Dealership owners need succession plans, experts say

At the start of COVID-19, Fred Salinas was sidelined from his work as dealer principal at Friendly Ford of Crosby in Texas, near Houston, because health experts said the 68-year-old shouldn't be going into the store.

Leadership at the store remained stable, however, because Salinas had a strategy: An eight-year succession plan that started in 2017, designed to place sons Austin and Blake at the store's helm.

"Everything was going smooth and on time, and then COVID hit," Austin Salinas told Automotive News.

Already helping lead, the Salinas sons were elevated to oversee the dealership in Fred Salinas' absence. Weeks became months, and the sons realized they could afford to buy out their father nearly three years early — something the duo did in April 2022.

The Salinas family's preparedness, however, doesn't represent most dealership owners, according to auto retail industry experts.

Dave Cantin, CEO of dealership mergers and acquisitions advisory firm Dave Cantin Group, of New York City, estimates more than half of dealership owners do not have a succession plan, based off interactions with his clients. He said that's mostly because the daily business keeps them busy.

And Erin Kerrigan, managing director of dealership sell-side firm Kerrigan Advisors, of Incline Village, Nev., said her firm estimates more than 50 percent of the auto retail industry is in some transition, from either the second to third, or third to fourth, generation, a process that has become more challenging as businesses get bigger, more complex and more valuable.

"Not every next generation has the skill set to, or the desire to, manage this multifaceted, ever-evolving business," Kerrigan said.

A spokesperson for the National Automobile Dealers Association said it did not keep data on dealers' ages or succession plans.

But experts say dealers need a succession plan, something Cantin said gives a business the best chance to succeed by protecting assets and building a blueprint for a dealership's future.

In one case, a dealer client died unexpectedly without a succession plan, he said.

The dealer's spouse stepped in to take over but wasn't approved by the automaker to do so. Cantin believes a succession plan could have prevented the need for the subsequent sale of the dealership.

Assemble a team, Cantin said.

Teams will vary based on a dealership's size and ultimate plans. Cantin said a lineup could include, among others, an accountant, estate planning lawyer, a mergers and acquisitions adviser, financial planner and a banker.

"And this is whether you're planning an internal transaction or an external transaction, meaning you're selling it to management staff, you're handing it over to the next generation, or you're potentially considering selling to a private or a publicly traded company," he said.

Dealership lawyer Leonard Bellavia, a partner in the Bellavia Blatt law firm in Mineola, N.Y., said in an interview that an owner needs two main people to create a succession plan: an estate planning lawyer and a dealership attorney.

Manufacturers don't require a succession plan when a dealer buys a dealership, Bellavia said, but they do have final say on successors. Even a dealer with an otherwise perfect succession plan could have a manufacturer reject a chosen successor, so it's important for dealers to make sure the successor is on track for approval, he said. Proactively getting a successor approved also allows room for correction, Bellavia said.

Estate planning limits estate tax liability, and the next two years are vital because a federal tax exemption worth about $13.6 million is set to expire in January 2026, an amount expected to get slashed in half after the deadline, he said.

Today, the first $13.6 million of someone's estate is exempt from the federal estate tax. The federal estate tax's highest rate is 40 percent.

To shield one's business, transferring ownership of assets into an irrevocable trust provides the safest option, Bellavia said. Many dealers fear giving up control in such an arrangement, but that doesn't happen, he said.

"So operationally, nothing changes," Bellavia said. "But it insulates the dealership upon the death of the dealer even if it happens 20 years from now, from having to pay an estate tax, based upon the exemption in place on the date of death, even if gets to an amount much lower than $13.6 million."
Take a dealer who has a net worth of $15 million. Without an estate plan, that dealer's heirs would still get the $13.6 million exemption and pay 40 percent on the difference of $1.4 million — $560,000. But it that same dealer waited until Jan. 2, 2026, to put it into an estate, and the exemption gets cut to $7 million, as expected, then the dealer's heirs would pay 40 percent on about $8 million — for a tax bill of $3.2 million. Putting the estate in a trust now ensures the dealer gets the $13.6 million exemption since it will be grandfathered in, Bellavia said.

Dealers with estates worth less than $13.6 million should consider creating a trust before the Jan. 1, 2026, deadline, he said. Let's say a dealer with an estate worth $10 million puts that into a trust and lives another 30 years. If his estate's value grew to $30 million, the entire appreciation is protected from the estate tax, Bellavia said.

The transfer date is the key for valuation, Bellavia said, adding that often, dealers get so caught up in the business, they don't think ahead.

"They fight every month to make money, make money, make money," he said. "In the meantime, if they do nothing about estate planning and succession planning, they give it all back to the government."

Cole Potamkin is COO of Potamkin Cos., a holding company for his family's businesses, including Potamkin Automotive Group Inc. and Potamkin Development, the real estate arm for Potamkin Cos.

Third-generation leader Potamkin, 26, told Automotive News that he credits his father, Alan Potamkin, 75, and his late uncle, Robert Potamkin, who died Nov. 30 at age 77, for fueling the company's success with a distinct business plan. Potamkin Automotive, of Miami Lakes, Fla., ranks No. 36 on Automotive News' list of the top 150 dealership groups based in the U.S. and owns dealerships in New York, Pennsylvania, Florida, Texas and California.

A centralized management company supports Potamkin's dealerships, where general managers run stores independently, sometimes as equity partners in the dealership and/or real estate.

When the Potamkin succession plan moved Cole Potamkin to the position of COO in September 2022, it was to oversee the company's entire portfolio.

Potamkin said the group's succession team consists of an estate planner, tax attorney and tax accountant. The group checks in about once a year, or as needed. Potamkin's father, now retired, is chairman of Potamkin Cos., and Mark Manzo is CEO, while Cole Potamkin "trains for the future," he said.

"The upside takes care of itself," Potamkin said of succession planning. "You owe it to yourself and to your family to think though all possible outcomes."

The Rawls Group, of Orlando, Fla., is a firm that oversees elements of a company's succession planning, including segments such as growth goals.

"A big misconception that we have to fight against is that succession planning is about death, retirement and taxes," said Kendall Rawls, director of development. "Succession planning is more about succeeding through a transition."

Rawls told Automotive News that time and costs vary in creating a plan. The Rawls firm has worked with some clients for nearly 30 years because succession is a "process, not a project," she said. The first steps, including information gathering, could take a few years, and an elaborate plan could cost up to $300,000.

"It's something that they're going to get a return on investment, tenfold," Rawls said.

Kinsel Motors, formerly of Beaumont, Texas, owned by the Kinsel family, chose to sell its remaining dealerships in May, rather than bring a fifth Kinsel generation on board. Craig Kinsel, a fourth-generation family member who ran the business after his father, Joe Bob Kinsel, retired, said his family is scattered across the country, and they had other business interests.

"Me and my brothers were trying to figure out, you know, 'What do we do with our kids and all that,' " Craig Kinsel said. "And we just couldn't come up with a good answer."

The Kinsels worked with a certified public accountant and lawyer to continuously update plans to minimize estate taxes. But an honest assessment showed selling would be the best choice for the next generation.

If not planning to sell, dealers must make sure their planned successors — family members or not — are ready and approved by the manufacturer.

Just like the Salinas family.

Fred Salinas, whose career started with Ford, used that inside knowledge to prep his sons well.

The Salinas men worked multiple dealership jobs and graduated from the NADA Academy. They were vice presidents at the dealership before taking over. Austin Salinas, 43, is now president.

Blake Salinas, 39, now dealer principal at Friendly Ford, said the brothers worked to make sure the Crosby store's metrics, such as vehicle sales and customer service index, matched manufacturer expectations.

Ford approved the men as their father's successor in 2017.

"Dad saw dealerships that weren't prepared when the time came, whether it was an unexpected death or other circumstances that forced the next person up in the family," Austin Salinas said.

The brothers on Jan. 10 added a second franchised dealership: Zeller Ford, now Friendly Ford, in Arkansas City, Kan.

Austin Salinas said the two have time before plotting the third-generation takeover, but they are thinking about their own succession.
"I would say in about a decade, when our kids start to enter the work force," he said.