Ask The B&B: Is It A Good Idea To Start A Luxury Car Dealership?
Today we inaugurate a new series: As the Best & Brightest. Many sites dispense advice, and you know what they say about the free variety. At TTAC, we unleash the massive power of our readers and commenters to answer tough questions, for which there is no easy answer.
Today, John Lunbeck asks whether his brother-in-law (and by default John’s sister) should start a luxury car dealership.
John writes:
“My pretty savvy brother-in-law has the means and ambition to become a franchisee here in the US for some luxury makes. My question is, is that wise at this point?
There are so many ”out of the box” factors now intruding on the auto industry, I am not sure the dispersion of outcomes would be well understood by an industry outsider, however generally expert in finance.”
So what do you think, B&B? Should he, should he not?
And if you have a question that needs truly expert advice, Ask the B&B by using the contact form. We will promptly pass your question on to the true professionals.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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If he's as savvy as indicated, he won't need any advice for us. A lot of dealers, luxury or not went under in the dark days of the last few years which represents potential opportunity as the industry is growign again. If he's got the capital secured and qualifies to start a new franchise, the automaker will help him do a lot of the leg work with market research and setting up the business model. I hope he's got many tens of millions in capital secured for this investment, though. If the area they're looking to set up in has a particularly wealthy demographic and the luxury marques they're looking to get involved with are not or are under-represented then it could be a good opportunity.
Knew a man, he owned a GM franchise in FL. Did very well. He'd been the owner/GM of this dealership for many years. Then he died. Yes, yes, I know. This dealership was not a luxury franchise. But I'm gonna make my point in a quick second. So bear with me. His wife thought, "Hmmm, I've been in and around this dealership my whole life. Everyone knows me. How hard can it be? I'll take over." And she did. And the store did great, fantastic for a few years. Till the feds pulled up, while her managers dashed away, cash in trunks. They didn't get far. The dealership was closed that week. Franchises pulled and given to other, viable dealerships in the area. The widow, left far poorer for her naive, trusting efforts. My point is this: If the brother-in-law does not know how to manage A) a car dealership, B) the accounting practices and cash control of a car dealership, C) his staff and managers at a car dealership, your brother-in-law will be stripped and left naked by the side of the road. You have no idea how many ways there are for a sneaky parts, service, used car, new car, or auction/trade managers to leave you with nothing. And that includes your reputation.
Over a 40+ year career I operated and owned more than a dozen new car franchised dealerships. I can assure you most of the answers here are far afield. On the other hand, how would they know since so many false impressions are printed. If your BIL wants to start a used car dealership, he is free to lose his money as he sees fit like the other 99% who try it without experience. If he wants to have a new car franchise, it is an entirely different program. There are a huge number of car enthusiasts who have money that would love to do the same thing. Manufacturers decide where they want dealerships, not the people who want to start them. Once they make that decision, there are is no shortage of people with experience, money, and contacts waiting for what is then called an "open point". Basically they would have to buy an existing point and they will need to meet several criteria. A person with all the money in the world but no experience, will be required to have an equity partner who does have the proper mix of experience and results. This person will also need to have his own liquid money that he can prove the source of and most likely it will be a million plus for a minority share. That person will also have management responsibility. In short, it is a perilous undertaking. There have been hundreds of former athletes and celebrities that have lost millions trying to chase the dream. Like any other business, it is one that requires specific knowledge and experience to ultimately be a profitable venture. People can try to be a big-time dealer or they can try to do brain surgery. Without the proper education in the field, the odds for success are about equal in either.
After reading every reply, I: 1. can't believe you took the bait and thought it was a serious question 2. find it hard to fathom any one of you believe you are qualified to answer such a question. 3. will be shocked if most of you don't feign outrageous indignation in response to this reply.