By on June 8, 2013

PICEDITOR-SHD

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.

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78 Comments on “Ask The B&B: Is It A Good Idea To Start A Luxury Car Dealership?...”


  • avatar
    Tim_Turbo

    As long as it’s not Lincoln! Nothing against Lincoln, they just appear to be an afterthought at this point. Maybe someday they will be resurrected.

    • 0 avatar
      cgjeep

      They stated luxury car dealership. Lincoln wouldn’t qualify.

    • 0 avatar

      #1 It’s not called a “luxury car dealership”.

      It’s called a GALLERY.

      #2 Nothing wrong with an Auto gallery, but you’ve got to put them in exclusive neighborhoods so you can catch the super rich when they are feeling depressed and alone. This way you can sell them something ridiculously lavish to make people love them again.

      I was driving through Times Square today in my XJ-L and some dude in a ROLLS ROYCE GHOST was right behind me. Gorgeous car – but, I noticed, he was in it all alone.

      • 0 avatar
        porschespeed

        He was “all alone” because he was on the way to pick up three hotties you’d never have a chance with. Or, they’ll just show up at his house and then leave when the party is over. Because he can afford to have them do that.

        BTW- XJL? I know a few broke guys who lease those because they don’t qualify for Benzes or Beemers. Status symbol? Yeah, like a BMW 3 series…

        • 0 avatar

          porschespeed

          OH – you mean like the S550 I used to have?
          Which COST THE SAME AMOUNT AS THE XJ-L with all the options I have?

          TRY AGAIN BRO…

          youtube.com/watch?v=YBGYlecOh1s

          “Hotties I wouldn’t have a chance with?”

          You don’t see the trim I get bro…

          Don’t be mad.

          • 0 avatar
            danio3834

            This thread took a turn toward Autoblog real quick.

          • 0 avatar
            porschespeed

            Oooh an “S550”? Be still my beating heart…

            So you have the $700 a month with $5K down it takes to lease one? Golly gosh am I impressed. Or not as my employees could easily afford it.

            It’s a car, and while I love Jags and Benzes they have depreciation that falls off a cliff. Ending in the inevitable crash for something as plebian as an S550.

  • avatar
    PrincipalDan

    Sure its a great time to start a luxury dealership!

    Forgive the sarcasm but honestly why don’t you just give me 10 or 20 million dollars and I swear I’ll put it to better use than you and your BIL.

  • avatar
    kmoney

    Not quite sure about what level of franchise this refers to (i.e., is the roller in the picture meant to imply a Rolls, Bentley, AM et al., level dealership or more accessible luxury cars). If referring to the former, it would likely be a pretty solid bet.

    While most of the economy is in dumps, that of the super wealthy — “the plutonomy” — is still thriving. Most of those on the top are experiencing gains equal to or better than they were prior to ’08. In car sales you see this with ultra luxury manufacturers sales increasing massively (e.g., Bentley’s Q1 sales are up 25%) As ultra luxury companies come down to tap the aspirational market — the v8 continental, the baby quattroporte, Mclaren’s upcoming 911 competitor — these numbers are only likely to increase.

    • 0 avatar
      Kyree S. Williams

      I don’t know about a new ultra-luxury dealership like Ferrari, Aston Martin, or Bentley/Rolls-Royce—I think that all of those markets have pretty much been dominated by older players. However, a pre-owned high-end dealership would probably do quite well provided it was in the right location. There’s a small dealership in my city that has only eight to ten cars and motorcycles at a time, all of which are ultra-luxury and all of which are no older than seven years…and I swear that they have a new fleet every other week. It isn’t as autonomous as a franchise or a large dealership, but whoever owns it must be doing quite well.

      • 0 avatar
        blowfish

        some of these are kind of a front for money dry cleaning.

        in vancouver there’re many of these dealers just not sure how they really make $$.

        your BIL assuming he has no previous knowledge of running a car stealership then is not easy, is very much of a steep learning curve.

        Many name or old brands aren’t just going to hand over a dealer to u.
        U need very deep pockets and knowledge.

        The Prancing horse dealer building in town looks pretty skokum and very expensive to build.
        Wonder how they will recover the initial investment.
        They used to be in the seedly side of town then the franchise got sold to the current owner.

        • 0 avatar
          kmoney

          Haha, I always wondered about Ferrari Maserati of Vancouver too. I always thought the old location on Venables made sense though, as there was no real reason to pay for premium real-estate, as they were (and are) the only Ferrari dealer in BC and I doubt anyone in that leagues purchasing decision hung on proximity to the dealership.

          I’ve always wondered the same as u about payback BF, as I don’t really think their inventory levels or sales increased much over the old location. It did seem like a weird investment.

          • 0 avatar
            MrWhopee

            Chinese students probably (and from other countries as well, I’m sure). Each year there’s more of them too, so it’s a steady stream.

  • avatar
    28-Cars-Later

    First counter question: Does this person have any experience in the automobile industry?

    Second counter question: Does this person have any experience in the sales or marketing?

    If the answer is no to both, it probably better to start small. Buy a used lot for 5% of what a new car dealership costs (figure prime real estate, employees, floor plan, franchise fees and excessive taxation will run at least $10 million). Used and new are two different animals, but for a lower point of entry you get exposure to the business and financing, exposure to the auction process, chance to network with new car dealers. I think this is the best route, but if money must be burned don’t start with luxury, figure out which cheaper brands promise growth over ten years and franchise with them. You can always open the Aston Martin loss leader dealership later and use the profits of the Chevrolet/Ford/Dodge/Hyundai/Toyonda dealership to keep it afloat.

    • 0 avatar
      carguy

      +1: Experience is everything. If he doesn’t have it then either start small or stay away. Car dealerships are not a lifestyle hobby.

      • 0 avatar
        28-Cars-Later

        Agreed, its very much a full time job if you seek success.

      • 0 avatar
        Kyree S. Williams

        Absolutely. I wouldn’t dare open a car dealership until I’d had several years in the industry, many of them as a manager. Of course an inexperienced owner could always hire and trust a dealership veteran to handle the hard stuff, but those are usually the situations in which the owner ends up battling internal fraud and counterfeit….

        • 0 avatar
          blowfish

          totally agree, the illegal practices they can pull to rip u off is totally out of this world. Basically u working with bunch of scum bags in 3 piece suits.

    • 0 avatar
      28-Cars-Later

      Wow, my English is bad today… too much drinking last night only to end in futility.

    • 0 avatar
      Silvy_nonsense

      Previous success in the auto industry isn’t necessary, but previous success in sales and being well capitalized certainly are. For a real-life example, read this article at Automotive News: From high-tech lasers to ultraluxury vehicles – Collector-turned-retailer knows cars and finances – http://www.autonews.com/article/20130408/RETAIL07/304089999

  • avatar
    olddavid

    In Portland, there is an outlier – Monte Shelton Jaguar. However, my Father’s advice about how to make a small fortune in the car business? Start with a large one. Seems apropos to me.

  • avatar
    OneAlpha

    Keep in mind that the desire to start a luxury car dealership is what’s gotten many an NBA star or rapper in very deep financial trouble.

    It’s amazing how much operating capital these places require, and can quickly drain even a wallet mighty enough to keep an old 7-series running. Not to mention the fact that everyone thinks building a successful business is easier that it actually is.

    Your brother-in-law should be careful not to aim so high as to shoot himself in the foot. Best to invest that startup capital in a nice bank account instead, and just let it grow.

  • avatar
    Trend-Shifter

    I think so…but I would not consider it in a mature luxury market location. The real estate cost every month would be a tough nut to crack for a start-up.

    I would review a few key demographics.
    1. What areas in the country has the most income growth?
    2. Where are the boomers retiring?

    Does the two overlap anywhere?
    Can you set-up shop on the outskirts of this growth at a low cost?

    Next understand your revenue streams. Just selling cars ain’t gonna pay the bills and get you a ROI.
    Get in tune with NADA to understand how the other stealerships do it.

    Understand your luxury brand and visit the same brand luxury dealerships around the country. Understand the volume and scope of services offered based on the local population and income.

    If the luxury brand is very high end, expect lower volumes. Will the luxury brand allow multiple brands at the same location?

    How can you market your services to more brands than just what you will carry? High end auto detailing? High end used cars? High end rentals? Performance? Other? What are you good at?

    Naturally write a full business plan. Include all staffing and all costs. How long can you survive? Estimate the revenue stream from each activity to make sure it really does cover your costs and you know the future potential if it works. Is it worth it? Decide in advance what will trigger you to pull the plug.

  • avatar
    David Hester

    When I first moved to Lexington in the late ’90s, there were four foreign luxury car dealerships in town: Mercedes- Benz, SAAB, Volvo, and BMW. The Benz lot is a stand alone dealership, while the BMW dealership was part of a conglomerate that included Lexington’s only Honda and VW outlets. The SAAB and Volvo makes were sold by another dealership group that included Lexington’s only Cadillac and Saturn outlets.

    The Benz dealership is still in operation, as is the BMW dealership. The SAAB business is gone, of course, but the Volvos are ae still sold by the Caddy dealer.

    During the 2000’s, Audi, Porsche, Jaguar, and Range Rover dealerships were opened. They were all brand new operations, with brand new facilities. Only the Audi dealership remains. The Jag and Rover dealership is still empty. Some sort of industrial equipment sales and service deal has set up shop in the old Porsche building.

    So, if the Lexington experience is typical (and Lexington is just about as average a town as you will ever come across) there would be a 75% chance your brother- in- law’s brand new, stand alone luxury car dealership would fail.

    A better plan, IMO, would be to buy into/ assume control of an established dealership, preferably one that sells multiple makes.

    • 0 avatar
      Windy

      The detective speaks wisdom.
      And bear in mind even if you set up said dealership a change in the market can still sink you. The father of my Dad’s WW II best friend ran a very prosperous Packard dealership that survived both the 30s and the war in fact prospered in the 30s. When Packard sank in the 50s the dealership sank as well fortunately my Dad’ friend had trained as an engineer after the war but the family has perhaps 1/4 of the real wealth it had in 1940.

      I would say that starting a new high end dealership today is a high risk enterprise even if you hire experienced managers. Buying an established dealership with due diligence should reduce those risks but owning a biz that you do not understand and have mastery of every nuance of it seldom ends well unless you are very Lucky in both the experteese and honesty of your managers

    • 0 avatar
      th009

      I’ll second into buying an existing one. It will have a track record, a customer base and hopefully at least a semi-competent staff — all of which you will pay for. But you’ll be able to see financials over a number of years and judge the risk level much better. (You’ll likely pay for “blue sky” based on the last three years’ profits.)

      But an important thing to keep in mind that pretty much all the premium manufacturers (don’t know about the high-end luxury) will have strict and high standards for facilities. If the dealership you are buying doesn’t have an up-to-date facility, you can easily spend $10-20M on land and a new building. Not pocket change, though banks will provide financing for that.

      • 0 avatar
        Trend-Shifter

        Buying an established dealership is going to cost you a very large “Goodwill” cost. Payback could be a very, very long time. I think that only works well on corporate borrowed money, not when an individual has his whole life in it.

        If you have a long payback period your “Hot” luxury brand may not be so “Hot” later in the payback period.

        Instead of paying the extreme “Goodwill” cost, then having a long payback period, and add in risk… I would just plop my large bankroll into a mix of dividend paying ETF’s and call it a day.

        • 0 avatar
          th009

          The goodwill/blue sky you are paying for is the future earnings potential. It’s conceptually the very same thing that you pay for in the stock market — a P/E ratio of 10 means you are paying 10 years’ earnings for that stock you are considering.

          Yes, whether the brand is stronger or weaker when you do sell is certainly a risk.

  • avatar
    raph

    If he’s dead set I’d say start small, learn all the pit falls, make connections then ramp up. I know a local used car dealer that finally made the jump to a regular dealership and it took around 15 years to do so but the guy has an established reputation and a good business.

  • avatar
    billfrombuckhead

    You just have to have grown upon the business to have much chance of success. It’s extraordinarily time consuming or you have to trust someone
    Else to really run it. Good salesmangers are notoriously
    dishonest and honest people usually aren’t good salesmen. If you just like fooling with cars just get a dealer license and flip a few a month. A very dangerous business,there’s less dangerous ways to make money.

    • 0 avatar
      jimbob457

      Yes. Esp. the ‘flip a few cars a month’ notion. It will quiet your car jones for a while. It may teach you some of the basics of the business.

      I know lotta people including my oldest boy and my maid who USED TO do this. They don’t do it no more. Comprende?

    • 0 avatar
      th009

      I don’t know that “dangerous” is the best adjective. But it’s a serious business, I agree that buying a dealership is a bad idea if you just want to fool with cars.

  • avatar
    Silvy_nonsense

    Rather than ask advice from “Teh Internets”, it would make a lot more sense to call up General Managers and dealer Principals who don’t own/operate in your region and get them to talk to you. Not only would that get you the information you need from actual experts with first hand knowledge, it would be a good test. If you can’t cold them and get them to open up and help you out, you don’t have the skills you need to succeed.

  • avatar
    Flybrian

    To echo what many here have said, this isn’t a business for enjoyment or fun-seekers. Its a serious proposition with lots of regulations, liabilities, and commitment needed to ensure that you’ll be spending the next 20-40 years of your life ‘grinding out the metal.’ If you’re lucky.

    Long story short, cars are here, cars are here to stay, and there are opportunities at every point of the spectrum from a dirt lot selling BHPH cars to ultra-luxury dealers. But you have to both WANT to do it and HAVE THE ABILITY to do it. Its certainly not something to jump into with just a business plan and a dream. There are many folks from non-automotive backgrounds who have tons of formal education and business savvy that get eaten alive and spit out by the car business. And there are many with a high school education (or not even) that are millionaires because of it.

    My advice from doing it at a small independent dealership level for six years and seeing a ‘little bit of everything’ (though not nearly enough) – go find someone in the car business – a friend or a friend of a friend. Hang out with them for a few months. See how you like it. Or consider simply using the money for private floorplan for an existing dealership.

    • 0 avatar
      th009

      One note here is that a new car dealership — whether a standard, premium or ultra-luxury variety — is a very different business than an independent used-car operation. Manufacturer relationships, regulations, new-car planning and floorplanning, and extensive parts and service operations are things you don’t really get exposed to at a used-car dealership.

  • avatar

    ANY new car dealership is a tough business to succeed in. What “rich” areas in the country are without these dships already? Your/hes up against well-established, usually car “families” with multiple dships that have been at it for decades, have their $hit paid-off, have access to HUGE lines of credit. Then theres the experience factor, he needs to know these cars extremely well, the big$$ spent on an excellent location, competent employees that must be hired (ie probably enticed/stolen from existing dships?), tens of thousands spent on proprietary tools, the general “fickleness” of the business and oh yeah…hes NOT really the boss. The distributor is going to dictate virtually everything on his dime. As has been mentioned, he should work for a dship for at least a year and see if he can stomach it. Id bet NOT!

  • avatar
    HerrKaLeun

    Is it even an option to get a franchise? I mean well-established brands (Rolls, Mercedes et al) have already dealerships and they probably have agreement not to let someone else in nearby. thee likely only are the underdeveloped places left, but in Iowa you won’t sell enough rolls Royce to make a living.

    and those respectable manufacturer likely don’t give newcomers a chance. the same way that I can walk over to the corner lot and start selling cars as a weekend job – but the Lexus dealer in town would want me to have several years experience before hiring me.

    Maybe a newcomer brand in search for dealers would be open to you… but those then are not high end. think of Kia when they entered the US they accepted anyone as a dealer. but I can’t really think of a luxury brand not already established in the US.

    • 0 avatar
      th009

      Most dealer agreements don’t have such exclusion zones. But manufacturers will want to avoid placing new dealerships too close to existing ones to avoid cannibalization. Adding a new dealer needs to produce a significant net increase in sales for the manufacturer to decide to assign one.

      Yes, the manufacturers are looking for some experience in order to increase the chances of success. It doesn’t mean everyone needs to have it but having someone experienced (preferably with the same brand) will improve the chances of being approved — whether to start a new dealership or to buy an existing one (yes, those will require manufacturer approval, too.)

      • 0 avatar
        Windy

        I know of a very well run BMW dealership that had no other MINI dealer within several hundred miles it took him almost 10 years to get BMW let him have a MINI store… they did let him do a bit of special circumstances warranty service on locally owned MINIs for a few years before he got the franchise… and he had to build a separate new store for the MINI brand it cost him well into 8 figures to build hire train etc before the first car was on the lot.

      • 0 avatar
        porschespeed

        They have ‘exclusion zones’ as long as you produce. After that, the mothership tends to try to screw you and install another outlet to maximize their franchise fees. Nature of franchising…

        • 0 avatar
          th009

          Not legally enforceable exclusion. But, yes, if you don’t sell, they will either not renew your dealer agreement, help you find a buyer or possible open an additional dealership.

          • 0 avatar
            porschespeed

            Legally enforceable when you have $1MM to spend on lawyers, and the other guy doesn’t.

            I’m very familiar with franchise law and lemme tell you the franchisor can do whatever they want because the franchisee has been giving the franchisor so much money that the franchisee doesn’t stand a chance.

    • 0 avatar
      sunridge place

      or he could be thinking about buying an existing dealership? we’ll never know with this vague yahoo answers-like question.

  • avatar
    ravenchris

    When I think about operating a dealership, Mark Tewart of Tewart Enterprises would be on my list of people to have a long lunch with.

  • avatar
    DenverMike

    The famous marque/brand is the hook, but it’s a dealer’s ability to ripoff the public in service bay and used car lot that makes them successful or not.

    Then don’t think an OEM is just going to lend you their ‘name’ just because you have deep pockets. They need to know you have the business sense and more importantly, money sense. Lottery winners, need not apply…

    The last thing an OEM wants is the black-eye of their marque on a boarded up and graffiti’d building with the public knowing their (Infiniti?) dealer went ‘bust’. This means you have to prove to the OEM that you’re not going to gamble away the proceeds or live beyond your means. Being a responsible millionaire for decades, if not ‘self-made’ is a good start, but no guarantee.

    • 0 avatar
      porschespeed

      Put down the idealist Disney kool-aid. If you have money and a pulse, they will ‘grant’ you a franchise. As long as you move product, they could care less about your coke habit or your proclivities for 10 year-old East European girls.

      Lottery winners are more than welcome.

      • 0 avatar
        DenverMike

        What makes you think getting franchise rights is that easy? Normal businesses fail for reasons that may have nothing to do with cash register receipts. Franchised stores and restaurants rarely fail, but that’s mostly because of their exhaustive application process of candidate franchisees. And we’re talking luxury car brands, not 7-Elevens.

        • 0 avatar
          hubcap

          Franchised stores and restaurants fail at a rate greater than you might think. Many franchisors don’t consider the individual franchisee but the location when categorizing failure.

          For instance, a location with three prior owners who “failed” is still considered successful by HQ as long as the store is still operating.

          If the store closes for good, regardless of the number of franchisees who failed at that location, it will only be considered as a single failure.

          • 0 avatar
            DenverMike

            I know several owners of franchised businesses in my neighborhood personally and some of them have been operating in the ‘red’ for years now. Most of them are diversified enough and or, come from ‘old money’. They also own the building outright.

            Not that Lotto winners can’t be responsible franchisees, but responsible people don’t usually gamble.

            I also know most of the owners of new car dealers in my town personally because I’ve worked for them as a kid. I used to detail cars with their kids and guess who’s running the dealerships now.

        • 0 avatar
          CJinSD

          Have you ever sat in on a franchise presentation? You don’t even need to be a millionaire. If you’ve got credit, they’ll be happy to see you use it to cover first year’s operating expenses.

          • 0 avatar

            @DenMike

            “responsible people dont usually gamble”…truer words have never been spoken. Although Im a sucker for $2 blackjack in Vegas with multiple hands.

            Again Id ask where this “holy grail” of rich American? sub-cities/suburbs that has somehow been overlooked exists?

  • avatar
    CarnotCycle

    Given Tesla’s adventures in directly selling cars and the legal dust being kicked up doing so, I would carefully examine dealer laws and sentiments in the polity I was thinking about opening a dealership. Corporate portals a’la Apple Stores are the future long-term, especially for industrial haute couture brands.

  • avatar
    jimbob457

    I can only add one minor detail to the massive wisdom presented in this thread. Observe that light motor vehicle sales in the USA (and other mature markets as well) have trended DOWNWARD since the mid-2000’s. In business of any kind, expanding into a shrinking market is suicide unless you have the (much) better mousetrap AND, you know WTF you are doing.

  • avatar
    skor

    The Fed’s current policy is to puff up equities and make the rich even richer, so the wealth will “trickle down”. BLAHAHAHAHAHAHAHAHAHAH! Oh, that joke never gets old. Anyway, the fact remains that the millionaire job creators aren’t going to run out and create jobs just because their portfolios have increased by 40%. They may bid a Jackson Pollock piece up to 40 sqillion or so, but most will do what they always do: Pound the extra money up their asses. If their current new BMW acquisition cycle is 2 years, it will remain two years. The only way you’re going to see large increases in luxo-car sales is if there are more millionaires created, and I don’t see that happening.

    BTW, local Lamborghini dealer went Tango Uniform late last year.

  • avatar
    MrWhopee

    I think the most important factor for luxury car dealership is location, location, location. Were there a lot of demand in the intended place for luxury autos? Will it be a new brand that wasn’t previously available in that neighborhood, or was it a second (or third or fourth or whatever) dealership for that brand in the area? Is there already examples of the car’s brand running around the neighborhood, indicating that people there wants the brand even if they have to go somewhere else to buy them?

    • 0 avatar
      billfrombuckhead

      That location idea is dead, the Internet has changed that. Look at the Hyundai Equss valet service deal. As long as you’re in good zip code and safe area it would suffice for an independent. The problem being an independent is competing with money launderers. No joke . New car franchises are all tied up by corporations like Autonatipn and Asbury Automotive. They make money on the stock and think ahead 20 years. A very corrupt business, I wished I never got caught up in it.

      • 0 avatar
        porschespeed

        New car franchises (and sales) are a matter of state law. Not some fantasy ‘but-duh-internetz’ nonsense people want to believe.

        The con man Musk has chump-change in his net worth compared to the thousands of dealerships that will ensure he can never legally sell cars the way he lies to fools about being ‘da future’.

        • 0 avatar
          CarnotCycle

          Laws protecting car dealerships are a stupid rigged racket, an inserted middleman by rent-seeking fiat, and one of the reasons the car business has the unenviable reputation that it does.

  • avatar
    dwford

    I’m always amazed that any dealership with decent sales could go out of business. At my dealership, there are so many ways they make profit before even worrying about selling the cars at a profit. They pay the sales guys $300 a week salary with no demo cars and 20% of the gross profit. Before they calculate the gross, they skim $250 off the total gross on a new car and $850 off a used car and figure the gross on whats left, with a minimum commission of $100 (some dealers pay less!). They charge a $399 document fee and $159 for VIN etching on the windows (which grosses them $120). So they make $520 on every car before any profitable sale. Then, on the used cars they charge the sales dept the same $99 per hour as the customers, so they book profit on repair of the used cars before they are sold. Then they get holdback, dealer cash and other kickbacks from the manufacturer.

    • 0 avatar
      danio3834

      You’d be very surprised how horribly managed some of these places can be. Many dealers have an over emphasis on new car sales which have dwindling profits aside from the extra crap the dealer tries to tack on, unless they can move huge volume. They need to be able to keep the customer coming back for service if they want the real money.

      Overhead costs mount quickly at a dealership and if all departments aren’t managed correctly, especially service, it doesn’t take long for them to sink. Especially since many owners like to set the place on cruise and phone it in from their condo on the gulf coast.

      If you look at some of the more successfull independent franchises and chains, the owner has a very hands on approach. If managed well, there is a ton of profit potential.

  • avatar
    Kyree S. Williams

    Let’s all agree that there’s not a set recipe for this sort of thing. One person’s success-story won’t necessarily work for another person. And one person’s failure may be a triumph for someone else. The only thing that’s certain, though, is that the entrepreneur in question needs to be well-researched.

  • avatar
    CapVandal

    If BIL is savvy, has the means and the ambition — then I doubt if there is really anything particular to the auto business that he needs to know.

    Business is business and it is always brutal.

    If he really thinks this is the absolute best way to allocate capital — then why not?

    Interest rates are low and there are plenty of empty dealerships to recycle.

  • avatar
    motormouth

    A long while back I used to live in a pretty well-off suburb of Pittsburgh. I have it on good information that the Rolls-Royce and Volvo dealership there has recently closed. If that town can’t support a Roller dealer pulling on the whole of the tri-state area and beyond, then there are precious few places outside major cities (NY, LA, etc) than can hope to support a similar operation – and I imagine that most major cities already have a full complement of luxury vehicle outlets (Or galleries. Yeah, whatever).

  • avatar
    danio3834

    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.

  • avatar
    Domestic Hearse

    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.

  • avatar
    jacad

    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.

  • avatar
    Commando

    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.

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