Common Mistakes Made by Organizations During Dealer Succession Planning

October 12, 2022

Compared to most other types of businesses, family-owned car dealerships are often synonymous with their owners. Many dealer principals and founders proudly put their names on the sign out front and bring their family members into the business. It’s a process that most family dealership owners hope will lead to their future generations owning and operating the business.

But hope alone is not an adequate strategy for achieving this worthy goal. Time passes, no one person can stay in charge forever, and a robust succession plan is needed for a smooth transition, continued success, and future growth of the family auto retailing enterprise

What is a succession plan?

A succession plan is a blueprint for assuring the future of your dealership after you are no longer leading it. It includes selecting, preparing, and installing the next generation of leadership and management, whether or not those people are members of your family.

Your succession plan is also there to set up the positive circumstances that allow you to enjoy a long, hassle-free, and richly-deserved retirement. This includes the structure of your payout, as well as the resolution of any outstanding tax and estate planning issues.

If you aspire to have your children, other family members, or potentially the executives working under you ultimately running your dealership and you don’t have a succession plan in place, consider this: according to a Gallup poll, only 30% of family-owned businesses make it to the second generation, with only 12% reaching third-generation ownership. It’s a sobering thought that should lead to an appreciation of the benefits of a well-developed succession plan.

Family dynamics can make succession a challenge

While you may think that you can separate the family business into non-conflicting “family” and “business” buckets, human nature dictates otherwise. Family dynamics, overlaid onto the structure of your dealership’s business, often produce an extra layer of emotions that can make the transition to new management complicated and difficult. 

Many mistakes can be made during succession planning. Let’s take a look at some of the more common ones:

Mistake #1: Failing to plan at all

Automotive retailing is a complex, demanding business that requires constant focus. Succession planning is seen by many dealer principals as something way out there in the yet-to-be-determined future. As such, it is a project that is easy to put off indefinitely. 

Dealership succession planning also requires an acceptance of one’s own mortality, or at least of the fact that aging will likely result in you slowing down. After all, you are making plans for what happens after you leave the dealership. Even if that departure from the business leads to a long and pleasant retirement, it signals that you are in the final quarter of the game of life. This is a difficult concept for many to accept.

Unfortunately, the consequences of failing to plan could be the speedy failure of the enterprise that you devoted the prime of your life to building. A succession plan lets you focus on the future of your business, both with you and without you.

Related: Important Factors to Consider When Developing a Succession Plan in the Automotive Space

Mistake #2: Leaving out key stakeholders

When dealing with succession planning in a family business such as a dealership, clear and timely communication with all of the people involved in the process is crucial. You must decide who the new dealer principal will be and what roles, if any, the other working heirs will take. If any additional training is needed before these people can assume their roles, it should be a part of the plan. All of these details need to be communicated to and accepted by all parties, along with a projected date for when the transition will take place. This will reassure your successor that the changeover will actually happen.

This is also the time to bring in your non-family management staff that you wish to continue working in the business. Assure them that you appreciate the value they bring to the organization, and that your succession plan will provide for their continued employment. The top-performing employees in each department should also be aware of the process and their roles in it. Doing this should keep them all on board during the transition.

If there are other immediate family members who will not be working in the business, your succession plan must fairly accommodate their future needs as well. This is all very doable – as long as you do it in advance!

Mistake #3: Not accounting for growth or consolidation

An important strategic component of your succession plan should be the potential future of your dealership, once that the next generation is operating it. Is growth and expansion through the acquisition of additional dealerships something that you can envision for your store? Or do you see your rooftop as an eventual acquisition target for a larger dealer group, whether private or public?

These are two diametrically opposed outcomes. Which one of these ultimately comes to pass can depend heavily on who you have selected to be in command. Based on your successor’s experience and personality, you should have a pretty good idea of which direction they might pursue. This should be in line with your ultimate goals for the dealership. As part of their preparation for the top job, make sure that they understand the ultimate potential of the business from your perspective. 

Mistake #4: Being stubborn about a particular way of doing business

It’s fair to say that your specific management style has produced the results that have brought you to the level of success that you enjoy today. It’s also true that there is more than one way to get equally positive business results. If your chosen successor has a way of operating the business that may differ somewhat for yours, this is not a reason for conflict. 

This brings us back to the family vs. business dynamic. In the family, you are likely the successor’s father, mother, father-in-law, mother-in-law, uncle, aunt, or other close relative. Instead of insisting that your way is the only way, focus on the positive aspects of being the experienced elder in the relationship. Think of you and your successor as partners in a successful transition that culminates with their accession and your well-planned exit. 

Be a teacher and impart your wisdom, without any judgment about your successor’s methods – unless those methods create a problem, of course. In that case, use the problem as a teaching moment, gently and rationally guiding them back on track without recriminations. Eliminating the emotions and the conflict from the process will generate great benefits in both the family and the business arenas, making for a much smoother transition!

Other mistakes made during succession planning

There are many steps that must be completed properly and in a timely fashion so that your succession plan is properly executed. This is where the assistance of a succession planner will serve you well. The overarching goal of a succession plan is to thoroughly prepare for all contingencies that may arise during the transition of your dealership from your control to that of your successor. Some of these mistakes can include:

  • Not getting your successor approved by the manufacturer
  • Delaying the transfer of the dealer principal designation to your successor (along with the ownership stake) 
  • Not arranging for your successor’s continued access to financing
  • Not dealing with bank agreements that include a due-on-death clause
  • Not planning for the possibility of your unexpected death and the estate tax consequences it will bring

DCG is here to make your succession plan a success

A well-prepared dealership succession plan is designed to eliminate the possibility of any mistakes that can jeopardize the outcome you wish to see for your dealership. Whether you’re planning for your next generation of family ownership, putting your management team in control, or planning an outright sale, DCG is here to help. 

At DCG, we have guided many auto dealer principals through the process of setting up a succession plan that aligns with their goals, values, and vision. We understand what it takes to develop, present, and roll out a succession plan across an organization like yours.

Contact DCG to discuss a comprehensive succession plan for your organization. We will assist you in every possible way to protect your dealership’s value and maximize your returns when ownership is transferred.

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