Article

An Exercise in Planning and Patience: Purchasing a Franchise is a Drawn Out Affair as Aztec Chevrolet Discovers

December 2008, Auto Dealer Today - WebXclusive

by Kimberly Long - Also by this author

Buying a dealership, even a small one, can be a complicated experience, even for seasoned business owners. Just ask Luis Aliniz, dealer principal of Aztec Chevrolet Pontiac Buick in Beeville, Texas. He and his brother, Joe Henry Aliniz, completed the purchase of the dealership, which had previously been known as All Star Chevrolet, in May of 2007. The brothers own several other businesses together, including a tire store, a car wash, the independent repair shop founded by their father in 1953, and previously, an auto parts store and a hardware store.

Despite those years of business experience, Luis Aliniz said he discovered that purchasing a dealership was a slightly different animal. “I just didn’t know how much paperwork and detail that goes into a buy/sell of a dealership, even a small dealership like this,” he admitted. “Everything’s got to be done right.”

So why decide to buy a franchise dealership?  “For my sons and my nephews … the next generation,” said Aliniz. “One of my sons graduated from college and he came home and said he wanted to learn the car business.”

Both Luis and Joe Henry worked in their father’s repair shop for years and later bought the business from him in 1974. The brothers decided to find a dealership to purchase with the intent to eventually pass it to their sons.

Aliniz was open to buying any manufacturer’s franchise, although he favored General Motors (his father had worked for a GM dealer before starting his repair shop, and Aliniz himself had attended a GM technician apprenticeship program immediately after graduating from high school). His main concern was trying to find a dealership close to home. “I considered one about 25 miles away,” he said. “But I wanted to stay close to home and when this one came up, we started talking with the owners … it was in my backyard.”

One advantage to buying a dealership in his hometown was that the customer base knew him and his brother since they owned several local businesses. “We’ve been in business in this town all our lives and we’ve kept the good image of our name and the work that we do,” said Aliniz. He said this gave customers a little more confidence in the dealership, knowing that it was locally owned and that if they had a problem, “they can call me or my brother and the problem’s going to be addressed.”

Of course, acquiring a franchise dealership is not a simple transaction, so Aliniz brought in some outside help. “It’s quite a bit of a package to fill out for General Motors,” he said. “We hired a consultant out of Houston to help with the application process … and make sure all the i’s were dotted and the t’s were crossed.” He said the consultant knew the kinds of things the manufacturer would be looking for, what to do, what not to do and what the manufacturer required on the application. Aliniz was pleased with the decision to bring in an expert. “When we sent the application, it was done right the first time. We didn’t have to go back and forth.”

Aliniz enlisted the help of his accountant when the time came to start looking over financial statements and determining the dealership’s value. “What you have to worry about is … blue sky,” he said. “The rest of it, you can more or less have it appraised and it’s cut-and-dried.” Part of the purchase included the dealership’s used car inventory. “They had good inventory; it was fresh,” Aliniz said. He intended to keep the used car operation, so it was much easier to simply acquire the 60 or 70 cars already prepped and on the lot.

He reported that the overall valuation process was reasonably problem-free, but admitted that determining the blue sky value was a bit of a haphazard process for him. The seller stated how much he wanted, and Aliniz and his accountant began looking at the store’s sales and profits and simply tried to figure out what was equitable. “It’s in my hometown and that gave it more value to me than maybe somebody else from the outside,” he explained.

For the actual transaction of sale of the dealership, Aliniz thought it best to seek some advice from his own attorney. The attorney’s advice: get another attorney (someone with experience). There were a lot of potential pitfalls for anyone having no experience specifically with the purchase or ownership of an auto dealership. Some issues are unique to the industry. Aliniz recalled the conversation. “He said, ‘You need a shiny-shoe attorney from the big city.’” On that advice, he hired a firm in Corpus Christi that had experience representing buyers in dealership purchases. He noted that the seller also had an attorney assisting him.

“In many respects, buying a dealership is like any other business acquisition,” explained attorney Charles W. Thomasson of Gary, Thomasson, Hall & Marks Professional Corporation in Corpus Christi, Texas, “and it requires the same concern as to whether all of the assets are there and in good shape and whether there are skeletons in the closets in the form of undisclosed (or even unknown to the seller) liabilities that will follow the assets or reduce the value of the franchise.

“The major difference about dealerships is the power, and usually bureaucratic practices, of the manufacturer related to the franchise,” he continued, “which is the most valuable and indispensable part of the deal. The deal must be molded around the manufacturer’s rules, procedures and time table, which seldom fit the business desires of the buyer and seller.” Thomasson added, “There are also some areas peculiar to the industry such as billing and holdback practices, parts return policies, computer program use and licenses, et cetera, that need to be accommodated.”

The attorneys’ services were indispensable to Alaniz. “[T]hey knew what to put in the original letter of intent … a lot of stuff that I never would have thought of … they knew what to put in the contract.” He said he would definitely recommend hiring an attorney to anyone considering purchasing a dealership. “Especially the first time,” he added. “You learn a lot the first time.”

One of the things Aliniz learned was purchasing a dealership is more than a lot of details and paperwork; it’s also an exercise in patience. “It’s not something you do in a week,” he said. “It was just a long process … by the time you negotiate a deal with the owners … call General Motors and get the application, you go talk to the lawyers and consultants … the lawyers go back and forth with their sales contracts … you go to the bank, you’ve got to get an appraisal on the place.” For Aliniz, the entire process took almost an entire year to complete.

In addition to the amount of time taken up by the sales process itself and the franchise application, there were a few other details to be taken care of. “You can’t just sign with the manufacturer and start selling cars tomorrow,” said Aliniz. “You’ve got to get all these other licenses.” To operate a new car franchise in Texas, he needed a dealer’s license and then had to obtain a license from the Office of Consumer Credit (OCC) to sell vehicles on credit.

Since the purchase, there have been changes—some slow, some small—but one significant change was actually made before the dealership even changed hands. Aliniz had already decided he wanted to bring Jimmie Gilchrist on board as general manager. He believed Gilchrist, who had once worked for the store under a previous owner, was the man he and his brother needed to increase sales and ensure the well-being of their investment. With Gilchrist’s help, the dealership has continued to evolve. The store’s Web site is up and running, although Gilchrist noted it was something they were “still battling with.”

They also kicked advertising up a notch, according to Aliniz, moving it into television and radio. He added, “We’re starting to advertise a little heavier in the Hispanic market.” According to Gilchrist, they have actually managed to do more advertising than the store had done before but with a smaller ad budget. By carefully targeting their market and determining the best way to advertise to each segment they were able to get more out their advertising dollars. “Spending does not equate to sales,” he said.

Their efforts have paid off. The store has pushed its monthly average into the range of 100 to 120 sales per month, up from the 50 to 60 per month under the previous owners, all while maintaining strong gross profit.

Aliniz said they would continue to slowly upgrade things as they go and mentioned the addition of four to six more service stalls and eventually a body shop as future expansion options.

However, the biggest plan for the future of the dealership is to see that it is passed safely into the hands of the next generation. His son, Luis, Jr., recently graduated from the NADA’s Dealer Academy and his been serving as the dealership’s general sales manager. “When I went to my son’s graduation at NADA,” said Luis, Sr., “they had a succession seminar … That was really eye-opening.” Although Aliniz is not ready to retire just yet (he was recently elected to the board of the General Motors Minority Dealer Association), he has already enlisted attorneys and his accountant to help put together a formal plan for succession so his original plan can be fulfilled.

Vol 5, Issue 11

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