Car talk: M&A, AI and EVs changing the dealership landscape

Sponsored by Thomson Reuters

Jimmy Robinson, CPA, CGMA, the national chair of the AICPA Dealership Conference, and his co-presenter and co-worker Jesse Stopnitzky joined the JofA podcast to preview discussion points of their conference session later this month.

Their expertise is industry-specific, but some of the topics are applicable to a broader audience. Robinson, a former dealership CFO, shared the key traits of strong finance leadership, and Stopnitzky offered advice for better succession planning.

What you’ll learn from this episode:

• The aspect of M&A deals that is, to Stopnitzky, more art than science.
• How merger activity has changed since the COVID-19 pandemic.
• Robinson’s list of the key traits of strong finance leaders.
• Why succession planning involves far more than naming a successor.
• Disruptive events and key shifts in the automotive industry.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Hey, listeners. This is Neil Amato with Journal of Accountancy back with another episode of the JofA podcast. We’re talking about an upcoming AICPA conference with two experts in their fields — some high-performance experts — right after this brief sponsor message.

[Sponsor message]

Welcome back. The AICPA dealership conference begins Oct. 20 in Indianapolis. It is in person and online, and two speakers from that event are joining me today on the show. Jimmy Robinson and Jesse Stopnitzky, welcome to the JofA podcast.

Jimmy Robinson: Thank you, Neil.

Jesse Stopnitzky: Thank you, Neil. Happy to be here.

Neil Amato: We’re glad to have you both. You are co-presenters in one of the sessions, and one focus of that session is on emerging merger and acquisition trends, or M&A trends. Of course, this session will have a dealership focus, but in general, what are some aspects of M&A exploration that you think are good for fellow professionals to remember, because M&A seems important in the world of accounting firms and other businesses, not just dealerships?

Stopnitzky: Neil, this is Jesse here. That’s a terrific question. In my professional opinion, I believe it’s good to remember that valuations are an art, not a science, and we’re going to be spending a lot of time on that at our upcoming AICPA speaking session because after all, the value of any asset lies in its ability to produce future cash flow and future income. That can’t be determined as easily as applying a multiple to past earnings. We all know that past performance, of course, is no guarantee of future results.

Let’s take the automotive industry if only, for example. During the pandemic, it experienced erratic profitability and exponential growth. The net profit margins, the net to gross margins, net to sales margins, they doubled and tripled year over year. A straight line average looking back across three years, four years, or even five years would have been highly inappropriate at that time.

As a firm we strive to educate dealers that the value is determined by a buyer’s pro forma coupled with the buyer’s desired return on investment. Buyers will use a seller’s track record for the purpose of building a pro forma. They’ll look to identify trends and patterns in performance, they’ll want to better understand margin sustainability and competition in the marketplace, and want to identify what a typical expense structure would look like for different expense categories.

They’ll then back themselves into an offer that satisfies their desired return on investment. Ultimately, this is the value of any business, a buyer’s belief that they can maintain or improve the current performance multiplied by a buyer’s desired ROI. Now, the greater consistency, the greater stability that they can find in the past earnings, naturally, this is going to give them more confidence, give the purchaser more confidence with their projections.

The more confidence that they have in their projections, it’s going to influence their required ROI. This all highlights the need for a bit of intuition and instinct and certainly industry-specific experience. While we are, of course, focusing on the numbers, there’s more to it than simply the flawed method of the multiple-of-earnings method. Again, that’s what we’re going to be focusing on during our AICPA speaking session. Jimmy, anything that you’d like to add on our session in emerging M&A trends?

Robinson: Thanks, Jesse. Being the CPA in the room, most CPAs want to know the numbers behind the buy-sell activity going on in the industry today. Transactional volume compared year over year to this time in 2024 is down about 40%. There’s a number of reasons why that’s happening. Profits and valuations have normalized in our industry. We’re back to where we were pre-pandemic, so that decreases the motivation to sell because the numbers have dropped during what we saw during the pandemic. Also, there were record-high valuations that occurred during the pandemic. Anybody who was motivated to sell pulled forward the activity into ’21, ’22, ’23, and we’re seeing that drop off a little bit because we took sellers out of the market early.

The elections in Q4 of 2024 gave pause to buyers and sellers both to see how the market and the environment would react. Then the introduction of tariffs offered some additional uncertainty into this year. I think those are some driving factors on why the numbers of transactions are down, but we still believe that it’s a good seller’s market. Things like geography and brands still matter. Quality brands in a desirable location are still doing fabulous. Premium brands, they are still premium today, and they bring premium values and will continue to bring premium values.

Neil Amato: Thank you for that summary and also thanks to Jesse for identifying himself as the first answerer of the question. That was important because I just left it open for you guys. Jesse, continuing with you, could you tell me a little about Performance Brokerage Services and your role there?

Stopnitzky: Of course. Thank you, Neil. Jesse here again, I am a co-owner of Performance Brokerage Services. We are a family-owned company founded by my father, actually, with over 30 years of experience, and we specialize in M&A for the automotive industry. We are the highest volume dealership brokerage firm in North America, operating out of 13 offices across the United States and Canada.

Our team is comprised of former automotive dealers, 20 group moderators, manufacturer representatives, CPAs, and other industry professionals, all who are committed to our company’s value statement. Our value statement, which has governed us for decades in business, five simple bullet points: Befriend your client, lead your client with your expertise, put your client’s interests ahead of your own, under all circumstances, do the right thing and the business will follow.

Amato: That’s great. One of the CPAs you employ now is Jimmy Robinson. Jimmy, you’ve been the CFO of Pohanka Automotive Group, a large multistate dealership group. Now you’re a partner with Performance Brokerage Services in their Southeast region. Tell me something about what motivated you to make that switch.

Robinson: I’ve been in the industry as a regional CFO or as a CFO since 1998, most recently with Pohanka Automotive Group out of the Washington, D.C., area. I spent the past six years there, and it was a fabulous experience. There were a number of factors that led me to Performance, some of them personal. I just became a grandfather two months ago, so I wanted to move back to the South, where my daughter was.

Also, during my time in the industry during the past 27 years in the accounting field, I’ve done over 100 buy-sells, being on the company side of the buy-sells. I am totally thrilled by the chase of the merger and acquisition and everything that goes with it. When the opportunity came, Jesse offered me the opportunity to come to Performance and be a partner in the Southeast region. I couldn’t think of a better transition than working in the merger and acquisition field, helping dealers sell to dealers. That was just an opportunity I couldn’t pass up, and I am enjoying it immensely.

Amato: You mentioned that background, those years as a finance leader. What do you think are two or three traits of a strong finance leader?

Robinson: I think to be effective to the dealer, you’ve got to have a strategic thinking component. You’ve got to have the ability to see the big picture and align the company’s financial goals with the long-term organizational objectives. I think that’s critical. I think communication, strong communication. I define that maybe as the capacity to convey complex financial concepts clearly to both financial and nonfinancial audiences. That was something I had to learn early on in my career when I left public accounting because everybody that I worked with was the same background as I was. We went to college, we took the same courses, we talked the same language.

In the auto business, much like any other retail business, not everybody you’re talking to is CPAs, so you’ve got to be able to convey your ideas to both financial and nonfinancial audiences. Adaptability, I think you’ve got to be able to adapt, to be flexible in the face of change. We learned that over the past few years, during the COVID years, managing adversity and maintaining focus to achieve your objectives. I think that’s a few of the traits that I would communicate to your audience.

Amato: That’s great. Now, Jesse’s bio, I missed the part where he’s now a podcast host too, but in your bio it says, you have “a deep appreciation for the critical role advisors play in helping clients achieve successful outcomes.” You’ve demonstrated that with some of the company tenets earlier. But I guess specifically in the area of succession planning, which is another topic that relates to our general accounting audience, what are the things to you that you think business owners maybe get wrong about succession planning most often?

Stopnitzky: Neil, thank you. That’s a great question. Just for a moment, I’ll step back to the appreciation for the role that we play. I grew up in this business, so I deeply believe in the value that we provide to our clients. We understand the magnitude of these decisions. Oftentimes, these are life-changing events for our clients, and not only do we take to heart this responsibility, but we say that it is an honor and a privilege to be involved in preserving the legacy of our clients. Yes, I certainly have a deep appreciation for it. The question, what do business owners get wrong about succession planning? I would caution business owners to consider that just because you have a successor does not necessarily mean that your successor is capable, qualified, or, most importantly, prepared.

So I’ll just share a few high-elevation, some that may appear obvious in nature, but some steps that business owners can take it begins with confirming your successor’s motivation for taking over the business. Oftentimes, we’ve experienced families who have assumed succession plans, but the next generation perhaps hasn’t had the courage to speak up and share their intentions with their families. So, have those difficult family conversations.

Another is to qualify the work ethic and their willingness to give the business the attention that it deserves, especially in the automotive industry. It is increasingly more difficult to compete, and the automotive industry is known to require a lot of sacrifices. They are not 9-to-5, 40-hour-a-week work weeks. For training, provide the necessary training on the roles and responsibilities of being an owner, not just an operator, ensure that the staff respects the transfer of authority, especially if the succession plan is to transfer within the family.

Hand over the relationships with the vendors and suppliers and manufacturers. Facilitate the approval by any lenders. Again, in our case being that we’re in an OEM business in the automotive industry, facilitating the approval with the manufacturers.

Succession planning begins years in advance. It’s truly never too early to begin, which reminds me of one of my favorite quotes, actually, about preparation. It’s a Chinese proverb that reads that the best time to plant a tree was 20 years ago, and the next best time is today. Those are just again, some that would come naturally to most about succession planning that I think owners should consider.

Neil Amato: For both of you, Jimmy, obviously, you’ve been close to the industry. What’s been the biggest change in the automotive industry in the last 10 to 15 years, and what do you think is the next big thing?

Robinson: It’s hard to narrow that down to just one thing, but I think the pandemic was the biggest thing that’s happened to any industry in the past 10 to 15 years. It taught us how we were unprepared, especially in the automotive world, for a remote work environment or servicing a customer base remotely. I was CFO when the pandemic happened at Pohanka, and we didn’t have anybody working remotely, and people come to the dealership to buy cars, so we were really caught off-guard.

I think the adaptability of our group, we quickly had to realize we were an essential business. We had to learn how to operate safely with our staff, and our customers, and how to continue to succeed. We had to keep selling cars and servicing cars to survive. I think that’s the biggest thing.

I think the other biggest thing that’s happened is the introduction of [electric vehicles], and the state and federal mandates that came with that. Once again, I think we as an industry have adapted. Not totally, the infrastructure of those EVs is still an issue, but we have learned to adapt and start increasing our knowledge and our consumers’ knowledge of EVs.

We’ve had disruption to the traditional retail model, which for over 100 years has been through the dealer network, and now we’ve got shifts such as factory direct sales to consumers with Tesla and Rivian. That’s something very different to our industry because we’ve got very expensive brick and mortar for customers to come and visit. But how are our employees, how is our product, how is our parts and service? How’s that going to work if customers are buying cars directly off the Internet or OEMs offering to sell cars direct to consumers through Amazon and Costco. Those factors have come definitely into play in the last 10-15 years that have changed the dynamics of our world.

I think you asked about what the next big thing is. If I had a crystal ball, I’d invest in it. I think it’s undoubtedly going to be artificial intelligence, AI. We’re seeing the impact it’s having in letter writing, résumé making, appointment setting, sales. The list goes on and on. I think that is probably where the biggest impact is that I can foresee in the next few years.

Neil Amato: Jesse.

Stopnitzky: I think Jimmy did a terrific job. One of the things that the word that comes to mind is one that we often use about the automotive dealer, and it is resilient. We asked Jimmy one big change we’ve seen in the last 10 to 15 years, and I think he mentioned three, perhaps. Yet, the automotive dealer has continued to adapt and find a way through to overcome and continue to be successful. That resiliency is truly incredible in the automotive industry.

I would say the biggest shift has been the disruption to the retail network. Jimmy used 100 years. It’s correct. For over 100 years, we’ve seen how a supply chain from manufacturing to retailing to servicing those customers has been the same for over 100 years. Now we see the introduction of the direct to consumer, and Jimmy even mentioned Amazon and Costco.

That, to me, has been the biggest shift. I would also agree that, nonetheless, dealers are resilient. They found a way to persevere. I do believe as well that the biggest shift going forward is going to be AI. We still haven’t even scratched the surface, and it’s going to transform the way that we do business. It’s going to transform our economy. It’d be silly to think that it’s not going to transform the automotive industry. I do look forward to these technologies and seeing where our industry is heading.

Neil Amato: Jesse Stopnitzky and Jimmy Robinson at the AICPA Dealership Conference Oct. 20. Jimmy, you are the chair of that event. Any closing thoughts as you look just ahead to this conference? It’s just about a few weeks away.

Robinson: Thanks, Neil. This will be my third year as national chairman of the Dealership Conference, and my final year as national chair. It’s been a quick three years. It’s been in Vegas the past two years, in Indianapolis this year. I encourage anybody in the industry to come. We have a great agenda, great lineup of speakers.

Everybody who’s involved from myself and my committee to all the speakers who come and they donate their time and knowledge to the profession. We’re trying to grow the CPA profession through our industry. This is one of many industry-specific conferences that the AICPA puts on each year. If you’re not plugged into one that focuses on your industry, I encourage you to do so. But if you’re at all interested or involved in the automotive industry, please come to Indianapolis Oct. 20 and 21. You will not be disappointed.

Neil Amato: That’s great. Thank you guys very much.

Robinson: Thank you.

Stopnitzky: Thank you very much for having us. Truly an honor to be here with you.