The Challenge

At the onset of the COVID-19 pandemic, Fred Salinas, a 68-year-old dealer principal at Friendly Ford of Crosby near Houston, Texas, was advised by health experts to avoid going into the store. This sudden disruption posed a significant leadership challenge for the dealership. However, the Salinas family was well-prepared due to a meticulously planned succession strategy initiated in 2017. This plan aimed to gradually position his sons, Austin and Blake, as the future leaders of the dealership.

A Smooth Transition Amidst Uncertainty

“Everything was going smooth and on time, and then COVID hit,” said Austin Salinas. Already in leadership roles, Austin and Blake were prepared to step up in their father’s absence. As weeks turned into months, the brothers realized they could afford to buy out their father nearly three years earlier than planned, completing the transition in April 2022. This early transition highlighted the effectiveness of their succession plan, ensuring business continuity during an unprecedented global crisis.

The Importance of Succession Planning

The proactive approach taken by the Salinas family is not typical among dealership owners. Dave Cantin, CEO of dealership mergers and acquisitions advisory firm Dave Cantin Group, estimates that more than half of dealership owners lack a succession plan. This is largely because the day-to-day demands of running a business often overshadow long-term planning. Cantin’s insights underscore a critical gap in the industry, where many owners are unprepared for sudden leadership changes.

Erin Kerrigan, managing director of dealership sell-side firm Kerrigan Advisors, further elaborates on this issue. She notes that over 50 percent of the auto retail industry is currently undergoing generational transitions. These transitions, moving from the second to third or third to fourth generations, are becoming increasingly complex due to the growing size, value, and complexity of the businesses.

Steps to Effective Succession Planning

Experts emphasize the necessity of a well-structured succession plan to ensure business continuity and protect assets. Cantin recounts a cautionary tale of a dealer client who died unexpectedly without a succession plan. The dealer’s spouse stepped in but was not approved by the automaker to manage the dealership, leading to the forced sale of the business. Cantin believes that a robust succession plan could have prevented this outcome.

Cantin advises assembling a diverse team of professionals to create a comprehensive succession plan. This team might include an accountant, an estate planning lawyer, a mergers and acquisitions advisor, a financial planner, and a banker. Such a team is essential whether the plan involves an internal transaction, selling the dealership to management staff, passing it on to the next generation, or selling it to a private or publicly traded company.

Customized Plans and Manufacturer Approvals

Dealership lawyer Leonard Bellavia, a partner in the Bellavia Blatt law firm, explains that while manufacturers do not require a succession plan when a dealer buys a dealership, they do have final approval on successors. Even a dealer with a well-crafted succession plan could face challenges if the manufacturer rejects their chosen successor. Therefore, dealers must ensure that their successors meet the approval criteria of the manufacturers.

Bellavia also highlights the importance of estate planning in minimizing tax liabilities. The next two years are particularly critical due to a federal tax exemption worth about $13.6 million set to expire in January 2026. This amount is expected to be halved after the deadline, significantly increasing potential tax liabilities.

To protect business assets, Bellavia recommends transferring ownership into an irrevocable trust. This arrangement ensures operational continuity while insulating the dealership from estate taxes upon the owner’s death, based on the exemption amount in place at the time of death. For instance, a dealer with a net worth of $15 million could save significantly on taxes by acting before the exemption changes.

The Potamkin Model of Succession

Cole Potamkin, COO of Potamkin Cos., credits a detailed business plan for their successful transition. Potamkin Automotive, ranking No. 36 on Automotive News’ list of top dealership groups, has a centralized management structure that supports its dealerships. General managers run the stores independently, sometimes as equity partners in the dealership and/or real estate.

When the Potamkin succession plan moved Cole Potamkin to the position of COO in September 2022, it was to oversee the company’s entire portfolio. The group’s succession team includes an estate planner, tax attorney, and tax accountant, who review plans annually or as needed. This structured approach ensures continuous oversight and adaptation to changing circumstances.

The Need for Honest Discussions

Kendall Rawls, Director of Development at The Rawls Group, emphasizes that succession planning is about more than just dealing with death, retirement, and taxes. It’s about ensuring smooth transitions and long-term business success. The Rawls Group helps companies develop long-term plans that evolve with their needs, providing substantial returns on investment.

Rawls explains that time and costs vary in creating a succession plan. The process can take several years and cost up to $300,000 for an elaborate plan. However, this investment is crucial for the future stability and growth of the business.

Real-Life Example: The Kinsel Family Decision

The Kinsel family, owners of Kinsel Motors, opted to sell their dealerships rather than pass them to a fifth generation. After assessing their scattered family and diverse business interests, they determined that selling was the best option for the next generation. This decision was based on an honest assessment of their situation and a desire to ensure the best possible outcome for their family.

The Kinsels worked with a certified public accountant and lawyer to continuously update their plans and minimize estate taxes. However, they ultimately decided that selling the business was the best course of action, illustrating the importance of honest and realistic planning.

Preparing for the Future

The Salinas brothers are already planning for their succession. With their father’s guidance, they have ensured their dealership meets Ford’s metrics and expectations. Recently, they expanded by acquiring Zeller Ford in Arkansas City, Kan., and are contemplating their own succession plans, targeting the next decade when their children enter the workforce.

Austin and Blake Salinas are examples of how foresight and preparation can ensure a smooth leadership transition and secure the future of a family-owned business. By sharing real-life examples and expert insights, we underscore the critical importance of succession planning in securing the future of family-owned dealerships.

The story of the Salinas family and other examples in the auto retail industry highlight the necessity of proactive succession planning. This preparation not only ensures the continuity of the business but also protects its value and legacy for future generations. As the industry continues to evolve, the need for detailed, well-thought-out succession plans becomes ever more critical. By following the steps outlined by industry experts, dealership owners can safeguard their businesses and provide a solid foundation for future leaders.

How We Help Family-Owned Dealerships

Is your family dealership prepared for the future? Are you confident that your succession plan can withstand unexpected challenges like those posed by the recent pandemic?

Reach out to us today and let us provide you with customized support and strategies tailored to the unique needs of family-run dealerships. Whether you’re aiming to develop a comprehensive succession plan, secure manufacturer approvals for your successor, or minimize estate tax liabilities, our experts are here to assist.

In just 30 minutes, we can offer you actionable insights and practical tools designed to protect your business and prepare the next generation for leadership. Don’t let the complexities of succession planning hinder your business potential—embrace the opportunity to secure your dealership’s future.

Contact us now to begin your journey toward a thriving and resilient family-owned dealership.

This article was originally published in Automotive News: Dealership owners need succession plans, experts say

Strategic Planning

The only constant one can plan for is change.  Strategic planning positions the business to address the probable, possible, and potential contingencies impacting business success. 

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