Car Dealerships in Search?

November 08, 2022

by an intermediary from University of Florida - Warrington College of Business Administration in Boca Raton, FL, USA

Anyone have interest or experience in acquiring car dealerships via the ETA model?

Seems like a great fit for searchers but it’s not something I’ve seen discussed too much. Interested to hear thoughts and connect with anyone interested in the automotive aftermarket space.

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Reply by a searcher
from The University of Chicago in Chicago, IL, USA

I see a few challenges for car dealerships in the traditional search model, namely cyclicality and capital intensity. Because cars are durable goods, they are subject to boom and bust demand cycles. With rising interest rates, now is probably a difficult time. Further, dealerships rely on significant leverage in the form of "floor plan" loans to fund very expensive inventory. Additionally, car dealerships are predominantly episodic revenue, other than the service department. Finally, as a franchisee, each car dealership operator is subject to product and operating decisions of the manufacturer. Not to say people haven't made a lot of money in the car dealership business, but it's not an area that fits the traditional search fund mold.

Reply by a searcher
from Texas A&M University in Dallas, TX, USA

A lot of great comments here. In summary, the car business can be very lucrative but it’s incredibly capital intensive and it has a tendency to be a boom or bust. New franchises require the owner operator to have industry experience and used franchises are generally riskier (less income from service, parts, etc.). In my opinion to go this route you’d want to spend years in the car industry first. You’d also be surprised how much of a lifestyle this business is. Dealerships are open early, close late, are open Saturdays, and depending on the state they may be open Sundays. Most car dealers dedicate their entire lives to the business.

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