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A lot of car dealers in similar markets are good friends.
They compete with each other, and some see each other socially.
Most of them have local and state associations. Many cities have a new car dealers association that meets regularly.
Each dealer gets to see his neighboring competitors’ registrations…knows exactly where his unit volume is…sees his facility…and even drives the lot occasionally.
And each dealer gets to learn even more misleading details and rumors about his buddies from the wholesalers…especially when it’s bad information.
So, all in all, dealers have a pretty good feel for what’s going on in their neighboring competitors’ businesses.
The Setup
The tendency is for the seller to think that this man is his friend because they’ve known each other for 25 or 30 years. And, he is his friend.
Over time, the friend will always say, “If you’re ever thinking about selling, I want you to promise that you’ll call me first.”
And, while it seems like that would be reasonable, and no matter what the friendship is, they are still business people and they are still competitors.
And, not surprisingly, the seller is in a serious frame of mind, but the buyer may not be in that same frame of mind. He wants to buy as cheaply as he can.
It shouldn’t be a problem. After all, they are both businesspeople. And they are still competitors.
And when a would-be buyer-friend asks for first dibs on a dealership, not surprisingly, the seller is in a serious frame of mind. But the buyer is not in a serious frame of mind.
The buyer wants to buy as cheaply as he can…buddy or not. The buyer is thinking about all the negatives related to the dealership.
He’s not trying to rook the seller—his buddy. He’s just like the rest of us. He wants to get the best deal that he can.
The Horror Story
For example, I worked with a dealer for about six years helping him position his business for sale.
The seller and his competitor…a buddy of about 25 or 30 years…had a friendly lunch a couple of times each year.
Sure enough, while having lunch one day, the friend says, “If you ever think about selling that thing, I hope you’ll always remember to give me a shot at it.”
And the seller says, “Well, in fact, I am thinking about selling it. In fact, I’ve signed a deal on…it’s pretty much done.”
Because the selling a dealership is a hair-raising time in any situation, the seller is stressed…anxious….he’s got too much to do and too many decisions to make.
Now, the buddy adds to the turmoil by asking, “Well, would you sell it to me for the same deal?”
This simple conversation throws the whole deal into chaos...
The Fix
Unless your buddy is competing with somebody out of town…out of the local loop…the price you get will usually not be as good as it should be. In most cases, locals tend not to pay full value unless they’re faced with competition from an out-of-town, would-be buyer.
It’s not that your buddy-buyer is trying to pull the wool over your eyes. You’ve got to remember that where a local buyer sees an opportunity to get bigger...an out-of-town buyer wants to move into a new market.
All he sees and remembers are all the negative aspects of your market, your reputation, your location…everything.
And he uses that against you when you’re ready to sell. Generally speaking, a local dealer will pay less for the deal than someone from out of town.
And, if a buddy does decide to step up and pay fair market value, it’s only because they believe that somebody outside the territory is going to come in and steal their customers.
Conclusion: Even though the dealer down the street is your friend, their offers and subsequent
conversations could undermine your plans to get full value for your dealership. Sometimes local dealers want to pay less than dealers outside your market.
Pat McNulty is the founder and president of McNulty Automotive Business Consultants, LLC. In addition to building several successful dealerships as an owner, he has assisted owners and their family members with over 150 dealership transitions. To learn more about how you can intelligently deal with this sensitive issue, contact Pat at 1-800-800-4728.
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