Instead of passing the family business down to the younger generations, Indianapolis-based dealerships are selling to larger groups.
Overall, the shift in in dealership buy/sell activity can be chalked up to the increasing size and complexity of the dealership groups, e-commerce, and increasing commercial real estate prices. According to a recent report by Indianapolis Business Journal, three locally owned Indiana dealerships were acquired by bigger groups, and this trend likely won’t stop.
According to Rex Collins, an Indianapolis-based partner at HBK CPAs and Consultants, this phenomenon is considered the “graying of the dealership body” or the “silver tsunami.” As dealership owners look to retire, the most logical step is to keep it in the family or sell the dealerships altogether, the latter of which is becoming easier than passing to a third generation.
While second generation owners have seen success, the next in line are either not interested in automotive or it’s not financially beneficial to sell to family, the report noted. According to Collins, the third generation of family automotive groups will have a tougher time due to increasing commercial real estate prices, not to mention experience challenges financially overall maintaining the dealership.
It makes sense that the mom and pop dealerships of today are looking to sell and move on, as the numbers don’t fare well for future generations. Only 4 percent of family-run dealerships make it to the fourth generation, says Erin Kerrigan of Kerrigan Advisors, a firm that tracks the buying and selling of dealerships.
The shift is also a tale of our times; the auto business overall is drastically changing as automakers develop ride-share companies, autonomous-drive vehicles, and electric models that may not require as much service.
As more family-owned auto dealers survey their operations, there are quite a few, not just in Indianapolis, who believe this is the time to sell. Stand-alone dealers may be able to continue in small markets, but for bigger metro markets, the money just isn’t there.
When the value of the average dealership is at a record high, the decision to sell is more attractive for retirees.