Industry climate helps first-time dealers become owners

Tony Boyd spent at least five years searching for a dealership to buy and in June 2021 finally closed on a Chevrolet store in Park Hills, Mo., fulfilling a long-term goal of owning a store.

Boyd, formerly the lead finance manager for Bommarito Automotive Group of Ellisville, Mo., is one of many first-time dealers who have emerged in recent years as transactions in the dealership buy-sell market boom.

Automotive News recorded nearly 50 transactions involving first-time buyers in 2021 and 2022 as the publication rigorously documents franchised dealership transactions. For longtime dealership managers such as Boyd, striking those ownership deals often means achieving a goal years in the making.

"I figured if I was going to be in the car business and it was going to be my career, I might as well try to figure out a way to own one," Boyd told Automotive News. "If I'm going to be there every day and help somebody make money, I might as well be the guy making the money out here."

Some auto retail experts anticipate more first-time dealers arriving in 2023, made possible in part by several years of high profits in the industry that have helped key dealership leaders, such as general managers, build their savings. New advisory and loan programs, including some designed to aid minority candidates and to help people buy their first stores, also are a factor. The boom in store leaders becoming first-time dealers marks a bit of a turnabout from conditions nearly a decade ago when rising dealership prices made it harder for general managers to come up with the capital necessary to buy out existing owners.

Boyd said his search across four states had starts and stops.

"It had been an on-and-off thing," he said. "A store would come available or I'd find some opportunity and start the process, find out the aggravation points or dismiss it as not a good enough opportunity for me or whatever it was. I had a couple of not successful attempts and finally found Park Hills."

Life gets in the way

Paul Randazzo entered auto retail as a salesman in 1985 and quickly worked his way up to more senior roles.

After a decade in the business, Randazzo, 59, realized he wanted to work for himself. So he started putting money aside to one day buy his own dealership.

"It took me forever," said Randazzo, a longtime general manager for Penske Automotive Group. "You have life that gets in the way. You have college, you have mortgages, you have vacations — you have a lot of things in the way. It takes a big, big amount of resources to be able to pull the trigger. Mentally, I figured 10 years into the car business I wanted to [buy a dealership]. But financially, only in the last five years did I have the ability to do it."

In March 2022, Randazzo became a dealer when he bought a Ford dealership in Dushore, Pa., northwest of Scranton.

He said he did his due diligence by looking into stores' financial statements and business models and hiring outside accountants to "take a look at everything that could possibly go wrong." He visited a couple of dealerships that he decided weren't a fit for him.

"It took me longer to figure out what I wanted and where I wanted it than the money part of it," Randazzo said. "Because I've watched guys get into the car business and I've watched them become very, very successful. And I've watched guys fail."

Randazzo said he eventually wants to have six dealerships.

Stuart McCallum, national dealership practice leader for advisory and accounting firm Withum, said capital is more readily available to general managers and operators trying to buy their first store than at any previous time in the last 10 years.

"Historically speaking, general managers, way back in the day, that was a dealer's exit plan," McCallum told Automotive News. "If you were a dealer, you could find a general manager, he'd buy in 10 percent, 20 percent of your store, and then when it came [time] for you to retire, you had a buyer ready to go."

As dealership profitability and values skyrocketed, it became harder for that general manager to come up with that 10 or 20 percent. But in a twist, soaring dealership profits since the start of the pandemic have returned some buying power back to those managers.

When store profitability increased dramatically in 2020 and 2021, key leaders, such as general managers, began making more money than ever before, McCallum said.

"What transpired — really starting in 2021 — was that those general managers, they were making 10 percent, or if they were a platform operator, making 5 percent of bottom line on a group of stores," he said.

In 2019, a manager might have made 10 percent of $1.2 million annually or $120,000, on top of a base salary, McCallum said. By late 2020, that person was making 10 percent of $400,000 a month — or $480,000 for the year — thanks to the elevated earnings. That translates to saving four times as fast as before.

"Many GMs, minority owners and operators found themselves flush with cash that they never expected to see before," McCallum said. "It was that lightning strike that lit the tinder."

Live Oak Bank of Wilmington, N.C., has made lending to first-time dealers a growing part of its business, said Connor Duncan, the company's vice president of auto dealerships.

The bank, which uses high-leverage, government-guaranteed loan programs facilitated by the U.S. Small Business Administration, initially lent only to veterinary practices but expanded to around 35 industries, including dealerships, about four years ago, Duncan said

The pandemic coincided with an uptick in Live Oak's loans to dealership buyers.

"2020 was probably one of the first years that we made a splash in terms of lending money" to dealers, Duncan said. "That was to the tune of $25 million or $30 million."

The outlay rose to $70 million in 2021 and then $90 million in 2022, he said.

Duncan estimates Live Oak has helped about 19 people — including Boyd — make their initial dealership purchase, including eight in 2021 and seven in 2022. He expects the bank will help more do so in 2023.

Other consulting and lending programs aimed at assisting aspiring first-time dealers have popped up in recent years. Dave Cantin Group's DCG Capital Ownership Accelerator Program, launched in 2021, is one example.

"DCG Capital strictly works with the general managers or operators of a car dealership that don't have ownership ... on how to properly prepare them to buy their first store in all aspects — from the financing aspect to the credibility aspect to the pro forma aspect of what manufacturers are looking for," CEO Dave Cantin said. "Basically, it is providing them with all the tools, resources, knowledges and wherewithal to properly prepare them to be approved by the manufacturers and to be approved by the lending institutions."

The program also works with financial institutions, private equity groups and even family offices to assist prospective store buyers in securing funding, whether it be for mortgages, floorplan financing or working capital loans, Cantin said.

There is an initial retainer fee for the program, Cantin said. Participants do not have to use DCG Acquisitions, another Dave Cantin Group company, when buying a store, he added.

Cantin said his program has worked with dozens of people to buy a dealership, many of whom were buying their first or second stores.

"The program really was built upon general managers that work for a dealer that ... is about to retire; there's no one else to take over that platform, and they just want help on how does their GM get the financial wherewithal and the guidance to buy their store," he said.

"And then we come right there and help them."

Some first-time buyers have even crossed borders.

In December 2021, Canadians Annie Brennan, 32, and Shea Brennan, 33, bought their first dealership after starting their search in 2016.

Annie Brennan, a third-generation dealer, said she and her husband initially looked to buy a store in their native Canada, mainly on the Atlantic side.

"Near the end of 2020, we started to get a little more eager and realized that we would need to start looking further," she said. "So that's when we started looking into the U.S."

After looking at about four to five dealerships across Canada and the U.S., the Brennans bought a Buick-GMC store in Plattsburgh, N.Y.

"It felt like it started very slow," Annie Brennan said of their search. "Which is why then we started looking into the States and then things definitely sped up from there."