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

Welcome to another edition of expert insights from the Car Dealership Guy Podcast, an episode recap that breaks down the high-level takeaways from the conversation.

Today’s guest is Kyle Coleman, owner of Coleman Automotive, who discusses how to navigate becoming a first-time dealer, staying ahead of the competition, and inspiring employees to achieve success. At 37, Kyle has already achieved far more than many of his peers in the business and redefined what’s possible for someone with enough talent and industry knowledge. He is also a first-generation dealer, with his father working a union job.

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

1. Entry into the car business.

Kyle has been in the business since he was 18, opting to sell cars alongside his brother at a Hyundai dealership rather than going immediately to college. This would be where his love of the industry started, as he found he had a knack for connecting with people and accomplishing sales targets. When the 2008 recession hit, and the car market crashed, Kyle decided to go back to school but continued selling cars part-time. After graduating college, he began to work his way up through the ranks in his dealership, although he notes that the F&I department was always his favorite.

2. Early successes.

Kyle was promoted to oversee a Honda dealership’s new vehicle department in Indianapolis. The local market, occupied by some of the most successful dealership groups, is extremely competitive, and his company was struggling. Despite being younger than many of those around him, he put himself to work, and within 12 months of taking on the role, his department went from losing money to making roughly $2 million in net profit. When his company refused to promote him due to his young age, he quickly transferred to a different dealership, which promptly offered him a general manager position. At this point, Kyle was still in his mid-20s.

3. Pros and cons of being in charge.

Kyle has a unique advantage over others in his industry: his leadership potential. While many struggle to attract talent, he notes that he has never struggled to gather together a strong team. In fact, many new hires go out of their way to work with him; roughly half of his current management team moved cross-country for their roles. “I guess something about me inspires people to want to get onto the team,” he remarks. At the same time, Kyle has also faced personal challenges. For one, he admits that he often focuses on his goals without putting enough consideration into how he will reach them. “I just have this vision of what I want, and sometimes I don’t think about everyone around me and what it will take to get there.”

4. Attracting investors.

When Kyle decided to become a dealer principal and store owner, he was worried that it would be impossible to receive support from investors. To his surprise, the first investors he talked to were highly interested in the prospect and immediately began working with him to walk him through the process. The struggle for investors, he explains, is not a lack of money but rather a lack of talent to invest money into. Those with a proven track record of success can obtain financial support as long as they are able to communicate their abilities and knowledge successfully. Kyle was able to use this as a jumping-off point to eventually secure his own dealership.

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5. Navigating first-time acquisitions.

Purchasing a dealership for the first time can be exceptionally challenging, especially if the buyer lacks connections in the industry. Kyle had to work closely with his bank to secure funding and explore every possible option. His first acquisition, completed earlier this year, came from a particularly unusual source for the auto sector: an online platform called BizBuySell. A barebones dealership listing on the site caught his eye as it was unusual for any automotive franchise to appear on such a platform. On a whim, he called the broker’s number. “Ultimately, we negotiated a deal,” Kyle recalls. “The day that we closed, we bought two dealerships…and then I have a contract to execute for his last location.”

6. Valuations in a post-COVID market.

Valuing dealerships can be challenging. The COVID-19 pandemic made it difficult to calculate each storefront’s typical profit margins. “I ended up paying a two-multiple of what they’d done net-wise,” Kyle explains, adding that the deal covered Ford, Stellantis, Chevy and GMC franchises. While these brands can be expensive, their location in a rural market gave him an edge. “In a tier-two or even a tier-three market, it probably would have been a five-x [multiple],” he explains, adding that he did look at more expensive locations before reaching a decision. In the end, Kyle determined it would be better to buy a franchise with a lower market efficiency (and lower multiple) that he knew he could make highly profitable with enough effort rather than a pricier franchise that had already peaked in terms of market efficiency and would be difficult to improve.

7. Winning with Stellantis.

One of Kyle’s storefronts is a dual-point location, selling both Stellantis and Ford vehicles. While the automaker is currently struggling to maintain sales in the U.S., Kyle notes that Stellantis is actually the best-performing new car franchise he owns in terms of volume. “Last month, we were third in the entire region,” he reports, adding that he currently averages a 90-day turn on Stellantis vehicles (well below the brand average). The dual-point location is also Kyle’s most profitable store, which he attributes partly to the dealership’s successful F&I and fixed-ops departments and partly to a better pricing strategy than his competitors. Kyle adds that many of his peers in the business who hail from a long line of dealers continue to charge buyers based on MSRP simply because “that’s how we’ve always done it.” This adherence to old-school thinking may be causing some dealers to trip up as the market continues to correct course.

8. Overall dealership performance.

In the six months since taking ownership of his dealerships, Kyle has made vast improvements that have led to better sales and more profit. He reports that the team made more in the first four months than what the previous owner had over the last two years. Currently, the Ford-Stellantis store is up 200% month-over-month in both volume and net profit despite an intense inventory shortage in his area. During Kyle’s best month of the year, he generated roughly $110,000 in net profit.

9. Private equity and dealership acquisitions.

Kyle explains that relying on private equity firms to fund dealership acquisitions can be limiting, especially for someone looking to expand quickly. Since the investor (a bank in Kyle’s case) has a controlling interest in the business, dealers must get their approval to fund new buyouts. To circumvent this problem and achieve growth as fast as possible, Kyle founded his own private equity firm. Using this method, he will create a new fund for each new dealership he acquires. This will ultimately allow him to grow at his own pace without the concern of a stakeholder intervening.

10. Closing thoughts.

Despite all his successes, Kyle has even bigger dreams for his dealership group, hoping to expand into more franchises (including Toyota) and add new storefronts. For those looking to chase their dreams in the automotive industry, he offers two pieces of advice. The first is to “be relentless.” Success is attainable but only for those who demonstrate persistence and perseverance. The second is to “surround yourself with the right people.’ Kyle explains that the car business has lost its focus on relationships due to the constant consolidation. Breaking out of this mindset and building friendships is key, as dealers need a strong support system (both at work and at home) to succeed.

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

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