Mom and pop auto dealers are looking to sell

  • Mom and pop auto dealers are looking to sell for many reasons.
  • The value of the average dealership is at a record high, according to Kerrigan Advisors, which consults companies or individuals buying and selling dealerships.
  • The auto business could dramatically change as automakers develop ride-share companies, autonomous-drive vehicles and electric models that may not require as much service.
GM Dealership
Bill Pugliano | Getty Images

For the Shamas family, the decision to sell seven auto dealerships in Southern California was not easy. After all, the family has been selling cars in and around Los Angeles since 1955.

Still, Carol Shamas' husband, Darryl Holter, says selling the dealerships for an undisclosed amount in July was the right move given the potential changes coming to the auto industry.

"With all the things we've talked about, autonomous cars, ride-sharing and car-sharing, you wonder if the auto dealership will be transformed from a full-service automotive provider to basically a delivery agent for the manufacturers," Holter tells CNBC.

Holter's feelings about the uncertainty of the future of the auto business is not a surprise to Erin Kerrigan, who runs Kerrigan Advisors, which consults companies or individuals buying and selling dealerships.

In the last year, Kerrigan has noticed an important shift in how small, independent auto dealers view the future.

"More and more dealers are saying, 'Well, it probably is time to exit instead of rolling the dice for the next generation and have them handle potentially a lot of changes in the future,'" said Kerrigan.

There are more than 18,000 auto dealerships in the U.S. owned by more than 8,000 individuals, private companies and publicly traded firms. The overwhelming majority of them enjoy strong profits due to two straight years of auto sales topping 17 million vehicles, with 2017 on pace to do the same.

So why would someone want to sell a dealership right now?

For starters, the value of the average dealership (real estate and goodwill) is at a record high of $16.9 million, according to Kerrigan Advisors. In addition, many independent dealers, the so-called mom and pop shops, are family run and the owners may not have someone in the next generation interested in being an auto dealer. That brings in the third factor Kerrigan is hearing: The auto business could dramatically change as automakers develop ride-share companies, autonomous-drive vehicles and electric models that may not require as much service.

"There's no question that auto retail and dealerships have a business model future," said Kerrigan. "It just might not be the one that dealers want to be a part of."

Mark Scarpelli, who owns Raymond Chevrolet in Antioch, Illinois, sees the future in a different light. His family has owned Its dealership for 60 years and has no intention of selling it anytime soon.

"If we have autonomous cars, electrification, we are here to serve the public and sell automobiles," said Scarpelli. "I think you are going to see a new breed, a new generation and excitement in our business for dealers going forward."

Last month Adam Jonas, a widely followed auto analyst with Morgan Stanley, predicted the industry's 8,000 plus auto dealers will eventually consolidate and become 10 mega-dealers who operate more as fleet management operators overseeing huge ride-hailing and car-sharing operations.

Extreme? Perhaps.

But as more mom and pop auto dealers survey their operations, there are people like Holter, who believe this is the time to sell.

"Stand-alone dealers may be able to continue in small markets, but I think they'll have trouble in big metro markets," he said.

"There are these trends, and they are a challenge for the future."

Questions? Comments? BehindTheWheel@cnbc.com.