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Automobile Dealers Expand Their Holdings

6 min read

Arkansas’ automotive dealers are in a buying mood.

No one has been more active than Mark McLarty, whose McLarty Automotive Group has purchased a handful of dealerships in Arkansas and Missouri in the past 18 months. McLarty, whose family has been in the car business for close to 100 years, spent 15 years running automotive groups in Brazil and China before returning to Arkansas in 2014.

He didn’t waste any time building up his portfolio. In 2014, MAG bought Bale Honda of Little Rock and followed that up with 2015 purchases of four North Point dealerships in central Arkansas as well as dealerships in Columbia, Missouri.

“We’re taking it one step at a time,” said McLarty, 44. “I’m really happy to be back in Arkansas after all these years.”

McLarty isn’t alone in building a dealership portfolio. Ownership groups such as Crain Automotive Holdings, Franklin McLarty’s RML Automotive and Luther Auto Group have also been active.

“It’s not so much consolidation, but the chain dealers are getting larger,” said Dennis Jungmeyer, the director of the Arkansas Automobile Dealers Association. “I see more acquisitions. The bigger are going to continue to get bigger.”

Pricy Investment

McLarty said it’s not just about getting bigger. The thinking is that the efficiency of scale makes large portfolios the way to operate, but McLarty said size is just one consideration of automotive dealerships.

McLarty said the investment of acquiring and running a dealership is high because of expenses such as land, advertising and facilities and that each dealership has to be judged on its own merits. A failing dealership will not magically transform itself when added to a large portfolio.

“Honestly, that [scale] element of it is not quite as important as one might think,” McLarty said. “All these costs have pretty progressively gone up for decades. That requires that the dealers who remain in business generate more and more revenue per location because the cost of that location is even greater than what it was in the past.”

That means when a successful dealership is for sale, it’s not going to go for a bargain rate. Ownership groups with deep pockets such as MAG or RML or Landers have the ability to handle the costs. That’s also where having multiple dealerships can help defray expenses.

“It takes capital, and you better know what you’re doing,” Jungmeyer said. “These are long-term investments. It doesn’t come back in a year or two.

“You take a small dealer and have a piece of diagnostic equipment that’s not voluntary. The dealer has to pay $100,000 for this piece of equipment. The return on investment for that dealer who sells five or six new cars a month is years. For a larger scale dealer, he can make it back in six months.”

Fewer but Still Local

Jungmeyer said that when he began at AADA in 1978, Arkansas had more than 400 franchise dealers, but now that number is a little more than 200. There was a wave of consolidation in the 1980s, Jungmeyer said, and the recession of 2007-09 closed a number of smaller dealerships.

Any dealer, whether he or she owns one “rooftop” or 20, that survived the purge is a quality businessman, Jungmeyer said. He said it was impossible to generalize whether the reduction in dealers was good or bad.

“I go back to when we had 400-plus dealers in the state, and southeast Arkansas is a perfect example,” Jungmeyer said. “It’s a distressed area and, at one time, we had dealers in every town. Now you have to drive 60 miles to find a franchise. It’s difficult but it’s just the way of life.”

Even though there are fewer owners, Jungmeyer said, Arkansas is an anomaly because nationally the trend is toward publicly owned dealership corporations. Arkansas has fewer than a handful of publicly owned dealerships; the majority are owned by local groups such as MAG or Superior Automotive Group.

“When you have a public-held store, by and large you don’t have the same community involvement because you have absentee ownership,” Jungmeyer said.

Geography Matters

Staying relatively close to home is an important consideration in MAG’s acquisitions, McLarty said. When adding to his group’s portfolio, geography plays a huge role.

“The way I think about it is it is less about size in general and it’s more a function of not being too spread out geographically,” McLarty said.

“It’s the difference between having 10 stores in central Arkansas versus having 10 stores across America, one of which is in Maine and one of which is in Washington state. The ability to successfully manage those stores is dramatically different.

“My real focus has been on a part of the United States — Arkansas and neighboring states — where the culture and the customer, the way people buy and sell cars, the type of cars they buy and sell, that is important. It’s a very local industry in so many ways.”

It goes back to something McLarty learned while running groups in Brazil and China.

“The most important thing is the same for all those markets, and that’s people,” McLarty said. “That’s really the biggest challenge-slash-opportunity: getting the right people in place.”

It’s why, McLarty said, he has kept “99.9 percent” of the staff at the eight Joe Machens dealerships he bought in Columbia. He even kept the Joe Machens name on the dealerships.

“You ask about the ideal growth opportunity, and the ideal growth opportunity is one that has that kind of stability with a great team and a great name and a market that requires the least amount of change in the process,” McLarty said. “Machens is a great example.”

Staying close doesn’t just mean it’s easier for McLarty and his fellow leadership team to visit stores and keep track of operations. It means it’s not a hardship or a culture shock when salesmen and managers move about from store to store.

“The local and regional markets in the U.S. are almost like they’re different countries,” said McLarty, who added that major cities are hybrid markets in themselves because of their size and diversity.

“Personally, I think places like Little Rock and Columbia — with great workforces and communities — are great places to be a car dealer and to be in the car business.”

Auto Acquisitions

Buyer Dealership Purchased Date Name of New Dealership
McLarty Automotive Group North Point Nissan; Little Rock 12/16/2015 McLarty Nissan of Little Rock
  North Little Rock Nissan; North Little Rock 12/16/2015 McLarty Nissan of North Little Rock
  North Point Mazda Volkswagen; Sherwood 12/16/2015 McLarty Volkswagen Mazda
  Bale Honda; Little Rock 8/5/2014 McLarty Honda
     
Crain Automotive Holdings Northwest Arkansas Volkswagen; Bentonville 5/27/2015 Crain Volkswagen, Springdale
  Opened New Dealership 6/19/2014 Crain Kia of Conway
  Crain Ford Colonel Glenn; Little Rock 6/19/2014 Crain Ford of Little Rock
  Steve Smith Country Buick GMC; Springdale 9/26/2013 Crain Buick GMC of Springdale
  Kent Dobbs Hyundai; Bentonville 1/3/2013 Crain Hyundai of Bentonville
  Kent Dobbs Hyundai of Springdale; Springdale 1/3/2013 Crain Hyundai of Fayetteville, Fayetteville
     
Orr Auto Group Tim Parker Chrysler Dodge Jeep Ram; Hot Springs 12/7/2015 National Park Chrysler, Dodge, Jeep, Ram
  Valley Chrysler Dodge Jeep, Nissan, Hyundai; Russellville 9/11/2015 Orr Nissan, Hyundai, Chrysler, Dodge, Jeep, Ram of Russellville
     
Luther Auto Group Steve Landers Chrysler Dodge Jeep Ram; Little Rock 6/13/2014 same name
  Landers Toyota; Little Rock 6/13/2014 Steve Landers Toyota
     
Everett Automotive Group Infiniti of Little Rock; Little Rock 11/13/2014 Everett Infiniti of Little Rock
  Springdale Chrysler Dodge Jeep Ram; Springdale 8/30/2013 Everett Chrysler Dodge Jeep Ram
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