DETROIT - Successful, aging dealers who want to retire in the next few years are driving retail consolidation, according to one consolidator.
Ben Hollingsworth, chairman of Group 1 Automotive Inc. in Houston, said dealers like to sell their dealerships to publicly held companies such as his because:
The companies pay in cash and stock. Dealers retain a financial interest.
Group 1's agreement calls for the dealer to stay on and manage the business.
Dealers can reward key managers with the chance to purchase stock.
In a sense, consolidation offers dealers a way to sell their stores and keep them, too.
'The cost of these dealerships today is enormous,' Hollingsworth told Automotive News on Monday, April 6. 'The competitive cost of a stand-alone dealership compared to one that has consolidated with access to the public capital market, creates a somewhat unlevel playing field. That is one of the things that brought our dealer group together.'
Group 1 made its initial public offering in October 1997 with a chain of 30 new-car dealerships and five collision service centers in Texas and Oklahoma. Since then, the company has acquired Maxwell Automotive Group (Chrysler-Plymouth-Jeep-Eagle-Dodge-Subaru) in Austin, Texas; and Carroll Automotive Group Ford dealerships in Fort Lauderdale, Fla.; Miami; Atlanta; and Elgin, Texas, near Austin.
The principals in Group 1 own over 70 percent of the company. They are: Sterling McCall, former owner of Sterling McCall Toyota and Sterling McCall Lexus in Houston; Charles Smith, former owner of Smith Automotive Group in Houston; Bob Howard, former owner of Bob Howard Motors in Oklahoma City; Jim Carroll, former owner of Carroll Automotive Group; and Nyles Maxwell, former owner of Maxwell Automotive Group.
'PLATFORMS' AND 'TUCK-INS'
Hollingsworth said his company's acquisition strategy includes two types of dealerships: 'platforms' and 'tuck-ins.'
He described platforms as large, well established dealerships with $150 million to more than $500 million in revenues, and superior management teams committed to staying with the company.
Tuck-ins have annual revenues under $100 million. They typically are acquired to add specific brands to an existing platform. Group 1 expects to pay eight to 10 times after-tax earnings for platform stores and four to six times after-tax earnings for tuck-in stores, he added.
ECONOMIES OF SCALE
Group 1 has discovered more economies of scale savings than it initially expected, particularly in the areas of finance and insurance, risk management and vendor consolidation, Hollingsworth said.
Using Group 1's combined buying and bargaining power, the company has realized an overall savings of about 20 percent, Hollingsworth said.
When Group 1 completes its previously announced acquisitions, it will hold 58 franchises, consisting of 24 brands and 12 collision service centers in Texas, Oklahoma, New Mexico, Colorado, Florida and Georgia. Those 58 franchises represent sales of 40,000 new and 28,000 used vehicles annually with revenues of about $1.6 billion.
Said Hollingsworth: 'We're looking for dealerships all over the country; we're looking for quality dealers who are committed and want to partner with us, take an equity stake and grow with us.'