of their full potential — yet the selling dealer thought he was maxed out.

The big guys know that the right people and processes will grow a dealership's performance faster than almost anything else. It's easier and faster, and entails much less risk, to improve your store than to buy another.

Clark Vitulli founded America's PowerSports for which he served as chairman, president and CEO from 1998 to 2006. Send questions and comments to editors@dealernews.com.