To the Editor:
I am writing about your July 17 article, "Study: Public dealers perform better."
I have been in the car business all my life, from salesperson to megadealer. At 74 years of age, I am still active in my business.
I have negotiated with most of the public automotive companies, hoping to find a perfect fit for both of us. I thought that Asbury and the Bob Baker Auto Group was that fit; however, Ford Motor Co. and Toyota blocked the sale.
It is impossible to compare public companies with mom-and-pop dealerships and private megagroups. Some of the items mentioned in the article are true, however. Please allow me to add more:
- Public companies must operate from a framework agreement with the factories. Private dealers must work from a franchise agreement.
- Public companies can use stockholders' money and pay exorbitant prices for the best franchises, i.e., Lexus, BMW, Toyota, Mercedes, Honda, etc.
With public companies picking those off at such high prices, few are left for private groups like the Bob Baker Auto Group or smaller dealers to purchase because we have to use our own money.
- Public companies use EBITDA (Earnings Before Interest Taxes Depreciation Amortization) and use a multiple of earnings. The multiple, in most cases, is blue sky.
- Private companies typically amortize blue sky over 5 to 15 years. Public companies amortize blue sky only when this asset is impaired. That in itself certainly leaves private companies at an expense disadvantage to public companies.
- Many private companies structure their organization differently in order to move income to other entities such as real estate, finance companies, extended warranty companies, etc. Some private dealers (not me!) also have expensive toys to write off. Public companies merge all these entities to maximize earnings.
The bottom line, I feel, is that savvy megadealers do much better than public companies when you add it all together.