Van Horn Automotive ESOP hits majority

Van Horn Automotive Group has not acquired any dealerships in 2022, but nonetheless was involved in a transaction in which its majority owner shifted from one person to nearly 400 of its employees.

Van Horn Automotive employees previously owned 30 percent of the company as part of an employee stock ownership plan, or ESOP, which launched Dec. 31, 2015. The company opted to launch the plan in part to help boost hiring and retention and add to its dealership count. It can also help with succession planning, ESOP experts say.

In March, Van Horn Automotive's majority owner and co-CEO Chuck Van Horn left to focus on Van Horn Development, a separate real estate development and property management company and the automotive group's employee ownership rose to 77 percent.

"It was basically just Chuck's way of exiting the business," said Jeff Niesen, president at Van Horn Automotive, of Plymouth, Wis. "When he sold his percentages [to the ESOP], the way we had to reorganize everything together, he kept a tiny, little minority" interest.

Niesen said Chuck Van Horn still owns around 2 percent of the company. Niesen, along with Van Horn Automotive CEO Teresa Van Horn; Brian Wieland, the group's used-car director; and the estate of the late J.P. Van Horn, collectively own the remaining 21 percent.

Teresa Van Horn is Niesen and Wieland's aunt. J.P. Van Horn, who died in 2019, was Teresa and Chuck Van Horn's brother.

Niesen said the plan to grow the ESOP to 77 percent from 30 percent had been in the works for a while, but the COVID-19 pandemic "blew everything up."

"It's a very long, drawn-out process of multiple independent valuations done," Niesen said. "We had two or three different valuations to get an actual price of what you're going to sell for. And then it has to be approved by the board of directors."

An ESOP is a form of a retirement plan, according to the ESOP Association in Washington, D.C., which notes that such programs are governed by regulations similar to what covers 401(k) plans. Shareholders who decide to sell stock to an ESOP also may be able to delay or even eliminate capital gains taxes, according to the association.

Mary Josephs, CEO of Verit Advisors, a Chicago succession advisory firm specializing in employee ownership, said an ESOP presents itself as a very friendly shareholder.

"For a service business, an ESOP offers a path to retirement wealth for every employee," Josephs said. "What you see in high-performing ESOP companies, which Van Horn would be one, [is that] the person's job matters more because if they do their job well, the company does better. If the company does better, it's worth more and therefore they have more wealth in their retirement accounts."

ESOPs also are exempt from federal income taxes, Josephs noted.

There are over 6,549 companies with ESOPs in the U.S., according to the ESOP Association.
While it's unclear how many dealership groups operate under ESOPs — Niesen estimated the total to be just a handful — one of the largest groups in the U.S., Carter Myers Automotive, does.

Eich Motor Co. in Minnesota and Roush Auto Group, which has locations in Ohio and Illinois, also promote employee ownership on their websites and social media pages.

In the past, some ESOP experts said that carmakers didn't want their franchisees to have ESOPs due to their complex structures and concerns they'd have to deal with more than one executive.

"I think there's been an evolution in the thinking of the automakers that these types of companies, that have the culture and care of customer service and loyalty and running efficiently, do really well," Josephs said. "We've broken the ice over the last two decades."

Today, Van Horn says 386 of its 711 employees are in the ESOP. To qualify for Van Horn Automotive's ESOP, employees have to be 18 or older and work at least 1,000 hours in a year. Once employees work for one year, they enter into the plan and become fully vested five years after that, Niesen said.

"When you have someone that's fully vested, they have that much more of an interest in staying because they can just increase their pension that much more," Teresa Van Horn said.

Jenny Krebsbach, Van Horn Automotive Group's controller, is one such employee. Krebsbach has worked for the group for 37 years and has been part of its internal ESOP committee since the program launched.

"It's a big reason why I would stay maybe a little longer or stretch out my retirement," Krebsbach said. "Obviously, I'm not looking to go find another job."

For Van Horn, the ESOP also helps to recruit employees.

"The longer we go and the bigger those account values get, the more of a recruitment tool it becomes," Niesen said. "Because now you can tell somebody, 'Look, we've got people that have $200,000, $300,000, $400,000 sitting there that they didn't contribute to. Do you want to be part of this?' "

Van Horn Automotive has 15 dealerships, including 13 franchised and two used-vehicle stores, across Wisconsin and Iowa. It closed an Alfa Romeo-Fiat dealership in Iowa in September. Van Horn's most recent acquisition was in late 2020 when it bought a Ford-Kia dealership in Sheboygan, Wis.

"We're always looking," Niesen said of acquiring stores.

Niesen said that Van Horn Automotive having an ESOP is sometimes seen as a selling point by dealers divesting their stores.

"When you talk to sellers, they're either in one camp or the other," Niesen said. "They're concerned about who they're going to sell to because they have longtime employees. Or maybe they just want every last penny. And we've dealt with both."

Niesen thinks the number of dealership groups with ESOPs could grow in the future.

"I suspect more dealers will probably start to look into that [ESOP] as an avenue [for an] exit strategy," Niesen said. "But you got to have a pretty good core in place. Like, if Chuck was looking to exit, this is the way that provided the least amount of disruption to the company because we already had a pretty solid management team in place."