RV Weekly

Last week, Arizona firm Charter Equity released its business plan indicating it intended to purchase RV dealerships in hopes of consolidating them into a nationwide network similar to the one embraced in the auto industry by AutoNation. In fact, Charter Equity, has already acquired its first dealership in California and have another four or so on the hook?

I applaud their effort and their desire to offer RV dealers a business model for succession that doesn’t involve selling out to Affinity Group. In fact, as a publicly traded company, Charter Equity probably has even more financial resources to get the job done than AGI, which must borrow money for its acquisitions at double digit rates.

Yet, I have mixed feelings about yet another attempt to consolidate dealerships. We already have Affinity Group buying up dealerships and renaming them under the FreedomRoads brand so the company can build more Camping World stores. This group is trying to muscle the entire RV industry in two ways. First, by building big box retail stores that offer little in the way of personalized service, but lower prices that reduce margins for everyone. And, second, by removing all vestiges of entrepreneurialism from its dealerships in favor of a management structure with multiple layers of bureaucracy. Someday, will someone explain why this group bought a dealership in Elkhart only to shut it down a few months later?

We also have REDEX and Route 66 consolidating independent dealerships under a common brand that doesn’t involve selling out. These groups provide the framework for increased buying power for the dealers, increased brand recognition and better customer service with their “I’ll take care of your customers, you take care of mine” approach. It’s a voluntary association that still relies on entrepreneurial spirit to move each business forward, and thus the entire network.

The ability of equity companies, like Charter, to offer RV dealers a way out of their business is a plus for the industry. RV dealers work too hard building their businesses to wonder if they will ever be able to enjoy the fruits of their labor. They need a way to sell out without selling out to everything they’ve fought against throughout their careers. Dealers still need the means of escape when they don’t have children willing to take over the business or lack key employees with the entrepreneurial drive necessary to make the sacrifices required to run the business.

Selling out to an equity company may be the avenue they are looking for. It eliminates anxiety for employees who may feel their careers will come to an end with the dealer’s. It gives dealers money upfront to grow their businesses or improve their infrastructure so the dealerships can run more profitably and efficiently in their absence. By tapping into the equity firm’s ability to tap into other people’s money, dealerships can “go public” without being burdened themselves with all the silly paperwork that goes with it.

Consolidation by the right companies may prove to be just the ticket for swinging manufacturer/dealer relationships more toward the dealer – where it belongs. Because equity companies are in business to generate a return on investment for their shareholders, their owners and managers won’t be in the mood for excuses from manufacturers over quality issues and parts delivery problems.

Because dealers are responsible for moving products and generating income the entire RV industry relies upon, as well as creatively coming up with new ways to grow their businesses, equity firms can be a good source for funding growth plans provided the dealers can offer sufficient proof that the investment will yield a satisfactory return.

But, working for an equity company isn’t all wine and roses either. Some equity firms are greedier than Philadelphia loan sharks in their ability to push employees to the brink of physical and emotional exhaustion seeking ways to cut more expenses, develop more income and drop as much money as possible to the bottom line. They’ll set unrealistic expectations for business performance and terminate middle managers who don’t willingly sacrifice their families and marriages to meet those expectations. Even if the business makes more money than it did the previous year, chances are good middle managers will be looking for work if they fall 90 days behind in meeting the double-digit growth expectations the equity firm set for them. Here’s the dirty little secret. When a business owner invites an equity firm into his business, he becomes the middle manager.

Investors are often a fickle bunch, just ask any CEO of a publicly traded company. Equity firms often have a tendency to combine the fickleness of stockholders with the payback demands of paycheck loan companies – you know, those firms that let you borrow money this week and pay it back with your next paycheck for 2,100 percent interest.

Equity firms often force their managers to spend so much time looking for nickels in the dirt that the managers miss the C-notes fluttering overhead. And should a manager net an idea that could yield significant return in five years, equity firms sometimes don’t give the green light because the project with wind up costing money to launch. Dealers looking to sell out to those type of equity companies had better be ready to leave their business within a few years just to maintain their sanity.

I don’t know what kind of business people the folks at Charter Equity are, but I hope to find out soon. Because the right type of equity pumped into the right dealerships at the right time by the right company could set this industry on fire.

This entry was posted on Tuesday, September 18th, 2007 at 10:05 am and is filed under Previous Blogs. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.