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For many small family dealers, it’s ‘grow or go’

Konner Chevrolet was barely a year away from celebrating a century in business. The family-owned dealership, which opened in 1919, had its fourth generation working at the New Jersey store, and operations were doing well.

But in October 2017, the Konners decided to celebrate a different milestone: the sale of the store.

Running the dealership felt like owning a local hardware store going up against Home Depot, said Dean Konner, 64, who owned the store with brothers Al and Irving. Doable, but difficult.

"Today, to be a family-run dealership, the industry and manufacturer, it's not so much about the people. It's about the numbers," said Konner, grandson of the founder. "What happened is these bigger guys would undercut your price. A little guy can't survive."

It's a conclusion more and more small, family-owned dealerships are reaching as they look at an industry that's being transformed by consolidation, technology, challenges to the ownership model and increasing capital demands.

The National Automobile Dealers Association reports that while single-store owners represented 64.8 percent of the nation's roughly 7,500 dealership owners at the end of 2018, their ranks have shrunk 35 percent since 2008. Meanwhile, the number of dealers with 10 or more stores has increased 62 percent.

"Never before has it been more the case to grow or go," said Gordon Wisbach Jr., a dealership broker in New England.

No regrets

Steve Kelly, 54, a second-generation dealer, said rising costs, market conditions and factory demands made it a good time to sell his single-point Chevy store outside Philadelphia, which his father's family bought in 1988. Kelly, who started working in dealerships before he was a teenager, sold the store to another family-owned business last March and says he has no regrets.

"The amount of money needed to invest long-term didn't make sense to me from a financial standpoint," he said.

Another factor for Kelly: He didn't have a clear successor in place to take over the business.

Other owners are wrestling with that issue. Erin Kerrigan, managing director of Kerrigan Advisors, a sell-side and consulting company in Irvine, Calif., said families are having more conversations about whether it makes sense to pass along businesses to the next generation, given all of the talk of disruption in retail and questions about whether a small dealership can hold its value over the long term.

"These up-and-comers see an industry that will transform significantly over the next 20 years, making their careers more volatile and challenging," Kerrigan Advisors' third-quarter 2018 "Blue Sky Report" said. "Some are concerned that the value of their inherited family enterprise will decline rather than appreciate."

Kerrigan: More families selling

Just 30 percent of family businesses successfully transition from first-generation to second-generation ownership; that figure falls to 12 percent for transitioning to the third generation and only 3 percent for the fourth, according to the Harvard Business Review, citing data from the Family Business Institute.

Kerrigan Advisors estimates that at least half of the automotive retail industry is made up of owners from second or subsequent generations.‘Active year'

Meanwhile, larger groups continue to soak up stores as they battle one another. Asbury Automotive Group CEO David Hult this month said his company expects 2019 to be a "very active year" for mergers and acquisitions in the industry, though he declined to forecast how many acquisitions Asbury is expecting.

Asbury, No. 7 on Automotive News' list of the 150 largest U.S. dealership groups based on 2017 new-vehicle retail sales, has agreed to buy four stores in Indianapolis with eight brands from Bill Estes Automotive.

Hult touted such acquisitions as a "win for everybody" — the dealer and the company and its shareholders. Estes couldn't be reached for comment.

Jim Tino Jr. found it hard to win as a small franchise facing rising costs and factory involvement. Tino, whose family-owned Chevrolet and Subaru dealerships in Union, N.J., were about 30 minutes from midtown Manhattan, said factory demands — specifically from General Motors — prompted him to sell his stores in 2016.

"I grew up in the business and always felt that while we were franchisees, we should be able to operate our business the way we felt. ... I realized we weren't going to make a profit here unless we play the game exactly the way they want it to be played," he said, referring to GM programs such as Standards for Excellence and Essential Brand Elements.

Tino, 55, said if he had stayed, he would have expanded operations and diversified the brand offerings.

But his daughters weren't interested in running the business, and he sold the two stores as a package to Open Road Auto Group — No. 54 on the largest U.S. dealership groups list.

Still, for some small dealers, the challenges represent something to overcome, not escape.

Disruption always "creates huge anxiety, being a family business," said Rick Mohr, owner of Eau Claire Ford-Lincoln in Wisconsin, "but you have to strategically lay out your plan."

"We'll have to right-size and consolidate some job duties to make sure the store can stay profitable," he said.

Mitchell Dale, owner of McRee Ford in Dickinson, Texas, said there's bound to be some contraction and disruption in the industry, but you've got to "control what you can control" by staying attuned to customer and employee satisfaction.

"To just sell doesn't interest me," he said. "I want to stay around and be part of it."

Melissa Burden, Jackie Charniga and Michael Martinez contributed to this report.

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