Stephen Dietrich is a partner at Holland Knight, the preeminent law firm representing dealerships across the country in a number of matters, including Mergers & Acquisitions.

In this episode, The two discuss the current state of the dealership buy-and-sell market, with a focus on the impact of the pandemic, chip shortage, and supply chain shortages on the industry.

One of the challenges facing the market is the ongoing supply chain shortages, which have been exacerbated by the pandemic. Dietrich notes that these shortages are affecting the availability of vehicles and parts, which can impact dealerships' ability to conduct business.

In addition to supply chain challenges, the relationship between OEMs and dealerships is also a concern. Some OEMs have announced plans to move to an all-electric vehicle lineup, which could have significant implications for dealership franchise agreements. Dietrich believes it will be necessary for dealerships to have open and transparent discussions with OEMs to address these challenges and find solutions.

According to Dietrich, while the public buy-and-sell market may have cooled off in 2020, the appetite for acquisitions among private buyers has remained strong. He notes that the success measures for public and private companies may differ, with public companies potentially being more interested in buying back shares rather than acquiring dealerships.

In the first half of 2022, the number of private buyers increased, and while there were more buyers than sellers, the number of sellers also increased. "As the share of the buy/sell market held by public retailers fell, the major private dealership groups remained committed to expanding through acquisition. In reality, the largest private groups expanded their share of the buy/sell market to more than double that of the public."

Many folks in the auto space reinvest in their own business, either through improving their own business or buying other dealerships as they go forward. You could say the same for the public at some level; they might not be buying more dealerships at the pace they were, but they're buying back their stock, and that's a good investment. The result of those two decisions of wanting to invest their money is two different actions at some level. I see it as they're bullish on their business. They show it in different ways.

The flip side is that the private dealers See a more aggressive or a higher ROI than the public folks do. The nature of the individuals folks in the private sector look at that and say, They likely can do a better job with it. Their view of return and investment may be more aggressive than the reality of the return and investment that public companies see.

The transition by several OEMs to a fixed-price agency model is the most topical subject in the new-car retail market. Brands such as Toyota in New Zealand and Mercedes-Benz in South Africa have adopted this approach, in which dealers no longer own inventory and facilitate the sale of a vehicle at a fixed price on behalf of the original equipment manufacturer. After rationalizing its network, Honda is slated to adopt an agency model on 1 July 2021, while Mercedes will adopt it on 1 January 2022. Details on how a trade-in will be valued have yet to be determined by the relevant manufacturers but are essential for the agency model to achieve its stated goals.

This is a significant change to the current approach, and long-term business partners request that dealers accept it. The emergence of scepticism over components of the agency model should be interpreted as something other than a sign that Dealers are resisting change. Dealers are not adverse to change, but after years of investment, they have a great deal at stake. In addition to their retail expertise, they anticipate playing a vital role in developing any future retail models in which they engage. This includes asking the essential