The psychological price of buying and selling stores
Maroone: Selling isn’t easy.
AutoNation COO Mike Maroone had a done deal when he met Arizona dealer Lou Grubb at an upscale restaurant in Scottsdale in early 1997.
Grubb, who is now deceased, had agreed to sell his dealership group to AutoNation -- then called Republic Industries.
But in the middle of dinner, tears started streaming down Grubb's face.
"He said, 'I came from nothing, I built this business. I know selling it is the right thing to do, but I never thought it would become a part of me. The business is like my brother,'" recalls Marc Cannon, AutoNation's senior vice president of corporate communications, who was at the dinner.
Maroone says he remembers it "like it was yesterday" because he could relate to Grubb's feelings.
"I had just gone down the same road," Maroone says. "I had five dealerships with 900 employees that I sold to Republic."
Such emotions can play as powerful a role in selling a dealership as dollars and cents do. For that reason, many brokers and buyers now recognize the importance of managing a seller's emotions. They hire trained people or train themselves to help sellers who have decided to sell their dealerships.
Sellers have common concerns, such as the fate of their employees, experts say.
"We hired an ex-dealer, Stu Lasser, because we realized we're only financial professionals," says Sheldon Sandler, founder of brokerage firm Bel Air Partners in Hopewell, N.J. "He has an understanding of not only operating a dealership but also the family dynamics. There is no question that we've done many deals, but part of it is being able to be a psychologist."
Brokers who consider a seller's psychological state also find it easier to recognize the signs that can precede cold feet, which could ultimately destroy a deal.
From deciding to sell a dealership to completing the transaction, the process can take a long time.
Lithia Motors Inc., for example, worked with a seller for 12 years before sealing the deal, says CEO Bryan DeBoer in Medford, Ore. Lithia is the nation's ninth largest dealership group ranked by 2012 new-vehicle retail sales units.
"It took us a long time to work through the opportunities that dealer had to resolve," DeBoer says. "I'm not there to push the guy's hot buttons. I'm there to satisfy his financial needs and succession needs."
Two dealers backed out of nearly done deals in the past few years, DeBoer says. "They were wonderful deals, but the owners decided it wasn't the right time for them to sell."
DeBoer is gracious when sellers back out, he says, hoping "they will reach out to us when they do choose to come back into the marketplace."
But to avoid broken deals, Lithia uses brokers in about three-fourths of its deals, DeBoer says.
Likewise, Sonic Automotive Inc. uses a broker on about half its deals. The broker helps bring a vetted seller to the table, says John Russ, Sonic's vice president of corporate development in Charlotte, N.C.
"The broker has to get them to that emotional place to sell," Russ says.
Lasser: Former auto dealer
Stuart Lasser, 68, helps brokers find and vet sellers.
Lasser spent 35 years as a car dealer. He is now a self-described "retail industry adviser" living in Morristown, N.J. He has worked with Bel Air Partners on about a dozen deals since 2011, after he sold his dealerships.
"I sit with dealers, talk to them and guide them down a path and let them know there is a life out there they can enjoy and not have to wonder if their 29-year-old kid, who's never worked a day in their life, can run their business," Lasser says.
There are many reasons dealers choose to sell, says Alan Haig, managing director of the brokerage firm Presidio Group in San Francisco.
Sometimes a dealer sells rather than invest to upgrade a dealership, Haig says. Or a dealer might grow tired of the business. And there is often the issue of a dealer's age or a desire to lock in the business's worth while he can for his family, Haig says.
The last two reasons rang true for a 57-year-old Los Angeles-based dealer who sold three successful dealerships in 2008.
The ex-dealer, who asked to remain anonymous, had a partner who was 10 years older. He and his partner realized that if they did not sell in 2008, they would have to ride out the economic downturn on the horizon. They likely would have had to wait until 2015, he says. Because of his partner's age, they did not want to wait, the ex-dealer says.
"I just looked at the math," says the ex-dealer. "I came from a lower-middle-class family, and the opportunity to take that much money off the table -- it was the right thing to do."
He had other reasons. He wanted his kids to pursue their own interests and not assume they would inherit his business, he says. Also, the car business had changed since he became a dealer in 1992. His dealerships were now surrounded by stores owned by giant auto retailers: AutoNation, Penske Automotive Group, Sonic and David Wilson Automotive Group, he says.
"It's tough to compete in that market," the ex-dealer says. "Growth would be tough."
He enjoyed being a dealer and was emotional about selling the businesses he had built, he says. But he was pragmatic, too.
"When I walked over the dealership the last time and turned over the keys, was I a little melancholy? Sure," the ex-dealer says. "Did I have cold feet when having to sign the paperwork? Yes. But the money cleared up some of that. But would I have to do it again and sell at that time? Yes."
Bethanie Warnock, 43, decided to sell her family's dealership, Warnock Automotive Group in New Jersey, in December 2011. She was burned out and ready to move on to a new career.
Warnock had worked at her father's dealership since she was 18. She became a dealer principal in 1995 at age 25 after her father died of brain cancer. Her brother was her business partner. He also was found to have brain cancer in the mid-2000s. He survived, but both siblings decided it was time to sell.
"For 20 years I was working from 7 a.m. well into the evening," she says. "You are always, always working when it's your own dealership with 400 employees."
As a business decision, selling made sense, she says. But the emotions of walking away left her repeatedly second-guessing the decision.
"Would I be OK? Would my employees be OK? Would my family be OK?" Warnock says. "That's what mattered to me."
In September 2013, she opened the B Polished salon and spa in Denville, N.J.
"There is life after the car business," Warnock says. "I knew I wouldn't sit still for long, but I have enjoyed far more family time."
Beyond worrying about the welfare of their employees and their families, many sellers struggle with giving up a luxurious lifestyle and a community role, says broker Haig.
Bill Templeton resisted selling his dealership, Fort Myers Toyota -- The Family Store in Fort Myers, Fla., partly for those reasons.
"People were always coming to him to buy," says Pamela Templeton, 55, his daughter, who helped run the dealership. "He toyed with the idea off and on for years, but the success kept building."
Her father, who died this year at age 84, also saw how "entrenched in the community" the store had become, she says.
"It became difficult to part," Pamela Templeton says.
But in late 2010, her father had had enough of the many years of risks and internal disappointments that go with running a business. He and Pamela had battled the ups and downs of business, the recession and local politics to keep the business going. Her parents were in their 80s and no longer wanted to shoulder the heavy debt a business requires, she says.
Still, the decision to sell was bittersweet, Templeton says. "It was easy because I was tired and emotionally exhausted from everything," she says. "But it was difficult to move on because we'd created such a position in the community, and you hope that the next people will carry it on that way.
"But there are no guarantees in life."
“It was easy because I was tired and emotionally exhausted from everything. But it was difficult to move on because we’d created such a position in the community, and you hope that the next people will carry it on that way. But there are no guarantees in life.”
Pamela Templeton, whose father, Bill Templeton, left, struggled with the idea of selling his Florida dealership. He died this year.
Haig worked with Templeton and her parents throughout the sale, she says. She says his bedside manner in helping sellers make the transition was "very important."
Warnock worked with Lasser, who was an old friend of hers. He helped to reconfirm her decision to sell, she says.
"He knew what the process was, so if I was struggling with something in my mind or something didn't seem right, I would pick up the phone and call him, and we'd go through it together," Warnock says. "It was a great emotional support system for me."
AutoNation's acquisition team has two members who act in much the same capacity as Lasser does for Bel Air Partners.
Peter Thiel and Raul Rodriguez say their good listening skills help sellers get over hurdles.
"I didn't major in psychology, but when you look at what we're dealing with you really have to understand psychology," says Rodriguez, AutoNation's vice president of corporate development in Fort Lauderdale, Fla. "When you're involved in enough transactions and with different personalities, you grow with that and develop that skill set."
Rodriguez has worked in his role for about two years. Thiel has been the director of corporate development for about six years. Both have strong corporate finance backgrounds, yet they honed other skills to seek out sellers and close deals, Rodriguez says.
"A lot of the valuation work is on the back end in our world," Thiel says. "Of course, you have to talk numbers and agree on a selling price, but really it's all about the people skills."
For example, they help calm the nerves of sellers' employees who are often used to working for a single dealer. They might find a corporate owner intimidating, Thiel says.
"They're scared. We can provide some guidance and take some of the fear away," he says. "We can explain that most of our managers have worked for private, small dealers at one time."
The ability to help a seller make the transition is critical to the ongoing success of the dealership, experts say.
At Detroit-based Penske, the second-largest U.S. dealership group, a large number of sellers retain ownership of the real estate, and the company invites sellers to special dealership events in their area, says Tony Pordon, Penske spokesman. To ease the transition, one seller was permitted to keep his office in the dealership, he says.
"Although not common, we did have a situation where the seller wanted to stay on and run the store as general manager," Pordon says.
Lithia also seeks to retain most of a seller's employees, says CEO DeBoer. "We look to them to help make the decisions of how the store will be run in the future," he says.
DeBoer says he and two other Lithia executives personally visit the selling store to answer employees' questions.
"We do it very informally so they are not intimidated," DeBoer says. "We talk about our history, our values and what happens in the transition to pay, benefits and seniority."
Sonic, the nation's third largest dealership group, relies on its reputation and examples of how it operates other dealerships to reassure buyers, Russ says.
Life goes on
When Lou Grubb sold the five dealerships in Lou Grubb Automotive Group to Republic Industries, Maroone assured him the group's 600 employees would have the chance to keep their jobs.
"I told him, 'I give you my personal and company promise that we'll take care of you, your son and your associates,'" Maroone says.
Indeed, Grubb's son worked as an AutoNation executive for about a decade after the sale. He then bought his own dealerships, Maroone says.
A couple months after Grubb and Maroone's dinner, Grubb personally hugged every one of his 150 employees at his largest store goodbye, Maroone says. Maroone was by Grubb's side at the time.
"We were able to assure them that life would go on and there would be tremendous growth for them," Maroone says. "So as Lou gave them the final hug, I was the next guy in line to welcome them to Republic Industries.
"It was just such a critical time, and Lou was very emotional. It was my job to capture that emotion and turn it into opportunity."
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