New Car Dealers Need to Ask, Should I Stay or Should I go?

February 6, 2012

Having the right facility for your business is a major key to any dealership’s success. It also can be tricky when you consider growth and the financial metrics of your business. Facility rent expense often is a major component of business profitability. The problem is, it is a long term fixed cost that really can’t be managed each period like many other costs can.

Now is a great time to get your landlord’s bottom line dollar on your facility. Renegotiating your lease (even mid-term) is something we are seeing more and more of and we believe it is wise to do so. If your landlord won’t budge, your leverage is to move at the termination of the current lease term (and not renew or take advantage of any options). Landlords like long-term tenants! Happy tenants usually are long-term tenants! Your landlord might believe that if he or she doesn’t negotiate the current lease that you may break the lease or go out of business. You have more leverage now than you have ever had before!

Even if your lease is favorable and you feel like you’re getting a fair shake, is it really the right facility for your business? Perhaps it is now, but, will it be in 2, 5 or 10 years? Do you have room for adequate growth in your facility for future needs? If so, is your facility rent expense metric out of line now because you are aiming for growth?

Good dealer operators are always looking at the future. This includes facility and infrastructure issues that may be a few years down the road. It is not cheap to relocate. We all know that. But, it could be more expensive not to move. After all, you’re either moving forward or moving backward; you’re never really in neutral. Not for long any way. Are you going to downsize by selling off or separating a division therefore opening up room for growth? What is that going to do to your rent expense metric in the short run? There are several factors to consider regarding the long term plan for your company.

Keep an eye out for other facilities that would work for you. Get educated on “asking prices” – both for rent and for sale. Zoning, infrastructure and many other issues must be taken into account. Can you grow your facility with adjacent available space? Can you get an option to lease the property on the other side of the wall? Are there 2 acres next to your facility for lease or sale?

If your lease is set to expire in the near term, you need to ask yourself; should I stay or should I go? It’s tricky, but a necessary decision that you will have to make at one point or another, so do all of your homework!

Please contact me should you have any questions.

Leslie E. Chayo, Attorney at Law

By telephone 310.277.6337
By email chayolaw@aol.com
Law Offices of Leslie E. Chayo
9401 Wilshire Boulevard, Suite 1250
Beverly Hills, California 90212

Our recommendation – Mr. Chayo is an excellent lawyer and a deal maker. We have worked with him on many transactions involving buying and selling car dealerships. His law practice has a strong focus on car dealers. Mr. Chayo is highly recommended by us, should you need an attorney when considering buying or selling an auto dealership.

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