Four Cornerstones of Succession Planning for Your Auto Dealership

August 19, 2021

Succession planning is about preparing for your future and securing your legacy as a dealership owner. The way you structure your succession plan has direct effects on both the ongoing success of your business and the compensation you receive after you’ve left.

Around the central pillar of your legacy, a host of benefits—both immediate and long term—are built into the planning of your dealership’s future, and the earlier you create a succession plan, the more rewarding it can be. 

In a 2017 survey of over 285 US dealerships, about half recognized these types of benefits in succession planning, yet nearly one-third of them admitted that they don’t have a proper succession plan in place.

At the start of 2021, there were 17,568 new car dealerships in the US, so there are upwards of 5850 dealerships—over 100 per state—that don’t have a clearly defined plan in place for their future.

If this includes you, or if you’d like to improve an existing succession plan, we’ve put together four cornerstones of the process, covering the most important aspects to consider in your succession plan.

The Four Cornerstones of a Strong Dealership Succession Plan

1. Assessing Your Goals and Your Dealership’s Growth Plans

The first step in any succession planning is to talk to a professional who will sit and listen. Anyone on your team needs to understand your goals, values, and vision, because ultimately, that’s what you’re pursuing.

By establishing your vision as a guide star, then mapping a path forward, you begin to make space for certain aspects of growth—like more engagement in your workforce, retention of top talent, and the ability to adapt to changing circumstances (internal and external).

In this way, a proper succession plan should be, in part, a strategy for developing your team and their ability to sell more vehicles on a daily basis. If your plans include the possibility of private equity investors, then a strong succession plan also acts as a signal of confidence, which can attract higher-quality investors and bolster your dealership’s valuation.

All these considerations lead back to the central pillar of succession planning—securing the best outcomes for your own future and your dealership’s legacy.

2. The Leadership Safety Net

In a global survey of hundreds of business executives, 86% of respondents rated leadership development as the highest-priority issue facing their company. Yet only 13% believed they were “excellent” at developing leaders at all levels, and less than half were confident in their ability to maintain a consistent succession plan.

Contingency Planning for Leadership Changes

Changes in leadership, especially unplanned ones, can put stress on a company. Should a sudden change in leadership arise—whether due to a death, disability, or simply a team member’s decision to leave—it helps to have a plan for filling their role.

Every job position requires a certain skillset, so you should clearly define that skill set for each key role, as well as how it fits into the system at your dealership.

This isn’t unlike the way great sports teams are run. Players are chosen for specific skills that fit into a winning system. Great players make a difference, but if they have to sit out, the coach knows how to fill their role.

Informing employees of their succession potential

Many auto dealerships have informal or verbal plans in place for identifying future leaders and preparing high-potential employees for advancement. By creating a more formal succession plan for your auto dealership, you can make high-potential employees aware of their value and show that you are committed to grooming them for upward mobility. This helps retain talented employees and motivate them to further develop their skills.

If you have a specific individual in mind to take your place as dealership owner and operator, it goes without saying that you should be preparing them, ideally on a daily basis, to assume the role. They’ll also need to build a successful track record to be approved by the auto manufacturer(s) as a franchise owner.

Filling roles with external talent

It’s important to leave open the option to fill roles by hiring new talent, with skill sets and criteria defined for each role. Furthermore, when you fill roles with internal talent, you create a gap in another part of your company, so you may need a combination of internal promotion and external hiring to build the most effective leadership safety net.

3. Team Development and Employee Retention

Succession planning often goes deeper than the term implies. That is, planning for your dealership’s future should strengthen its current operations. This is another reason it’s never too early to create a succession plan.

Evaluating the skills of existing employees

By evaluating the talent you already have in-house, you can identify gaps and make an effort to fill them. To make your succession plan as airtight as possible, assess each employee’s current skill set, and their capacity for adapting to new roles.

You might then consider cross-training and setting up opportunities for employees to share their skills with each other. This not only adds flexibility to your team but also adds depth to their collaboration skills and, again, reinforces your dealership’s long-term success.

Retention programs that keep talented employees at your dealership

Succession planning is about having trained employees ready and able to move into vacated leadership positions. But that won’t work if high-potential employees leave the company prematurely.

By offering incentives like benefits, compensation plans, and opportunities for advancement, you encourage employee retention. If employees in key roles do leave, finding out why can help strengthen the retention strategies of your succession plan going forward.

New employee training comes with inevitable costs, so as you minimize turnover at your dealership, you can improve profits and aid long-term success of your business. This reinforcement will further prepare you to leave behind a strong legacy.

4. Signing Off on Your Succession Plan

Finalizing Terms

Whatever specific intentions you have for your dealership’s future—regarding personnel, investors, philanthropic contributions, and other key decisions—you want to make sure they’re very clearly outlined in a document that belongs to your business.

In addition, the safest place to communicate your wishes is often in a trust or will. That way, in the event of your passing, you can ensure that important people are taken care of and that there are no disputes between interested parties. Such disputes can jeopardize your legacy, so you want to make sure you’re clear and concise about all possible contingencies.

Your Compensation

Perhaps the single most important aspect to you, personally, is the compensation you’ll receive for transferring the business. Do you want a single payment that you can reinvest or a structure of steady payments over a number of years?

Finalizing the structure of your desired transition is also an opportunity to optimize your succession plan for tax benefits, both for yourself and the business.

In this way, succession planning is a way to set up your success, wellbeing, and happiness in the next chapter of your life.

Why Create a Succession Plan Now?

It can be difficult to plan for a future with so many unknowns. That’s why succession planning is so important. By putting together a thorough succession plan now, you’re safeguarding your business against the effects of all potential changes and creating a growth strategy to enhance your dealership’s success, not only down the road, but immediately.

The earlier you create a succession plan, the earlier you have access to these benefits. And, by setting up periodic reviews of your plan, you can make sure it’s well-polished when the time comes for you to move on from your business.

Working with DCG on Your Succession Plan

Of course, if you believe it’s time to put a succession plan in place at your dealership, we’re happy to help.

By working with a trusted automotive mergers and acquisitions firm like DCG—you’re taking a crucial step toward securing your legacy and the lasting success of your automotive dealership.

Contact us today to speak to a DCG team member about building a strong succession plan for your auto dealership.

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