As advisors focused on the auto retail industry, we see the same pattern over and over: a dealership has a buy-sell agreement or “succession plan” that looked fine years ago—until life happens.
In auto retail, succession is not just a family or shareholder matter; it is wrapped in franchise law, OEM approval, lender covenants, related real estate and reinsurance entities, and state tax/estate rules. If your agreement is outdated or you do not have one, you are exposed to avoidable risks when the “Five Ds” strike: death, disability, divorce, deadlock/disagreement, and departure (including disqualification by the OEM). When we help dealers navigate succession, our guidance is straightforward: treat it as an ongoing business-critical discipline, not a one-time event.
Unfortunately, too many owners treat succession planning as a one-and-done sort of thing. While you may think that an old plan is better than no plan, that may not, in fact, be the case. We have seen many instances where the terms of an old succession plan or changes in circumstances create more issues for the parties than you could ever imagine. That is why it is critical to not only make sure that you have a great succession plan now, but that you continue to review it and update it on an ongoing basis. Ideally, the company should build it into their early operations review.
We will touch on some of those reasons below and will illustrate why you really do need to review and update your current plan or implement your first succession plan now.
Why Dealers Are Uniquely at Risk
Unlike other private companies, your transition has a factory overlay. Most franchise agreements require OEM approval of any new owner or operator, and many give the manufacturer a right of first refusal (ROFR) to step into (or reassign) a transaction. Several states also dictate succession rights for heirs or designated successors, often with strict notice and qualification timelines. If your plan does not match your specific OEM agreement and your state’s franchise law, your family and partners can face delays, added costs, or even a substituted buyer.
The Five Ds and What Goes Wrong Without an Updated Plan
Death. If a dealer-owner dies without a current buy-sell and designated successor package, the estate may need probate court authority before anyone can sign factory, bank, or real estate documents, which can stall payroll, floorplan, and CSI-critical decisions. Many states require franchisors to honor a properly designated successor who timely notifies the OEM and meets reasonable standards. The clock, however, starts immediately, and documentation must be right. A plan that names a successor operator, aligns governance across all entities, and pre-packages OEM materials is essential.
Disability. Long-term disability is more common than most owners think (SSA estimates about 1 in 4 workers will become disabled before retirement age). Yet many agreements either define disability vaguely or lack funding for a disability buyout, leaving the business to carry a non-participating owner indefinitely. Well-drafted documents define when disability triggers a buyout and how it is funded, often with disability buy-out insurance (distinct from key-person coverage) to provide liquidity without starving operations. You should review definitions, elimination periods, and funding amounts regularly.
Divorce. Without tight transfer restrictions and spousal consents, a divorcing owner’s shares (or economic rights) can land with a non-approved spouse, creating control and OEM-approval problems. Modern agreements address divorce explicitly, requiring a company/owner right (or obligation) to purchase the interest at a defined price and prohibiting transfers to non-approved parties. These terms protect continuity and also minimize valuation disputes in family court.
Deadlock/Disagreement. Many multi-owner dealerships operate on trust until a serious disagreement over reinvestment, add-points, or successor leadership freezes decision-making. Courts can appoint custodians or receivers or even order dissolution for deadlocked close corporations—an outcome no dealer wants. Agreements should hard-wire deadlock-breaking mechanisms (e.g., independent board member, put/call, baseball arbitration) so disputes resolve privately and quickly.
Departure/Disqualification. Retirement, loss of operator qualification, or an OEM’s objection can derail internal transitions if your plan does not contemplate who can run the store and meet working-capital, experience, and training standards. Several OEMs and state laws prescribe procedures and timelines for successor approval; plans should map these steps, including notice requirements, temporary operators, and backup funding if the primary plan stalls.
The Silent Killers Inside “Old” Agreements
Stale valuation clauses. Fixed-price or outdated formulas (e.g., book value or old multiple) can vastly under- or over-state value, igniting family or partner disputes. Periodically refresh your valuation method (tri-appraisal or current, well-defined formula) and sync it with funding. This is a critical step in the review process.
Insurance mismatches. Coverage amounts that were adequate years ago may not cover today’s blue-sky, real estate equity, or reinsurance stacks. Life/disability funding should be tested against current enterprise value, then reviewed annually. Industry data also shows persistent coverage gaps among business owners.
Entity misalignment. Many groups operate a dealership entity alongside a real estate LLC and F&I reinsurance company. If buy-sell triggers, valuation, and funding are not coordinated across all entities and leases, you cannot close cleanly or keep lenders and the factory comfortable. (Dealership CPAs emphasize aligning agreements across the entire enterprise.)
What a Dealership-Specific Buy-Sell/Succession Update Should Include
• OEM-aware design: Identify the designated successor operator, confirm eligibility with the OEM, and build a ROFR game plan. Capture state-specific succession rights and statutory timelines inside your closing checklist.
• Clear triggers and funding: Define death, permanent disability (with time frames), divorce, voluntary retirement, and loss of qualification. Pair each trigger with how the buyout is funded (life and disability buy-out policies, installment notes, or bank facilities).
• Modern valuation: Replace fixed numbers with a tested formula or appraisal process designed for auto retail and revisit it regularly.
• Governance and deadlock relief: Add dispute-resolution and deadlock mechanisms to avoid court intervention.
• Enterprise coordination: Mirror triggers, valuation, and funding across the dealership, real estate, and reinsurance entities; update leases and dividend policies accordingly.
• Estate plan integration: Ensure trusts, spousal consents, and beneficiary designations match ownership restrictions so transfers do not violate OEM or shareholder rules. (Trade associations and bar groups consistently flag this coordination step for dealers.)
Bottom Line
For auto dealers, “we already have a buy-sell” is not the same as “we are properly protected.” State laws, OEM policies, valuations, family situations, and health all change, and the stakes are higher when a franchise, floorplan, and hundreds of jobs depend on continuity. A dealership-specific update that anticipates the Five Ds, aligns with your OEM and state law, and is properly funded and coordinated across entities is the surest way to protect your family, your partners, and your store.
If you would like, we can run a rapid Buy-Sell Health Check – reviewing triggers, valuation, funding, OEM alignment, and state-law succession rights – so you know exactly where you stand and what to fix first.
Twelve Points Business Advisors is proud to have joined the Massachusetts State Automobile Dealers Association. An insightful article written by our very own Chris Cahill was featured in the official monthly publication of Massachusetts Auto Dealer. Jump to page 44 to view his insight in the September edition.