Automotive News Canada - May 2018 - v2 - 4


* MAY 2018


Transferring control
requires dealers to
navigate a thorny mix
of financial instruments
and family relationships

Canada's 14-month graduate management program as an example.
Another is to have the intended successor interact with the brand incrementally over time.
"You've got to socialize your heir
apparent," he said, "and make sure
that the brand really has a good
understanding of their capability and
endorses your decision.
"That means going to all of the
brand meetings that happen regularIT'S AN UNPLEASANT REALITY
ly, the new-model introductions, the
for an auto dealer: One day, the dealfranchise meetings, so that people at
ership will need to be run without
the franchisor have a very good, intithem. Planning for that transition is
mate understanding of the capability
essential to ensure that it takes place
of those kids. Oddly enough, a lot of
smoothly and according to their wishdealers don't take that step."
es while shifting wealth to future genIn many situations, a dealer will
erations with minimal losses.
have one or more children who are
"A lot of dealers don't want
interested in taking over the
to think about their ultimate
family operations and others
demise," Charles Seguin,
who are not. This results in
president of Seguin Advisory
attempts to split the assets of
Services, told Automotive News
the business equally among
Canada. "They're constantthe children, which can result
ly trying to increase the busiin future problems on both
ness, but they don't look after
the family that they're trying
"Most parents want to
to create wealth for."
treat their kids equally,"
According to the 2016
said John Firstbrook, CEO
Family Business Survey conof the Firstbrook Group of
ducted by the U.S.-based
Companies. "The better idea
are key.
National Bureau of Economic
is to treat them fairly.
Research, 43 per cent of fami"Say there are four kids,
ly firms do not have a succestwo boys, two girls. The old
sion plan in place, and only 12
thinking is give the boys the
per cent make it to a third genbusiness and give the girls
eration. Add to that the parthe real estate. Well, that's a
ticularities of the automotive
real problem because the boys
business, and a long-term plan
want to grow the business.
becomes critical, especially if
They may not want to pay
the intent is to hand the busiprofits to their sisters for their
ness over to one or more chilnew loans."
Factor assets
outside the
"Auto retailing is differbusiness into
ent," Seguin said. "They're
Instead, Firstbrook sugthe division.
franchises, so ultimately the
gests looking at the family's
brand is going to approve whether
entire assets and factoring those outJohnny or Mary is going to be a dealside the business into the division.
"Quite often, dealers are very
"If you're a 50-year-old and your
successful entrepreneurs," he said.
dad's 72 and you've basically been run"They live in big homes. They have
ning the store forever, then you're
cottages, farms, ski chalets, places
probably not going to have much diffiin Florida or Arizona or what have
culty if you've done a good job. But if
you. See if you could use other priyou're, say, under 35 and you haven't
vate assets to straighten up with the
had that breadth of experience in runnon-involved children as opposed to
ning a business before and working in
using operating companies to equalall the departments - because a dealerize the assets."
ship is a number of businesses under
Seguin notes that one of the most
one roof - then the brand doesn't have
important aspects of a successful sucthat same level of confidence and expecession plan is ensuring that everyrience with you."
one involved is aware of and on
board with your plans.
"In the same way that a pubSeguin said there are several
lic company would have an annuways to improve a successor's odds.
al meeting, your private company
One is through education, for which
should have a retreat at the family
he provides the Georgian College
cottage or over the Christmas holiAutomotive Business School of
days when everybody's together.

"Take an hour and talk about the
business and where it's going so that
everybody is familiar with what's
happening, both the active and
non-active kids. It really minimizes
a lot of the emotional decisions when
somebody passes away or is perma-

Most parents want to treat their
kids equally. The better idea
is to treat them fairly.

CEO, Firstbrook Group of Companies

nently disabled."
Regardless of how it's laid out, a
succession plan is never a set-it-andforget-it situation.
"A succession plan is a living document, just like a will is a living document," Seguin said. "If there's a
marital breakdown with one of the
kids, if there's a marital breakdown
in the parents, if there's a new wife
or husband that's introduced, that
all changes things. If your planning
is old, none of that is taken into consideration. People have a tendency to
forget about it, but they shouldn't.
"I advocate that whenever they
file their personal tax returns in
April, they should review their succession plan." - ANC

Finding the right financial tools
for succession planning


or they don't want anything to do
with the business, or I need the
money because business didn't
work out as well as I hoped?
Another available tool in such
yet sure what their succession
a structure is a holding company.
plan will entail, or for those who
"I create an entity where I
need to set up their plan while
can put cash that I do not have at
maintaining some fluidity in their
risk in operations - it's not in
assets, there are financial tools
the auto business, it's not in real
estate, it's not in anything that
"One of the key tools in the
somebody can sue me over or that
arsenal is family trusts," said
can get into some sort of probJason Safar, a tax partner at
lems," Safar said. "So any money
professional-services provider
that I don't need in that operationPricewaterhouse Coopers
al fray and I don't need to
(PwC), with experience
fund lifestyle, I put it in
in dealership succession
that bank and I invest it
planning. "What it allows
however I want, but it's
me to do is to hold assets
in a different bucket outfor a period of time until I
side of where the majority
figure out where I want to
of my wealth is focused.
direct them.
It gives me a little bit of
"If the dealership's
a security blanket, rainy
worth $5 million, I
Safar: Family day fund, whatever you
exchange my common
want to call it."
trusts are a
shares worth $5 million
John Firstbrook sugkey tool
for fixed-value preference
gests that a life insurance
shares worth $5 million, and then
policy can be of significant assisI create this trust that subscribes
tance in minimizing the impact
for the future growth shares in
of the tax bill that arrives shortly
that company. Any increase in
after an individual dies.
value in that dealership beyond
"What does a life insurance
my $5-million freeze value now
policy do? It pays off at death.
accrues to the benefit of this trust.
When is the tax due? At death,"
"What this does is it gives me
he said. "So the money walks in
the flexibility to, sometime in the
right when the problem does.
future, determine where should
"Use somebody else's discountthose shares go. Should they go to
ed dollars to pay your tax bill that
child one, child two, 50/50 to each
your success created. You don't
kid? Am I going to take them all
have to like or dislike insurance,
back myself because things havbut it's a great business decision."
en't worked out with my children,


Table of Contents for the Digital Edition of Automotive News Canada - May 2018 - v2

Automotive News Canada - May 2018 - v2 - Intro
Automotive News Canada - May 2018 - v2 - 1
Automotive News Canada - May 2018 - v2 - 2
Automotive News Canada - May 2018 - v2 - 3
Automotive News Canada - May 2018 - v2 - 4
Automotive News Canada - May 2018 - v2 - 5
Automotive News Canada - May 2018 - v2 - 6
Automotive News Canada - May 2018 - v2 - 7
Automotive News Canada - May 2018 - v2 - 8
Automotive News Canada - May 2018 - v2 - 9
Automotive News Canada - May 2018 - v2 - 10
Automotive News Canada - May 2018 - v2 - 11
Automotive News Canada - May 2018 - v2 - 12
Automotive News Canada - May 2018 - v2 - 13
Automotive News Canada - May 2018 - v2 - 14
Automotive News Canada - May 2018 - v2 - 15
Automotive News Canada - May 2018 - v2 - 16
Automotive News Canada - May 2018 - v2 - 17
Automotive News Canada - May 2018 - v2 - 18
Automotive News Canada - May 2018 - v2 - 19
Automotive News Canada - May 2018 - v2 - 20
Automotive News Canada - May 2018 - v2 - 21
Automotive News Canada - May 2018 - v2 - 22
Automotive News Canada - May 2018 - v2 - 23
Automotive News Canada - May 2018 - v2 - 24
Automotive News Canada - May 2018 - v2 - 25
Automotive News Canada - May 2018 - v2 - 26
Automotive News Canada - May 2018 - v2 - 27
Automotive News Canada - May 2018 - v2 - 28