Guest commentary: Dealers have big decisions to make on whether to stay or sell

During the past couple of years, car dealers have hit the jackpot. They experienced historic profitability amid the COVID-19 pandemic. However, challenges such as threats to the franchised model and the transition to electric vehicle sales and service have many considering selling their business. Most are playing with the house's money, which only adds to their dilemma.

Years ago, conventional wisdom held that owning a dealership was not much more than a substitute for a job. Dealership value was found in its real estate, while blue sky was the icing on the cake. That changed with the arrival of public ownership and the consolidation of the industry. AutoNation founder Wayne Huizenga was the first to unlock dealerships' true value. It isn't hard assets where the ultimate value is found — franchise and earnings potential are where it's at. So rather than a job, dealers learned they had a valuable investment, which should be treated as such. What to do with the investment now? Keep rolling the dice, double down or cash in the chips?

Many dealers continue to roll the dice even though blue sky values are close to all-time highs. Not that long ago, one of the public consolidators presented a top 10 megadealer with a billion-dollar offer for his empire. He turned it down. Why? "If I take that offer, I'll just be another rich old man at the country club. Now I've got community recognition and fealty of all. No matter what may come, I'll always have enough money to put gas in my yacht. I'm not worried about the future. I'm having fun now."

Recently we were contacted by a dealer in his mid-80s with multiple franchises. Forget about selling. He's looking to double down and acquire more dealerships. Talk about optimism! Often, dealers with multiple franchises are not just staying at the table but are looking to grow. Makes sense. They've got strong balance sheets, know their business, have experienced management teams and are typically uncomfortable with using third parties to manage their assets. One more dealership please!

Succession is a time-honored approach for many older dealers, particularly since they've already won at the casino and made all the money they'll ever need. Instead, they bet on their kids and turn the dice over to them. That's not to say they don't hedge their bets.

For example, they'll often retain ownership of the real estate and collect rent. Despite the common belief that progeny won't work as hard as their parents, we know many instances where the younger generation brings energy and modern practices to the casino.

They may not have the risk-taking guts their parents had in the beginning but instead are more conservative and aim to retain what's already been built.

On the other hand, many single-point or small chain dealers are cashing in their chips. They worry they may not have the resources to overcome the tsunami of changes coming at them. They might as well access the hot seller's market available today. Often, they're in their 50s and 60s, have long runways ahead and have other interests they've been looking forward to like buying that island.

Sometimes it's just that they're not having fun anymore and aren't excited about the future.

Many experts are betting the casino will likely close its doors in the not-so-distant future. Until then, most dealerships are still very profitable. The question is, are you going to continue throwing the dice? And for how long?