Here's an encouraging development on the dealership consolidation front.
The purchase of a majority interest in Morrie's Automotive Group in Minneapolis by the family behind construction giant Bechtel Corp. signals a new type of buyer, one that appears to fit the needs of automakers and the industry overall.
"Family office" investors are professional management companies handling finances for wealthy families. Brokers and consultants say this new breed views established and well-run dealerships as long-term investments.
Family offices represent an evolution in the buy/sell world, and an important one. Consolidation of dealerships continues. Since the recession, outside capital recognizes auto retailing's multiple revenue streams. Venture capitalists, private equity firms, even billionaires want in.
Family offices are another avenue for dealers to cash out. These investors may be flexible, good for dealers who want to sell over long periods or need capital to expand.
And they can provide other advantages. Rising valuations are great for sellers, but they can make it difficult to transition from one generation to another and they can price stores out of the range of general managers.
Lacking auto retailing experience, family office investors prefer to stick with existing management. That creates an opportunity for top store managers to emerge with a significant stake in the business as in the Morrie's deal.
Auto manufacturers must agree to any franchise transfer, so how prevalent family office purchases become largely depends on automakers' willingness to accept this emerging class of outside investor.
Automakers often frown on franchise purchases by venture capitalists with specific time frame targets to build value and resell dealerships for a profit. But family offices that place value on buying and holding healthy businesses, reinvesting and retaining experienced managers may be a type of private equity automakers find more palatable.
These investors may help solve challenges that retailers and manufacturers face. If manufacturers are worried about overconcentration of ownership, why not bless these new buyers -- as long as they have a long view and keep or put experienced dealership operators in place?