JLR buy-sells get more complicated

Late last year Jaguar Land Rover thought a consolidation in the Chicago area was a done deal. A Jaguar dealer was set to sell his store to a Land Rover dealer across town.

But in January, the two retailers hit a wall in their negotiations. The deal froze.

JLR desired it done, so it called in Morrie’s Automotive Group CEO Karl Schmidt from Minneapolis for help. Morrie’s bought the Jaguar store, then instantaneously sold it to the Land Rover dealer, and the consolidation was done.

“The effortless deals have been done, so now Jaguar Land Rover is working on the more difficult ones, and they have to get more creative,” Schmidt said.

For his efforts, JLR awarded Morrie’s a fresh point in Minneapolis.

That’s one example of how complicated buy-sell deals inbetween Jaguar and Land Rover dealerships have become as JLR closes in on its objective to consolidate the brands under one rooftop at all U.S. locations. Add into that a discrepancy in the values of the two brands – Land Rover stores generally are more profitable – and the high cost to renovate stores under the automaker’s Arch pic program. The deals can become very knotty.

In response, JLR is using open points to sweeten some deals. Its target is to add twenty to thirty stores in the next five years, boosting U.S. dealership count to about 240, Chris Marchand, Jaguar Land Rover North America’s executive vice president of operations, told Automotive News.

“If you look at the large European or Asian luxury brands, we will not be the largest nor will we be the smallest in terms of our footprint,” said Marchand. “But for what product we have coming, with the number of vehicles we have today and in the future, we think it’s the right thing to do.”

In 2012, JLR ramped up its tempo to create dual-branded stores, telling consolidation and renovation are the best paths to thicker dealership profits.

“Automotive or not, if you look at the way [brands] are represented in the marketplace, brand strength is often determined by how they are displayed in the market,” said Marchand.

Dealerships housing both brands are more competitive with other luxury brands that suggest cars, SUVs and crossovers, Marchand said. The short-term purpose is to drive profitability of Jaguar franchises.

There are two hundred nine Jaguar and Land Rover dealerships in the U.S.; one hundred twenty four of them are dual-branded. But Marchand said that about ninety percent of the dealership network is “in the same facility or plans to be in the same facility.” He said JLR is in “the home spread of getting the final ten percent or so” dualed.

Buy-sell adviser Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif., said JLR is using open points as “currency” to make some deals happen.

Marchand does not dispute it.

“As we look at the alliances we have with retailers around the country, does [an open point] help us in discussions? I’d be remiss to say that it didn’t help us,” said Marchand.

But JLR does not kick in funding to help a deal along, he said. It attempts to encourage deals by outlining to dealers its sales growth strategy, product cadence and other benefits of having dual-brand stores. Dealers conduct discussions themselves if they are interested, Marchand said.

But if JLR wants to bring a​ dealer into the network, it will assess whether a point is available in “another market that will help facilitate the discussion,” Marchand said.

One such deal was the buy-sell Morrie’s Schmidt helped make happen.

Marchand declined to discuss specifics of that deal, but said, “That is an example where somebody wants to get into the Jaguar Land Rover business, so we look at an operator like Morrie’s and say, ‘That’s a good operator. Is there a way that organization can get involved?'”

Typically, JLR chooses to suggest open points to dealers in its network, Marchand said.

The cost to build, staff and open a fresh point is so high the automaker usually only offers them to “top dealers who control lots of real estate,” said buy-sell adviser Mark Johnson, president of MD Johnson Inc. near Seattle.

Then there is the cost to become image-compliant under JLR’s Arch picture program. Many dealers contend Arch demolishes brand value because the seller may have to discount a store to offset the buyer’s cost to renovate, buy-sell advisers say.

Johnson is working on “about half a dozen” deals involving JLR.

He said while the Arch renovation is pricey, deals still happen because “everything’s a negotiation. If the dude selling has not done Arch, the buyer has to pay. We’ve been observing this for year” with other brands.

JLR flipped out Arch in April 2016. It is global and mandatory if the dealer wants to be eligible to earn incentive money, which can total ems of thousands of dollars a quarter and account for the bulk of a new-car department’s profits.

The automaker said Arch will cost $200 to $220 a square foot. But Marchand says it is working to lower that by tweaking requirements. Also, JLR has added more vendors for Arch, and the enlargened competition has whittled costs by about ten percent per square foot since 2016.

There are eight Arch-compliant stores, all fresh. But JLR expects all of its dealers to be compliant in five to seven years.

That means buyers, often Land Rover dealers, will likely be the ones to ante up the money to pay for renovations, buy-sell advisers say.

“It’s a little bit of a pickle for the Land Rover guys,” said Alan Haig, president of Haig Playmates in Fort Lauderdale, Fla.

But for the Jaguar dealers, JLR’s thrust for consolidation is still “a bounty,” said Haig. For them, even taking a discounted price could be better than making a hefty investment, he said, given that “they’ve struggled for years to make profits and find value.”

Renovate or not?

In April, dealer Jack Weidinger opened his fresh Arch-design store, Jaguar Land Rover Freeport in Freeport, N.Y. He spent a year building the almost $11 million, 35,000-square-foot building after JLR awarded him a Land Rover point to add to his Jaguar franchise. In May, he sold seventy four fresh and used vehicles. Of those, fifty two were Jaguars. Before his fresh building, he sold about twenty fresh and used cars a month at Jaguar Freeport, he said.

Weidinger said the fresh facility boosts his dealership’s overall value.

“A hefty part of that is if the facility is factory-compliant” to earn incentive money, said Weidinger, possessor of Weidinger Auto Group in Good Neck, N.Y. “Whether I’ll recoup all I spent for it or not remains to be seen. But the JLR brands are enormously valuable, especially when put together.”

But dealer Warner Peacock, who is on the Jaguar Land Rover Retailer Cabinet, said Arch is the “thickest degradation to franchise value” because of its extreme cost and its almost yearlong disruption to business.

“It’s hard to create a luxury practice in a modular office, which is a trailer,” Peacock said.

Indeed, Weidinger sold only twenty five to thirty fresh and used vehicles a month during his construction.

For existing stores, the showroom has to be ripped down, Peacock said, because the design cannot fit to the dealership. That’s “very, very costly,” said Peacock, who possesses two JLR dealerships in South Carolina.

“As a seller, you’d want total value for your existing facility,” Peacock, CEO of Peacock Automotive in Hilton Head, S.C., said. “There are fairly a few dealers who want to sell, but it’s a thick deterrent.”

Marchand disagrees, telling, “I get the emotion around it, but we have not seen the interest in the brands wane at all.”

JLR buy-sells get more complicated

JLR buy-sells get more complicated

Late last year Jaguar Land Rover thought a consolidation in the Chicago area was a done deal. A Jaguar dealer was set to sell his store to a Land Rover dealer across town.

But in January, the two retailers hit a wall in their negotiations. The deal froze.

JLR wished it done, so it called in Morrie’s Automotive Group CEO Karl Schmidt from Minneapolis for help. Morrie’s bought the Jaguar store, then instantly sold it to the Land Rover dealer, and the consolidation was done.

“The effortless deals have been done, so now Jaguar Land Rover is working on the more difficult ones, and they have to get more creative,” Schmidt said.

For his efforts, JLR awarded Morrie’s a fresh point in Minneapolis.

That’s one example of how complicated buy-sell deals inbetween Jaguar and Land Rover dealerships have become as JLR closes in on its purpose to consolidate the brands under one rooftop at all U.S. locations. Add into that a discrepancy in the values of the two brands – Land Rover stores generally are more profitable – and the high cost to renovate stores under the automaker’s Arch pic program. The deals can become very knotty.

In response, JLR is using open points to sweeten some deals. Its target is to add twenty to thirty stores in the next five years, boosting U.S. dealership count to about 240, Chris Marchand, Jaguar Land Rover North America’s executive vice president of operations, told Automotive News.

“If you look at the large European or Asian luxury brands, we will not be the largest nor will we be the smallest in terms of our footprint,” said Marchand. “But for what product we have coming, with the number of vehicles we have today and in the future, we think it’s the right thing to do.”

In 2012, JLR ramped up its tempo to create dual-branded stores, telling consolidation and renovation are the best paths to thicker dealership profits.

“Automotive or not, if you look at the way [brands] are represented in the marketplace, brand strength is often determined by how they are displayed in the market,” said Marchand.

Dealerships housing both brands are more competitive with other luxury brands that suggest cars, SUVs and crossovers, Marchand said. The short-term objective is to drive profitability of Jaguar franchises.

There are two hundred nine Jaguar and Land Rover dealerships in the U.S.; one hundred twenty four of them are dual-branded. But Marchand said that about ninety percent of the dealership network is “in the same facility or plans to be in the same facility.” He said JLR is in “the home open up of getting the final ten percent or so” dualed.

Buy-sell adviser Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif., said JLR is using open points as “currency” to make some deals happen.

Marchand does not dispute it.

“As we look at the alliances we have with retailers around the country, does [an open point] help us in discussions? I’d be remiss to say that it didn’t help us,” said Marchand.

But JLR does not kick in funding to help a deal along, he said. It attempts to encourage deals by outlining to dealers its sales growth strategy, product cadence and other benefits of having dual-brand stores. Dealers conduct discussions themselves if they are interested, Marchand said.

But if JLR wants to bring a​ dealer into the network, it will assess whether a point is available in “another market that will help facilitate the discussion,” Marchand said.

One such deal was the buy-sell Morrie’s Schmidt helped make happen.

Marchand declined to discuss specifics of that deal, but said, “That is an example where somebody wants to get into the Jaguar Land Rover business, so we look at an operator like Morrie’s and say, ‘That’s a good operator. Is there a way that organization can get involved?'”

Typically, JLR chooses to suggest open points to dealers in its network, Marchand said.

The cost to build, staff and open a fresh point is so high the automaker usually only offers them to “top dealers who control lots of real estate,” said buy-sell adviser Mark Johnson, president of MD Johnson Inc. near Seattle.

Then there is the cost to become image-compliant under JLR’s Arch picture program. Many dealers contend Arch demolishes brand value because the seller may have to discount a store to offset the buyer’s cost to renovate, buy-sell advisers say.

Johnson is working on “about half a dozen” deals involving JLR.

He said while the Arch renovation is pricey, deals still happen because “everything’s a negotiation. If the boy selling has not done Arch, the buyer has to pay. We’ve been watching this for year” with other brands.

JLR spinned out Arch in April 2016. It is global and mandatory if the dealer wants to be eligible to earn incentive money, which can total ems of thousands of dollars a quarter and account for the bulk of a new-car department’s profits.

The automaker said Arch will cost $200 to $220 a square foot. But Marchand says it is working to lower that by tweaking requirements. Also, JLR has added more vendors for Arch, and the enhanced competition has whittled costs by about ten percent per square foot since 2016.

There are eight Arch-compliant stores, all fresh. But JLR expects all of its dealers to be compliant in five to seven years.

That means buyers, often Land Rover dealers, will likely be the ones to ante up the money to pay for renovations, buy-sell advisers say.

“It’s a little bit of a pickle for the Land Rover guys,” said Alan Haig, president of Haig Fucking partners in Fort Lauderdale, Fla.

But for the Jaguar dealers, JLR’s thrust for consolidation is still “a bounty,” said Haig. For them, even taking a discounted price could be better than making a hefty investment, he said, given that “they’ve struggled for years to make profits and find value.”

Renovate or not?

In April, dealer Jack Weidinger opened his fresh Arch-design store, Jaguar Land Rover Freeport in Freeport, N.Y. He spent a year building the almost $11 million, 35,000-square-foot building after JLR awarded him a Land Rover point to add to his Jaguar franchise. In May, he sold seventy four fresh and used vehicles. Of those, fifty two were Jaguars. Before his fresh building, he sold about twenty fresh and used cars a month at Jaguar Freeport, he said.

Weidinger said the fresh facility boosts his dealership’s overall value.

“A phat part of that is if the facility is factory-compliant” to earn incentive money, said Weidinger, proprietor of Weidinger Auto Group in Excellent Neck, N.Y. “Whether I’ll recoup all I spent for it or not remains to be seen. But the JLR brands are utterly valuable, especially when put together.”

But dealer Warner Peacock, who is on the Jaguar Land Rover Retailer Cabinet, said Arch is the “thickest degradation to franchise value” because of its extreme cost and its almost yearlong disruption to business.

“It’s hard to create a luxury practice in a modular office, which is a trailer,” Peacock said.

Indeed, Weidinger sold only twenty five to thirty fresh and used vehicles a month during his construction.

For existing stores, the showroom has to be ripped down, Peacock said, because the design cannot fit to the dealership. That’s “very, very costly,” said Peacock, who wields two JLR dealerships in South Carolina.

“As a seller, you’d want utter value for your existing facility,” Peacock, CEO of Peacock Automotive in Hilton Head, S.C., said. “There are fairly a few dealers who want to sell, but it’s a thick deterrent.”

Marchand disagrees, telling, “I get the emotion around it, but we have not seen the interest in the brands wane at all.”

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