Next-gen Dealers Offer Their Auto Industry Insights, Challenges And Opportunities

Dealer family businesses dig in their heels, little sign of sale.

Meet our next-gen dealer interviewees:

Consolidation will continue to be a characteristic of the next decade for retail automotive. While 2015 brought sky-high valuations for the most desirably placed and performing franchises, next-gen auto dealers we interviewed aren’t looking at their stores with a three-to-five year runway.

According to the most recent Kerrigan Report, public retailers’ acquisition spending increased 31 percent in the first nine months of 2015 compared to the first nine months of 2014. This time last year Warren Buffett became a luminary in the dealership community with the acquisition of the Van Tuyl Group. His comments surrounding the purchase conveyed that more acquisitions were in the near future and the asset would be a long-term hold.

Aaron Berg, chief operating officer at Sunrise Toyota has been in the car business most of his life. When Berg graduated from college, his dad said he was going to buy a store in the New York City area and Berg was ready to go to work for the family business. His dad rejected him saying he didn’t have enough to bring to the table. Berg promptly spent two years working at dealerships in Chicago. Today, as the GM of two family-owned stores, he says he would rather be on the buying than the selling side and while his dad’s response frustrated him at the time, he’s grateful for the experience outside the family’s operation.

Family-owned and operated dealerships still make up a significant amount of the retail automotive landscape. Experts on family business say, about 40 percent of U.S. family-owned businesses turn into second-generation businesses, but only approximately 13 percent are successfully passed to a third generation.

In many cases, the industry’s next-gen dealers have the advantage of the deep-rooted knowledge and relationship with both manufacturers and the communities they serve. But our interviewees are keenly aware of the obstacles they face, here’s how they’re navigating them:

Financial Discipline & Efficient Expense Management

Tony Howard played football in college and focused his studies on finance, but always had intentions of getting involved in the family business. He joined Dale Howard Auto Center right after graduation with a five-year plan to work as a salesperson before moving to management. Health challenges in the family fast-tracked his growth.

Product knowledge and taking care of customers have always been paramount at Dale Howard Auto Center. “I’m sure there was a dusty accounting manual somewhere in the corner but when it came to financials, if Dale said it was okay we didn’t ask many questions,” Howard shared. When they lost Dale last year, he said he and his dad joined a 20 Group shortly after, an experience he says has opened both of their eyes to cost inefficiencies. The family has a unique single-point in Iowa Falls (a community Howard grew up in and loves) with lines from all the domestic manufacturers under one roof.

Berg discussed the long-term debt commitment of their recent new facility construction and existing facility renovation, totaling 80,000 square feet on a 7.5-acre lot. “Fortunately or unfortunately the industry is going to change pretty drastically in that time and I don’t know what that means for my fixed cost structure,” he said.

Customer Expectations & Technology

Keena Mohr started at Eau Claire Ford as a service cashier at the age of 16. Her dad started in the business in Sioux Falls and learned under Rydell principles. Mohr is 24 now and she starts Dealer Academy this week. She says a priority at their store is meeting more customers online, allowing customers to dictate their online and in-store experience, and leveraging social media to humanize the business and promote community involvement.

Blake Underriner started washing parts at the age of thirteen in his dad’s store in Billings. After college he spent nearly five years working for Honda America and Norm Reeves Honda. Today he oversees two family stores in the Northwest. With the technology resources available to consumers, Underriner says transparency is at the forefront of his decision-making. “We’re evolving our mentality for profit generation away from solely gross per car,” he said. This is a simpler transition in the more recently acquired stores.

Rapid innovation and provider fragmentation within the technology space presents another challenge. Howard says customers and employees suffer in the current jungle of manufacturers’ latest programs and the massive market of third-party solutions. “We’re trying to work toward the best customer experience and the pieces just don’t work together yet,” he said. “We’ve integrated a lot of solutions that just don’t deliver.”

Human Capital, Culture, & Industry Reputation

Anticipating the direction the industry is headed is one of the biggest challenges according to Howard, and people are a big part of that for him. “The one thing I really enjoy about the business is people, both employees and customers,” he said. “I saw that in my dad and Dale when I was growing up.”

“The sheer scope of the business demands a lot of time and knowledge; and you have to be able to count on people,” Howard said. A major pain point at their store is balancing operational efficiency and employee compensation when the industry is stuck with the nasty mental image of what a car salesperson is.

Mohr shared that recently Eau Claire Ford adjusted their business hours, eliminating a few non-peak hours to give salespeople more flexibility. She said while she thinks in recent years it’s improved, reputation of the dealership atmosphere and lack of scheduling flexibility keep the representation of women in automotive retail scarce. “It’s going to be a struggle to attract women to the industry,” Mohr said. She sees the store taking an educational approach to recruitment; better informing the community about career paths and opportunity in automotive retail careers.

Underriner has an interesting position in his family’s group. While his dad still operates the stores in Billings, the newly acquired dealerships in Klamath Falls and Walla Walla are viewed more as “petri dishes” to tackle more of the deep-rooted industry challenges with fresh ideas. They’ve innovated compensation, approach to mentorship, and management mentality.

While the Dale Howard Auto Center is taking baby steps in change-management, Howard says, “We’ve made ourselves more open…open to changes that make our people’s jobs easier, make them happier, and benefit the customer to make us more profitable.”

Networking

Many of the next-gen dealers are looking to their peers for networking, council, and strength in numbers. Berg has helped to organize a Next-Gen Committee associated with the New York Auto Dealer’s Association. The group of around 15 young professionals focuses on education, lobbying, and networking. He looks to the group often to navigate today’s environment for regulation. “Local, state and federal regulations require more capital, more time, and more effort,” he said.

“Our goal is to remain relevant for our generation and for future generations,” Berg said. He said the Next-Gen Committee is a priority for him now because members relate to his challenges best (he doesn’t take part in a 20 Group but anticipates he will in the future).

Next-gen dealers have a valuable perspective on industry revolution because they strongly believe in the future of retail automotive. The deck isn’t stacked against this wave of ownership, but the threats are real for those unwilling to adapt. What can the industry learn from this generation’s innovators, driven to remain relevant through this pivotal time?