What we talk about in this episode:
0:00 Intro with Michael Cirillo, Paul J Daly and Kyle Mountsier.
2:35 In 2021, public companies purchased 260 stores for $9 billion. Private dealers bought 491 stores, maybe spending more than the public companies.
5:09 Alan talks about the trend of the public groups acquiring more stores and the bricks and clicks strategy. He thinks that local groups should start planning now how they can grow to compete in 5 years.
11:34 OEMs historically have a lot of control over the location of their stores, and Alan talks about the breakdown of how it works.
18:03 Alan sees a bigger benefit in acquiring that simply cash flow. He sees the massive influx of talent that can happen when acquiring a store or a group.
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Unknown: 0:10This is Auto Collabs.Kyle Mountsier: 0:12
The reality is is why we're laughing is because Paul was not recording just a second ago. So I'm taking the lead on this one that really and when we think about incredible people in our industry that just have an immense amount of insight because of the interactions that they have with dealers every day. That's Alan Haig and Alan Haig spent a little time with us to tell us a lot about what happened in 2021. And what's happening in 2022, regarding m&a transactions in the dealership space, guys, just an incredible interview. And we hope you actually just enjoy the way we got to talk to Alan.
Paul Daly: 0:55
Alan, thank you so much for spending some time with us today from your summer office, really appreciate you giving us a few minutes to share all the insights of your travels, and what you're seeing out there in the industry.
Alan Haig: 1:09
Well, I appreciate you having me on so to speak, it is still a really active time in the Buy Sell market, we've had a chance to compile the stats for the second quarter, the first half of 2022. And the total number of dealerships sold so far this year is up 3% from last year, which was by far record year in the industry. And most of that increase is coming from private dealers buying private dealers. Last year, we had a huge number of transactions posed by the public companies, they spent over $9 billion on acquisitions last year. Normally, they're spending around 750 million, maybe a billion dollars in a good year. So they did some really large transactions last year. And I think they spent the first few months, six months of this year digesting some of those, but they're coming back in the market as well. So
Kyle Mountsier: 1:59
we're saying $9 billion desire to be there. I just have to stop you there. Because, you know, I think a lot of times, you know, there's plenty of people that listen to the Auto Collabs podcast and you know, from, you know, industry partners, to dealers, to some salespeople and account reps and everybody kind of in the ecosystem. And when we when we like glaze over like, oh, 750 million, sometimes a billion, but $9 billion in acquisitions from large and smaller groups last year, that's that's last year.
Alan Haig: 2:35
Well, 9 billion was the amount just by the public companies. Wow, that's the public company. So public companies bought 260 stores last year, private dealers bought 491. So spending by the private dealers might have been even more, you know, we don't have any way to track the spending. But it was a huge year, you know, and some of it was the public companies have all adopted a similar strategy now, where they have this bricks and clicks strategy, you know, Lithia is explained it pretty well. They want to build out a nationwide network of dealerships through acquisitions. And then they're going to use their Driveway, app or website to penetrate into the rest of the market and take share from dealers that don't have the same capabilities that they have online. So that's that's a Lithia's strategy if you listen to their press release, they refer to they say Lithia and Driveway Lithia. And yep, I have a hunch though, rebrand the whole company Driveway at some point and have a national brand. So you might
Paul Daly: 3:44
think they're gonna call dry like your guess is that they're going to just everything will be driveway there will no longer be two brands. There'll be the same brand Driveway trading as it is right now. But it'll be everything franchise used cars all wrapped up. If they can get past the factories, that makes sense to me. Right? There's Carmax you can go to the stores where you go Carmax website, you know, be weird if you had, you know, Lithia's bought all the stores in the most cases, they've kept the original brands, just like AutoNation did when they bought a lot of stores, they have one brand in the market. But about five years ago, Auto Nation rebranded all the non luxury stores on our nation. And I think that's gonna help with their digital strategy. Because then as a consumer, here's the thing, one brand in the market automation, automation automation, not, you know, Moroni Ford LA Ford those different sub brands. But at any rate, this bricks and clicks strategy is something that I think all the public companies are adopting because they've all been more active, right? I mean, Lithia's has been the most active. Asbury has been extremely active last couple of years since David Holt's kind of took over that company. You've also had Sonic coming back into the market. They bought a large group Group One bought prime last year. They're out buying stores. Penske has been a little bit quiet. And they've been focusing maybe on their used car strategy. So they're all really all doing this. And that's something that honestly, we're recommending to private dealers is, is, today everybody's selling every vehicle they can get at full price plus, right. But in five years, when the inventory comes back, and you have to fight for customers, you know, today, you know, people are shopping on their phones and their computers to buy most types of inventory or most types of items. And we know there's been an increase in digital retailing on the auto side as well. But I feel like in five years, when there's plenty of units out there, those groups that have the capability to attract customer with, with 10 brands in the market, or 20 brands in the market knew that they can sell and 1000s of use cars available. And customers can go and touch them physically, I think they're going to have an advantage over the person has one or two stores, and can't have the same mindshare of customers. You know, when you go search for Ford near me, it's going to be Lithia that pops up or Carvana pops up, not the local guy who just says one store. So we're encouraging folks to be active now on m&a side to build out a larger group of stores in our estimate, as we have perhaps 10 of the major brands that will cover about 75% of consumer demand. And you'll have 1000s of vehicles new and used in the local market available for customers to shop, you'll have a local brand of 10 stores in a market, you should be able to attract lots of great talent, because they'll know that, hey, if I join this Honda store over here, I'm a service advisor. The service manager may be here for 15 more years, but there's another company in that group, another dealership in that group where they may be an opportunity for me for advancement.
Kyle Mountsier: 6:55
So So what you're saying is, because right now I see a lot of groups where they don't have where like they have a store in you know, let's just let's just talk Tennessee, that's why they've got a store in Memphis they got a store in Clarksville, they got a store in Nashville, and that's, you know, a three to five store group. But really there's there's, it's not just growth for growth's sake, especially on in the smaller groups. And the idea is, hey, go acquire regionally focused, you know, groups of 10 is kind of the is the sweet spot it sounds like for, for for a smaller group to maintain a region ality. And like cover the customer base is kind of the idea there.
Paul Daly: 7:35
Yes. And this is a concept that well, not just don Flo, but he's the one that I spoke to most about it. And he's has a group of stores in North Carolina, he's got about 30 stores. And so he covers all the brands, he goes from the mountains to the coast. And he has this phrase, which is, local scale is more powerful than national scale. And there's no point in having one store in 250 different towns across the country, the customer doesn't get any benefit from having one store near them. But the customer will benefit hip 10 near them, right you have more opportunities for them to find what they're looking for. Coming back for services easier retaining that customer on the next vehicle purchase or lease is easier. So local scale is more powerful than national scale. So we're definitely encouraging dealers, when a store comes up in their market that they're interested in. It's almost like Monopoly, you know, when you land on a property buy it don't pass up on. And we do have clients that are very successful and friends of ours that you know, they'll buy stores here that's underperforming, they'll buy another one up in New England, they'll buy one in the Midwest. And they can they can still still succeed with that. But I feel like long term if they have two or three stores in a market, and Lithia has got 10 or another local dealers got 10 or 15 or Don Flo's case 30. I think the local small dealer is a disadvantage compared to the local big dealer. And the national company doesn't have any strength over the local guy. He just has one or two stores in that market. Hmm.
Kyle Mountsier: 9:14
So so the I think that's really key because I was going to ask this question that I had all this m&a activity in UP 3%. And everybody's kind of like, you know, if you're paying attention, you're looking at the publics. That's the news that's out there. That's what automotive news or Wall Street Journal or, or, you know, the stock market is going to point to and say this is what's going on? And the question always is, well, what do I do as the local person that you know, that's three to five? And where do I go? Do I go outside my market? Or do I stay inside my market? And what you're saying is like, stay inside your market stay regionally focused, and you have a brand impact because of that. So it's like, it's almost like your m&a Strategy is your marketing strategy, and they are tied tightly together.
Alan Haig: 9:55
Yes, and I'm not saying that's the only strategy that can be successful friends If you have a Toyota store in a single point market, you're going to be successful. You know? Yeah, you have a Porsche, or Mercedes or a BMW store Lexus store and a single point market, you're going to be the only story. But if you've got Are you seeing?
Kyle Mountsier: 10:16
Sorry, yeah, go ahead, go ahead.
Alan Haig: 10:17
I'd say if you've got one Chevy and one Ford and one Nissan and the Metro market, I don't think you have enough critical mass to attract the best talent, I don't think you have enough critical mass to attract the eyeballs on these tiny little screens that my kids are going to be shopping through in the future. I think you have to have more local scale to attract these these shoppers in the future.
Paul Daly: 10:44
So Alan, you give Go ahead.
Kyle Mountsier: 10:48
Can you give a little insight into what like have? Have you had conversations with OEMs through these acquisitions? In what their perception or preference is? Or is it just like, they're looking at more of a silo on profitability, CSI? And, and, you know, and retention, and it's just they stay in that silo for to me to figure out if they can handle their brand, or is there? Is there a level of attention that the brand is that the OEM is recognizing on whether or not you're national or regional?
Alan Haig: 11:23
I think, well, the all the public companies have
Paul Daly: 11:23
Yeah, they're realizing what you're saying. framework agreements that dictate when and if they can Right. And that, you know, that leverage tipping point when the acquire another of their franchises. So historically, the more the more consistent experiences and consistent factories haven't wanted a dealer to have too much control ownership and leverage that the group has, the stronger the and a market because of that dealer doesn't perform great. their market share suffers. So for for Honda used to be here, you can't have any contiguous Honda stores. And then they would draw the map so that every store connected to each other. So that it was a little more realistic, they said you can't have more than 20% of the stores in a market. So, you know, you couldn't have more than two stores in a market unless there were 10 stores in the market. Hyundai is now pushing for dealers to have more power in a market. So they want they don't want their four points in the market. They don't want four dealers they want. brand is going to be is basically what I hear you saying?
Alan Haig: 12:34
Yeah, and I think that they believe that in the past Hyundai, you know, Hyundai stores used to be cheap, they used to make $600,000 a year and the multiple was low. And then they got great product. Yeah. And the margins went from $800 a car to $4,000 a car. So now Hyundai stores are making a lot of money. And so now Hyundai wants to take the dealers that they have and many of the original dealers used to be not that interested in Hyundai compared to their Ford or Toyota stores. Now they want dealers that aren't committed to Hyundai to basically get out. And so you're somebody who was gonna invest in it to put in the bronze thing he's gonna heavily promoted, etc. So, you know, that's, that's one of the franchise's that we see that wants to have more consolidation within markets. I will say Mercedes also appears to want to have fewer dealers owning more stores. You stop competing against the other Mercedes dealer a little bit, you focus more on the customer experience. So it's, it's not clear, right? I mean, it's everyone's a little bit different. But anyway, this is this is one recommendation that we're making that now when inventory is limited, is a good time for dealers to be making acquisitions, because the profit is going to be so high. Because if they can accumulate stores now, so that when the supply comes back, and the margins go down, and dealers have to compete for for market share, again, they'll be better positioned within a market to maintain or take share from smaller dealers. And what we're seeing and a couple other trends we're seeing, as long as we're on trends is we're seeing many dealers choosing to divest stores now. Almost every group of 10 or more stores probably has a couple dogs in there. They've never found the right manager, maybe it's in an outline market, they plan on growing there, but they only found one store. And so they never have the best talent in that store, where they have a facility issue and they don't want to put five or 10 or $15 million into a new facility. But with so it's just been a laggard for them. And I saw this when I was at AutoNation. You know, they would buy stores and regularly sell stores. It's just part of portfolio management. But now that stores are all making money, and it didn't it wasn't that A lot of losers, a lot of sorts of leaders, and now that they're all making money, we're seeing larger groups say, hey, I can probably get some good value for this store now. So I'm going to sell this outline Chrysler or store on Honda store or whatever, how Audi store in some cases and say, Okay, I can sell it for a nice amount of blue sky, I'm gonna take that capital, redeploy it into my core market. And then we're also seeing some dealers that maybe they're near retirement, but they're not quite ready to leave the business. But they're looking at the values for stores that their buddies are getting when they sell. And they're thinking, you know, it'd be nice if I could get some of that value, but not really be done with the business. And so we're starting to see, dealers sell a minority ownership stake in their company, or in some cases, a majority ownership stake in their company, to other dealer groups or investors. So for instance, our most recent transaction we advise, on the sale of John Elway's Crown Toyota, in Ontario, California, which is one of the top tip top Toyota stores in the country is one of the best well performing in the country. And usually what top five in terms of sales, the owners there, that was John Elway, Mitch Pierce and Paxton Gange. And Dan Grubbs, too. They sold a 90% interest in that dealership to the Jeff's Wickard Automotive Group. So they're still in the Toyota family. They still have cashflow from that dealership, they're not retiring. They're gonna take that capital from California, they only had one store left in California, and they're gonna redeploy it in Denver, or other mountain states where they have other dealerships today. And Jeff Swickard, who, you know, has, he's been one of the most aggressive acquirers in recent years. I liked this deal for him, because when you're acquiring a high performing store, there's always some upside available. And I think they maybe have some ideas there. But there's also a lot of downside. So by keeping Paxton Ganye, in the chair, as general manager, partner, by keeping Mitch and John on as partners, I think they're going to keep that store wholly intact in terms of the personnel and the momentum, culture, etc. I think you know, that's a one price store. So I think that there's a chance that Paxton Ganya has been awkward in that store, can can educate some of the other snickered operators about what it's like to be one price dealer. What are the benefits? Yeah,
Kyle Mountsier: 17:43
it's almost like acquisition for learning. Yeah,
Paul Daly: 17:45
it's like your strategic, like DNA, like how do we get that DNA? As you know, how do we intermingle those things, so that apparently, like leadership is, is saying, like, hey, we want to explore that, and how much how better to explore it than with a really successful case study, that is now part of the family.
I think that any any any group is acquiring, they're looking for cash flow. But they also really need to be looking for talent. Because as you expand, you need more talent, right. And so, in the AutoNation days, when I first got started, we're doing stock for stock deal. So all the operators stayed. And many of the best leaders at AutoNation were executives at the dealership groups that AutoNation acquired, and they stayed, and they had a bigger opportunity, and they grew and they were really a key to keeping that company together.
Kyle Mountsier: 18:35
So it's interesting, we don't talk a lot about that in automotive, or in the retail side of the business. But the reality is, is that in the technology side of the business, this happens all the time in any technology is that is that a good amount of the acquisition is not just for the IP, or the technology, or even the or even the profit that it's actually the leadership or the founders or anything like that, that that they're acquiring that brains space or the leadership capacity just as much as they are acquiring the the the actual company and you know so you saying like, Oh, that's actually happening in automotive to instead of going and just sniping those people it's like, hey, look, we know we need to grow we want to grow in this region. Let's go find the places with the best talent because we might groom that into additional resources for for our company. I think that's a really, especially when all we've been talking about an industry is hard to find talent need to hire hiring is hard, all that type of stuff, Technic finding technicians, it's like you want to go find some more technicians buy some stores, you know? Yeah,
Alan Haig: 19:45
I think it's, it's a win. I like to view it as a win win win. I mean, Toyota has loved I think their affiliation with John Elway and Mitch Pierce and Paxton Ganya and that's continuing. And, and Jeff also has a support of Toyota and a number of other factories. He's, for instance, chairman of the Mercedes Benz dealer Advisory Board, he's going to be he bought a whole bunch of cash flow with this deal. But he also has now access to some of the most successful and best known auto retail or some of the most progressive. And as he evolves this company, you know, I'm not sure Jeff is going to do this, but I would assume he's going to be talking to Paxton about, could we deploy one price at our other stores? Would that make sense? Would we win or we lose? What would the transition be like, because it's not easy to do. So that's, that's an example where a group decided to sell a majority ownership stake in their company, but not the whole thing, they really didn't want to exit from the relationship with Toyota, they didn't really want to exit from the profitability of that business. But they did want to get a lot of liquidity out of liquidity out of it for investment in other areas where there there's a little stronger. Another trend we're seeing is where a dealer is not interested in exiting, they still want to do what they've been doing. But they do want to take advantage of the current high values for dealerships today. And they're willing to sell a minority stake in a company, that's something that's new, where a dealer could come in and say, Okay, I'm going to buy up to 49% of the of the value of your company, you are going to deal with Mr. Dealer, we're going to stay in the chair, you're going to make all the decisions about hiring, firing, inventory advertising, you're going to deal with the factory. I'm really here for the cash flow. And I don't have the ability to call you and say I want you to change the pay plans, or advertise more or less, I sit here and I'm a passive investor, at some point down the road I want to sell, but I can't force you mister do or sell your shares, I might sell my stock. Or maybe in five years, you decide you're ready to fully retire and we all exit together. That's another new see for dealers. Because because you know a lot of people, they're having fun in the business right now. Right? And it's all time high profits. They've never had this much fun. But at the same time, you know, what happens with the agency model? What happens with EVs? What happens? If they get sick? What happens if the competitors get better? There are all kinds of risks that exist, that it's not likely to get better in our industry, if anything, there's more downside risks in terms of profitability. So a lot of these folks are saying, Okay, well, if I could sell 40% of my company, let's say the company's worth $100 million, I get $40 million in cash, I can use that to invest in real estate, in the stock market, whatever I want to do, I can start to give funds to my heirs, if they want to start their careers outside the car business provides a lot of liquidity for them. And they still own 60% of the business, it's making three times as much as it was before. So their cash flow is not really going to be hurting compared to pre pandemic times. You know, it's not like interesting that they're on grass or anything that they're be on hard times. So it's it's a, it's fun for us right now to have these opportunities to represent dealers where, hey, if you want to, you want to ring the bell right now, and we're seeing this record setting prices. I mentioned, you know, this crown deal was the second most ever paid for a single franchise dealership. The highest group one pages earlier this year for Charles mon Toyota was over 200 million in blue sky for one store. So when I raised this glass, you think this is a Guinness, or a cup of coffee. But I'm going to be celebrating our success this week and toasting John and Mitch and Paxton and Jeff's worker on their success. Because I think that we're going to continue to see some records setting prices for dealerships for the rest of this year and different brands.
Kyle Mountsier: 23:54
There you go. Wow.
Paul Daly: 23:55
That's like it's ever happened.
Kyle Mountsier: 23:58
Podcast, hosted whatever it is. I'm toasting because it's fun. And it's uh, you know, I love that that. Like we're having fun in this industry. There there. There's m&a activity, but people are wanting to stay in. It's not it's not just like, you'd think it's just like a cash grab. But no, it's like it's an interesting movement of funds to make sure people can stay in the industry. They can keep having fun. And there's there's a there's a look towards solving the customer experience with the m&a activity. There's a regional focus, there's a care for the customer, and it's not just millions of dollars flying around for millions of dollars sake, it's millions of dollars that has a ton of intentionality with it, and I think the industry is raising a glass Well, I think we're gonna do that too. And when we hang out with you at ASOTU CON we're really excited to kind of bring the insights that you that you bring there. We'll raise a glass with you we'll throw a party with with the industry the only the way that we only can at ASOTU But, Alan, thank you so much for joining us for bringing us your insights. It's been, it's just been a learning experience for me the last few minutes. So thank you.
Alan Haig: 25:08
It's my pleasure. And I look forward to toasting you in person. Not too far from now.
Paul Daly: 25:17
Alan is such a depth of knowledge, you can tell he's in the data every single day, it's like you put a quarter in, right and out comes the most relevant, pertinent information about m&a insights
Kyle Mountsier: 25:29
from experience, right Cirillo
Michael Cirillo: 25:31
substance that can only come from experience, that's actually
Paul Daly: 25:35
true. You know, m&a is kind of got that vibe about it, right? It's like blue suits. Right? But the truth is, it's less about I mean, it's about the numbers, let's be honest, but really, m&a is so emotionally tied to the actual client, right? You have a client, and he represents mostly sell side. So this is a lot of decision making of like, should we sell the family business that has been in the family for generations and generations, so it doesn't
Kyle Mountsier: 26:02
surprise me real quick, I also really appreciate the fact that he did tie m&a activity to the customer experience. So you know, originality and understanding how you can serve a customer as you acquire dealerships or as your dealership is getting acquired and how that actually might be better for the consumer, if you operate correctly, in a regional ecosystem, I think is it's a key to understanding any type of transaction technology industry partner, anything right now is tying it back to the customer, right?
Michael Cirillo: 26:31
I'm continually blown away at just how vast this industry is that we work inside of, like, we talk a lot about community. But like I think of just how versatile and vast it is, in the sense that like, I'm a tech marketing guy, there is an infinite wormhole that I can go down and only see the industry through that lens. Then all of a sudden, like, I'm not even thinking about m&a. I'm not thinking about it at all. And yet there's just as vast and infinite a wormhole to go down in that direction. And it just makes me it just increases my appreciation and respect for dealers operators, because they're getting hit with all they
Paul Daly: 27:14
have to bang they have to handle everything, like
Michael Cirillo: 27:17
everything. And so just so much respect for the dealer community. Love this conversation with Alan Haig. We hope you did too. On behalf of Paul Daly Kyle Mountsier Michael Cirillo, thanks for joining us on Auto Collabs
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