Is the “American Dream” still possible in the car business?

Hey, everyone — Many predicted it (myself included) — but as we approach the holiday season, car deals are getting even sweeter… 

The average incentive spend per vehicle has grown 63.2% YoY and is currently on track to reach $3,047, per J.D. Power.

Why? Automakers want to boost their year-end numbers and dealers need to make room for 2025 models.

Everybody wins.

—CDG

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The auto retail industry has produced some of the most incredible success stories. For decades, people have thrown everything they’ve got—blood, sweat, and grit—into becoming the best at selling and servicing cars. But record dealership profits in recent years and more investment attention have driven interest in new car franchise ownership to new levels.

The problem is —

Dealership consolidation is not slowing down, which means fewer options are available to new entrants. Yes, bigger dealer groups have been gobbling up mom-and-pop shops and independent stores for years, but a recent stat jumped out at me:

• The top 10 dealership groups now own 9.3% of the 17,000 U.S. dealerships — a record high.

And it got me thinking about some of the previous phenomenal operators who appeared on the Car Dealership Guy Podcast — like Aaron Zeigler of Zeigler Auto Group, whose aggressive acquisition strategy has taken his group to 41 stores. Or Brett Morgan of Morgan Auto Group, who has acquired 60+ dealerships. 

At scale, these are shrewd operators who have worked their way over many years to be able to afford to pay as much as hundreds of millions on dealerships, but for the average salesman, F&I manager, or GM that wants to own their first dealership outright — it’s harder than ever.

But it is still possible —

This is where Kyle Coleman comes in. I recently met Kyle, who started out in the business 18 years ago, worked his way up to GM, and in the past 7 months, bought his first two dealerships and quickly added a third. 

This week, I interviewed Kyle on the CDG Podcast and was floored by his story. After the cameras stopped recording, we ended up talking for another 45 minutes about his acquisition playbook and the untraditional route he has taken.

Kyle was inspired to set out and buy his first dealership after listening to Brett Morgan’s episode on the Car Dealership Guy podcast, where Brett talked about using private equity investment to expand his dealership group.

So, I asked Kyle how he was able to brute force his way into the competitive dealership mergers and acquisitions market. He told me it all started very simply: he began hitting the phones, scouring for-sale listings, and even consulting with a private equity firm that focused on dealerships (they didn’t invest in Kyle’s acquisition, but the advice he got from them was instrumental.)

The real turning point came when Kyle found a dual-point Chrysler Dodge Jeep Ram and Ford dealership for sale in rural Iowa.

He narrowed down his selection to that store and a more expensive metro location. The deciding factor for Kyle was each store’s market efficiency. Kyle determined it would be better to buy the rural franchise with a lower market efficiency, which he knew he could make highly profitable with enough effort, rather than a pricier franchise that had already “peaked” in market efficiency and would be difficult to improve.

In the end, he got a pretty good deal. Because of the location and brands, Kyle paid a 2x multiple on the store’s net profit from the past 24 months. The multiple, in this case, is the blue sky (or goodwill) value of the brand. 

This just goes to show, there are opportunities out there — but in this case, the trade-off is being willing to move or live in a more remote area.

Check out the chart below to see where average blue sky multiples by brand stand today (FYI - Stellantis stores typically trade for more than Kyle paid):

But no matter the brand or location, Kyle said new entrants (like himself) need to come prepared with solid financials, good credit, and at least a million dollars in liquid capital — because the costs add up quickly (legal fees, environmental inspections, and IT setup costs — you get the picture).

If buyers have the cash, the next hurdle is getting manufacturer approval. Automakers want to see if the buyer can run stores that meet or exceed standards for sales and customer retention. Kyle’s track record in these areas made this process easier despite a few hiccups along the way.

But even with experience, financing wasn’t easy. Kyle warned new entrants to get used to hearing “no” from lenders when trying to finance their deal. In his case, he got creative.

Ultimately, Kyle opted for Small Business Administration (SBA) financing for its real estate perks (if you’re unfamiliar with the SBA, here’s more info about the type of loan Kyle used). According to Kyle, unlike traditional commercial loans with 10 -15-year terms, SBA loans let you finance 90% of the property over 25 years. That means less money down — just 10% — and more cash to keep the business running smoothly.

But after closing was when the real work began —

Dealerships that sell vehicles across state lines know out-of-state titling and registration can be a headache. That’s why DLRdmv created DLR50 – The nation’s fastest-growing interstate titling platform.

DLRdmv understands the impact these deals can have on your business. With DLR50, your dealership now has 24/7 portal access to calculations, pre-filled forms, checklists, inquiries, plus white glove processing and specialist support, DLR50 is a game-changer.

You can even acquire duplicate titles in all 50 states directly through the DLR50 platform! Out-of-state deals don’t have to be complicated! Let DLR50 simplify the entire process for you and your team.

Click here to let us show you how DLR50 can help your dealership today!

DLRdmv – “The Dealer’s DMV”

See, many people outside of the business think dealerships are high-profit businesses (and the majority are), but the actual net margins are razor-thin, at around 5% on average.

Look at any dealership income statement and you’ll see expenses going out left and right. In addition to the typical business costs like advertising, insurance, taxes, and payroll, dealers also have to account for things like inventory financing, transport and towing, and vehicle reconditioning.

The real trick is knowing how to maximize every part of the business, not just sales. For Kyle, the game-changer was revamping an underperforming finance department. He’s walked into stores barely making $500 back-end profit per deal (back-end = everything sold after the sale of the actual car). This is very weak. But by introducing a clear, process-driven strategy, he turned finance into a big profit driver.

Which brings me to a super important point: Dealers (and honestly, entrepreneurs in general) have to focus on bringing value using their core competency. Kyle’s core competency = the finance department. For others, it could be logistics, used cars, service, marketing — you get the point. (Fun fact: My core competency in the business was marketing. I loved it, studied it, lived it. Shocker, I know). But knowing where you can bring asymmetrical value is super important so you can complement with a team that solves for your weaknesses.

Yet — building and fostering a team like that is difficult. So, Kyle decided to try to retain as many of the store’s original employees as possible. In his opinion, the best way to do that was to change everyone’s compensation and give out raises. This (aggressive) strategy worked for him in the past when he was an operator for the Rohrman Automotive Group. By compensating his team significantly more than most other employees in the group — Kyle claims his employees worked 10x harder.

Entrepreneurs also typically have the habit of pulling their close friends and family into the business mix. Kyle brought his brother Ryan to help him run things and the group’s finance director actually lives full-time in Indiana, but 3 weeks out of every month, he commutes to Iowa and rents a place to stay — just so he can work for the organization.

But making money as a car dealer comes down to every detail, including — how cars are acquired, how inventory is managed, and how costs are kept in check.

In this business, the value is unlocked in the 90% percentile. There is minimal room for error.

At the end of the day, every “American Dream” starts with someone willing to take a leap. As Kyle put it – be ready to take some hits, get back up, and keep pushing. If there's a risk worth taking, it's betting on yourself and your people. And Kyle is betting big. On top of everything he’s accomplished — he just started his own private equity firm (legit) to help him fund his journey to 40 rooftops. I’m pumped to see where he goes from here.

P.S. If you liked this story and want me to do a 6-month follow-up post on Kyle’s progress, hit Reply and let me know + add any questions you have ;)

Q4 auto market forecast: The need-to-know trends and predictions

You can stream the full episode now on YouTube, Spotify, or Apple.

Secrets to becoming a first-time franchise dealership owner in 2024

You can stream the full episode now on YouTube, Spotify, or Apple.

We’ve got tons of great jobs hitting the CDG Job Board right now:

• Veros Credit has 12 remote and in-person Regional Sales Manager positions open all across the country.

• Riverside Auto Group is on the hunt for a Controller located near Rome, GA.

• Ron Marhofer Auto Family needs a Title Clerk (and a few other positions) around Stow, OH.

Looking to hire? Add your roles today—it’s 100% free.

Hunting? View over 250 listings on the Job Board.

• Chevy works to keep full-size SUV sales leadership with freshened Tahoe, Suburban.

• Japanese automakers team up on software development

• Fact check: Is Europe's car industry in crisis?

• Rivian Automotive price target lowered to $12 from $16 at Truist.

• Nissan Ariyas are getting Tesla Supercharger access in 2024.

Thanks for reading. See you on the next edition…

—Car Dealership Guy

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