May 13, 2025 - If you and your family are considering succession for your auto dealership, there are several possible routes. You can pass the dealership along to children or loved ones, you can sell part of your stake, or you can set up a trusted manager to oversee everything until your children are older. Alternatively, you can also sell your stake to a third-party, exit the business, and pass along the proceeds. As you only get one chance on an exit, it is important to consider all of the options and know all of the tax planning scenarios and consequences.

Each option raises its own financial questions that are best resolved long before the transaction. Each option can confer advantages, depending on your motive for selling, the timing, and the strength of your management team.

This article addresses important considerations before transferring your dealership, including the importance of early planning.

Read our latest tax planning guide for auto dealerships →

First, Conduct a Formal Valuation

A valuation is important whether you plan to pass along or sell. While a valuation doesn’t necessarily translate to market value, it can help you gauge what your dealership is worth in the given period of the valuation. Formal valuations take into consideration the current value of your blue sky, discounts stock for lack of marketability (minority transfers), and can bring to light accounting issues before you decide to take your asset to market. Half the automotive dealerships we work with want to have family continue their legacy. We begin by asking them about their plan, the dealership’s financial health, and the strength of current management. Are they motivated to sell now, or are they open to a longer time horizon?

A valuation can bring rigor into what can otherwise be an emotional consideration. Sometimes owners believe their dealership group is worth a certain number, but after a formal evaluation that considers all liabilities and the current market, find that it is worth significantly less. This is important to know, as family members will tend to become fixated on the higher number. A substantially lower number may be a good reason not to sell just yet.

At the same time, if the owner knows the specific reasons for the lower valuation (e.g., a poor sales year, overloaded inventory, or high returns) they can address those issues. The valuation can provide a roadmap to increase the value of the dealership.

Explore the Feasibility of a Sale

Dealership sales must be approved by the manufacturer. This can become the greatest hurdle to a succession transaction: The manufacturer considers the experience of the new prospective owner, his or her experience as a dealer principal, the future of the existing dealership. The transfer of ownerships can be approved by the manufacturer a little at a time or all at once, it depends on the overall strength of the operator and the store performance under that operator.

This issue is not insurmountable. Some dealership owners take advantage of training programs such as course offerings from the National Auto Dealership Association (NADA) Academy, which offers vocational training in automotive management. After attending such trainings, they can work with the management team to learn the day-to-day operations and they can phase into their new responsibilities. One dealership group did just this. After receiving trainings and working with management team to learn the ins and outs of the industry, the owner’s child was able to become a stakeholder of the company and the owner plans to increase ownership over time.

Consider the Structure of the Transaction

Sometimes, owners we work with want to pass along their dealerships and related businesses, but their children are too young or some of them are not interested in taking over the businesses. In that case, succession transactions become more complex because of existing family dynamics. In one example, the owners of a dealership group sold majority of their interest in the dealership to their children equally among the owners’ children and then sold the remaining interest to a strong dealer principal. This dealer principal took over the day-to-day operations. While some children show interest in working in the dealership, others did not. As the children decide to join the operations of the dealership group, they receive more compensation.

We also see another dealership group in which the father is training family members to learn how each department works so they can eventually take over the operations years from now. There are various structures that will allow for the transfer of ownership over time including gifting, profits interest awards and the sale of stock over time. All of these options have various tax impacts and are worth considering for dealers. The importance of structure can change how much you walk away with and what you will live off of if you are in the sunset of your career.

How Citrin Cooperman Can Help Maximize Your Gift or Sale

As there are so many ways to pass along an auto dealership, and it is vital that owners work with specialists with deep experience transferring dealerships. This only grows truer as the auto dealership industry grows more complex. Specialists can recommend which route is best and preserves the most wealth.

It is important to begin these conversations early. The sooner you begin your succession planning, the sooner you can take advantage of preserving and increasing the value of the businesses.

To learn more about how Citrin Cooperman’s Automotive Dealerships Industry Practice can help value your dealership and build a strong succession plan, please contact Ann Torno.