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Old 04-18-2013, 01:14 PM   #1
XDCX
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Default Virginia Chevrolet Dealer to close due to GM's Facility Demands

In a story I fear will become more common, a newspaper report indicates that Wyatt Chevrolet from South Boston, VA will be closing their doors because they do not want to spend the money required to meet GM's new facility demands. Here's a link to the report - click here

Wyatt Chevrolet has a 74 year history in South Boston and likely shares the struggle that many rural dealers feel as they try to compete in an industry that has razor-thin margins. The more specific threat, in this instance, is an OEM that's increasingly putting demands on their dealers to make investments that don't necessarily add to their dealership's sales volume or profits.

It's sad to think Wyatt Chevrolet survived the GM OLDCO cuts, the worst recession since the Great Depression and they get taken out because GM's facility demands.
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Old 04-18-2013, 04:36 PM   #2
Lakeshow
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Sad story for sure, hope he enjoys the hell out of retirement.

We've seen two dealers in the last six months do the same thing. Both made it through BK untouched, but severed ties with GM due to being starved of the inventory they needed and costs of facility upgrades to stay competitive.
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Old 04-19-2013, 01:21 PM   #3
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We've seen two dealers in the last six months do the same thing. Both made it through BK untouched, but severed ties with GM due to being starved of the inventory they needed and costs of facility upgrades to stay competitive.
That's interesting - especially the part where some NEWCO GM Dealers are having trouble getting enough inventory/allocation to remain viable.

That said, I'm surprised these rural GM dealers have decided to close rather then trying to sell off their dealership. Given the recovery in U.S. auto sales I'd think there's some General Manager out there who's just waiting to invest his/her life savings for the chance to get a store.

Who knows, maybe there's not much of a market for smaller/rural dealerships?

I'll send an email to Moshe Stopnitzky from Performance Brokerage Services and see if he has an opinion he'd like to share on the market for smaller/rural stores.
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Old 04-19-2013, 04:26 PM   #4
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I'd like to hear Moshe's opinion, have actually thought about messaging him on the subject.

A smart General Mgr that has been dealing with GM the last five years should know better than to put his life savings in a small rural dealership in my opinion.

The other big hurdle that many rural dealerships must get over is getting GM to approve another buyer. That's going to be extremely hard, considering they'd like them all gone anyways.
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Old 04-19-2013, 07:43 PM   #5
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It is a sad day for all small hometown dealerships. I recall Fritz saying this during the GM 2009 BK:

"We know that our strong presence in rural areas, small towns and "hub" towns gives us a strong competitive advantage on average of more than 10 points in market share, and we would like to maintain that advantage. When our rural and small town dealers perform to our standards, they are a huge asset, and so we intend to retain an extensive rural network of 1,505 dealers nationally."

I feel for these people both employee's and residents of South Boston. To lose your your hometown dealership, now having to travel outside of the community to get service and recall work done. And supporting the Little Legal teams, Friday Nite Football something we as dealers have done forever.

To GM Chrysler and Ford we are just our dealer code no matter if we sell 10 units a year or 3,000 units a year, the CEO's VP and brand managers don't care if we can put up the arch all they care about is UNIT NUMBERS. It's becoming a Sad State Of Business.

I too would like to hear Moshe's opinion of where this market place is heading for Rural and Hub-Town dealerships.

@Lakeshow from what I'm hearing GM is pulling First Right's on a few small dealers during the buy/sell process.
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Old 04-20-2013, 09:40 AM   #6
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Quote:
Originally Posted by Lakeshow View Post
I'd like to hear Moshe's opinion, have actually thought about messaging him on the subject.
Quote:
Originally Posted by ohiobuckeyes View Post
I too would like to hear Moshe's opinion of where this market place is heading for Rural and Hub-Town dealerships.
I received an email back from Moshe - he's currently away from his office but he'll respond to this thread with his thoughts when he returns.
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Old 04-20-2013, 09:52 AM   #7
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Quote:
Originally Posted by Lakeshow View Post
The other big hurdle that many rural dealerships must get over is getting GM to approve another buyer. That's going to be extremely hard, considering they'd like them all gone anyways.
Quote:
Originally Posted by ohiobuckeyes View Post
@Lakeshow from what I'm hearing GM is pulling First Right's on a few small dealers during the buy/sell process.
That's interesting.

I'm obviously not a lawyer but I think it would be hard for an OEM to outright block a buy/sell if the dealership is viable and it's meeting the OEM's standards for MSR, CSI and facility compliance.

To ohiobuckeye's point, I could see an OEM exercising their right of first refusal and paying a modest amount of Blue Sky and then simply closing the point. Then again, why would GM (or any other OEM) want to close a rural dealer if they've already managed to transition to NEWCO and they survived the recession?
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Old 04-22-2013, 07:17 AM   #8
lsx only
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ebe is not required to sign up for, i would like to know the whole story
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Old 04-22-2013, 01:15 PM   #9
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Originally Posted by lsx only View Post
ebe is not required to sign up for, i would like to know the whole story
That's a good question - I'm not sure exactly what GM was requiring the dealer to do to upgrade his facility. The newspaper report mentions a requirement for a new façade but it's not clear how much that would have cost.

I'll send an email to the dealership and make them aware of this thread and invite the owner to join the forum and provide us with more information.
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Old 04-22-2013, 02:13 PM   #10
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Dad and I walked into XYZ Chevrolet this winter to say hello to some old dealer friends, and check out the $1.5million remodel on their less than ten year old building. We were met in the showroom by the owner and as we walked towards him my father slipped and fell on the wet, snowy floor. The owner tells us that happens weekly with this new tile GM required for the remodel. My father jokingly tells the guy, "maybe you should send any claims to GM and see if they'll pay them for you." The owner replied that he already mentioned that to his rep, and the reply he got was..."You know Mr. XYZ, you didn't have to do that $1.5million remodel and use our required tile, that program was optional."

His take on this "optional" program was if your five nearest competitors are doing it and getting the kickbacks and you're not, you are already at a disadvantage price wise. He acknowledged that a good dealer with great service, etc. can retain a good portion the customers without the program, but a lot of times you'll lose the price shoppers.

We all know the program is optional, but most dealers believe to stay competitive it is not an option.
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Old 04-23-2013, 09:21 AM   #11
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Quote:
Originally Posted by Lakeshow View Post
Dad and I walked into XYZ Chevrolet this winter to say hello to some old dealer friends, and check out the $1.5million remodel on their less than ten year old building. We were met in the showroom by the owner and as we walked towards him my father slipped and fell on the wet, snowy floor. The owner tells us that happens weekly with this new tile GM required for the remodel. My father jokingly tells the guy, "maybe you should send any claims to GM and see if they'll pay them for you." The owner replied that he already mentioned that to his rep, and the reply he got was..."You know Mr. XYZ, you didn't have to do that $1.5million remodel and use our required tile, that program was optional."
That's a great example of a "regional difference" where GM should allow some flexibility in their requirements. The floor tile that might work well in Arizona probably wouldn't work well in North Dakota - why should GM force all of their dealers to use the same materials?

Quote:
Originally Posted by Lakeshow View Post
His take on this "optional" program was if your five nearest competitors are doing it and getting the kickbacks and you're not, you are already at a disadvantage price wise. He acknowledged that a good dealer with great service, etc. can retain a good portion the customers without the program, but a lot of times you'll lose the price shoppers.

We all know the program is optional, but most dealers believe to stay competitive it is not an option.
I agree - if the OEM's program establishes two-tier pricing it's not really optional.
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Old 04-24-2013, 01:06 PM   #12
Moshe @ Performance Brokerage Services
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Gentlemen,

Small and rural stores are being sold all the time. We currently have four such stores under contract. However, not as many are sold lately by comparison to the period prior to 2008.

In the last 18 months, it has become a seller’s market again. Goodwill values are at their highest levels that we have seen in 22 years.

If a dealership is priced reasonably, it will sell. Besides, every pot has a lid. You just need to give it a wide exposure and kick over every rock.

Unless a dealer is losing a lot of money, he/she should definitely try to sell the dealership rather than shut it down. When selling, he/she will get some money for the franchise, fair-market-value for the fixed assets rather than a liquidation value, and most importantly, since the building is designed for a single purpose use, a sale of the dealership will preserve the value of the real estate via a lease or a sale. Please note - a value of real estate that used to house a dealership can drop in value by as much as 50% if sold for a different use, especially in a rural area where other properties are available.

Moving on, keep the following in mind:
  • Each dealership is as complex and unique as the dealer who runs/owns it.
  • Dealerships are no longer sold based on their past track records.
  • Nowadays, dealerships are sold based on buyer’s pro-forma!
  • Therefore, even if a dealership is losing money, it can still bring a healthy goodwill value if a buyer sees potential to do better.
  • In over 22 years in this business, and hundreds of consummated transactions, we have never sold a dealership to a buyer who did not think he could do better than the seller….

There are only 3 types of buyers that could buy such stores:
  • Regional dealers looking for expansion - in that scenario the dealership must be able to make enough money to plug in a General Manager and still produce a return on the investment. Typical expectation from the buyer - 20% cash on cash return on investments.
  • General Manager looking for his/her first store. I must mention at this juncture that the dealeritis is not contagious as it used to be. Those buyers watched the carnage of 2008-2010 and have yet to return to the market. Those buyers used to represent 50% of our business years ago! They are more selective and careful, they lost equity in their homes, their stock portfolio has shrunk, etc.
  • A buy/in - buy/out candidate. A talent looking for a home. Without assistance and cooperation of the existing dealer, that type of a buyer will never have the opportunity to own his own store. I have touched on that type of a program/sale in other threads on this site. If done correctly, it becomes a win-win; however, if done incorrectly it can become a nightmare for all.

Regarding other comments in the thread above:
  • We receive calls from buyers asking for rural stores!
  • As for the comment that a buyer will not invest in remodeling a rural market store - not an accurate statement. Buyers do invest indeed. It seems that the threshold is about $200K. If the pro-forma can show profit above $200K per year, they invest their own money, borrowed money and/or EBE money that is now available.
  • As for the comment regarding manufacturers’ approval - the manufacturers love to see an ownership change in an old store. They don’t want to see them all gone as someone suggested above. They like to have service points for their customers. But they also want newer facilities, higher sales volume and good CSI.
  • As for the comment regarding approvability - qualified buyers can’t be unreasonably rejected. However, the manufacturers must still deem the point viable. Yes, they can exercise their right of first refusal of course, and they do so at times, but that would be a great outcome for the seller.
  • As for allocation etc. - that game has always been played. But if the sale is approved, and the new buyer sells cars, it does not seem to be a problem anymore.
  • As for two-tier comments. Yes, depending on the laws of the state the dealership is located at, the size of the store and who the buyer is, the approach by the manufacturers varies.

Moshe Stopnitzky
www.performancebrokerageservices.com
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Old 04-25-2013, 05:42 AM   #13
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Quote:
Originally Posted by Moshe @ Performance Brokerage Services View Post
Gentlemen,

In the last 18 months, it has become a seller’s market again. Goodwill values are at their highest levels that we have seen in 22 years.

[/url]
As one of the 789, that statement really makes me feel good.
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Old 04-25-2013, 11:32 AM   #14
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Moshe,

Thanks for sharing your insight - that was an excellent post.

I'm happy to hear there's still a market for smaller/rural stores and it appears clear that a dealer who chooses to close his/her store before they contact a broker could be leaving a lot of money on the table. And perhaps just as important, a dealer who chooses to close his/her store ultimately impacts their customers, their employees and their community. Selling the store saves jobs, keeps sales tax revenue in the community and allows customers to have their cars serviced locally.

It was also interesting to hear your insight regarding Blue Sky values and how pro-formas are being favored in determining dealership valuation as opposed to historic earnings.
Thanks again for a great post. And a message to our members and guests, if you know a dealer who's planning to close his/her store please encourage them to contact Performance Brokerage Services and investigate their options. Their store may be worth more than they think and there are buyers who are willing to buy smaller/rural stores and invest the capital to meet the OEM's facility demands.
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Old 04-26-2013, 08:28 AM   #15
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Thanks for taking the time to post Moshe, just curious what you would define as a small rural store? As far as new sales volume for a true small rural store, what kind of numbers are we talking yearly?
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