One side effect of the rush of outside investors to automotive retail? Expect automakers to exercise their right of first refusal on dealership buy-sell deals more often.
That prospect has outside buyers treading cautiously as they scout for deals. The right of first refusal clause in franchise agreements has long given most automakers the right to reject the original buyer on a dealership transaction and assign the sale, with no changes to the terms, to a dealer of its choosing.
Advisers and dealers involved in the buy-sell market say manufacturers' use of the tool has accelerated dramatically in recent years.
"There's always a conversation and always a concern about that," said Rick Ford, president of RFJ Auto Partners Inc., a group he forged with private equity investor Jordan Co. RFJ acquired 13 dealerships, mostly in Texas, in 2014, and thus far "we have not had any right of first refusals exercised on any deals that we wanted," Ford said.
But Ford is seeing more examples of it happening with deals involving other buyers. That reinforces his commitment to good operational results. Ford is named as the dealer principal in most of the stores RFJ has acquired.
"Obviously it's our job to make sure we're performing at a level to make sure the manufacturers are comfortable with me as a dealer," said Ford, a 35-year dealership operator. "Otherwise they're more likely to exercise right of first refusal."