There is a tidal wave coming for the auto industry, and the media is calling it the “Silver Tsunami.” It is a wave of Baby Boomers who are hitting retirement age at a rate of 10,000 a day.
Think about that for a second.
Baby Boomers own almost half of all privately held businesses in America, so that retirement wave will trigger the biggest sell-off of family-owned businesses this country has ever seen. With proper planning, there is still time to ride the front edge of the retirement wave. If you wait too long, you risk being caught in a flood of sellers.
You might think that with so many dealerships being family-owned, these businesses will just pass down to the next generation. I’m afraid this isn’t true. The rate of family-owned businesses that made it to the second generation dropped by half — from 30% to 15% — in the 20 years from 1984 to 2004. And the number continues to drop.
This trend is consistent with what we’ve seen serving family-businesses for the past 40 years. I’ve had countless conversations with dealership owners who built their businesses with the idea of passing it on to their kids, but one day they had to admit that wasn’t going to happen.
There’s nothing wrong with that, of course, unless there’s no Plan B. If you don’t like to think about retirement or selling the dealership you built, you aren’t alone. In fact, according to Price Waterhouse Cooper’s 2019 U.S. Family Business Survey, only 23% of family businesses have a formal succession plan in place.
Succession planning can feel like facing an overwhelming number of difficult questions and decisions. I completely understand why people put it off. But from my seat at the negotiation table for the past 30 years, I can tell you it is worth it.
Are you ready to start thinking about your exit plan? Answer these four questions to start preparing for the Silver Tsunami:
Who is your ideal buyer? Are you open to a large national group buying your store? Or would you prefer a buyer who is going to move in and have a hands-on, personal role in the day-to-day operations? There is no right or wrong answer here, but thinking through this will help a buy/sell broker to connect you with the right buyer when you’re ready.
Do you have someone on your team who might make a great owner for your store? If so, think about what you can be doing now to prepare that person to step into a principal role. What sort of training and opportunity could you provide? What parts of the store has this person not worked in yet?
Do you need a one-time cash out, or are you interested in a slower transition into retirement? Would you be willing to partner with a first-time owner in an advisory capacity as you transition into retirement? We call these “bridge deals” and they can be a great way to invest in the future success of the store while also easing yourself into retirement. In a bridge deal, you retain partial ownership of your store for a few years while you provide backup support to the next owner. You can enjoy most of the freedom of retirement and still generate income for a little longer.
Do you have an accurate valuation of your store? Don’t rely on multiples — there are too many aspects of a dealership that don’t show up in multiples, and those things matter a great deal to buyers. Get a valuation that provides a 360-degree view of the store you built, from inventory and parts to team members, goodwill and location. Then you’ll know what you should focus on to increase the value before you’re ready to sell.
These aren’t the only questions you’ll need to answer, of course, but they are a great start. The Silver Tsunami is unavoidable — the average car dealership owner is 72 years old. A massive wave of dealerships will change hands in the next 10 years. Answering these four questions will help you surf that wave instead of being crushed by it.
Whatever you do, don’t take your foot off the gas with your store. Run it like you’re growing it, all the way to the end. Finish strong so you and your family can enjoy the full benefits of the business you built.