Planning Your Agency’s Future in Today’s Market
Planning Your Agency’s Future in Today’s Market

The needs of dealers are expanding beyond what the typical smaller to mid-size agency can provide when it comes to technology, training and human capital. Agents who generate 500 to 2,000 benefit contracts a month are typically reliant on just a couple of dealer groups for most of their business. They are one lost deal away from a significant and possibly critical impact on their income. Some of the larger agencies have the same issue.

If all this sounds familiar, let’s explore some of the structural issues that may be holding you back and the steps you may need to take — including the exploration of new partnerships — to ensure your agency survives and thrives in the current market and beyond.

Built for Yesterday

Many agencies are led by entrepreneurs who were born during the Baby Boom and are now heading into their retirement years. Many aging agent principals have no exit strategy in sight that will allow them to realize the real value of what they built.

Some are run by younger people who are still excited about growing their businesses and delivering great results for their dealers, but the challenges of keeping up with the new digital, technology and human capital needs of their dealers pose a significant threat.

Too many agent principals are either unwilling or unable to invest the money needed to grow their business. The mentality of “I’ll add some people as soon as I put on three or four more deals” has run its course. You can’t take on more business and manage the business you have without investing in new, capable people. There just isn’t time.

All agencies are feeling the pressure of the “institutional” providers. These are huge companies with tons of employees and money but a severe lack of in-dealership experience. They pitch the dealers on the concept that no local or regional agency can deliver what a national company can, particularly when it comes to resources that support the success of the dealership.

Almost all successful agents and agencies clearly see that the F&I process has come out of the F&I offices and is now not only in the showroom, but online as well. Plus, the time allotted in F&I is shifting dramatically, so the traditional training processes have to be expanded to comprehensive sales and internet training that supports the F&I process. Unfortunately, many agencies just don’t have the personnel or technology to support these needs.

Consolidation and Technology

With private equity firms backing many of the administrators and providers as well as some of the larger agencies, consolidation within the F&I industry has become a significant factor for anyone involved in the business.

There are several factors impacting the traditional agency model in today’s market:

  • With an ever-changing market and the fast track shift to digital, some smaller agencies are finding it challenging to keep up with the overall needs of their dealers. Dealers expect more from their providers today. The costs of technology, people and training are putting significant pressure on smaller to mid-sized agencies, even when it comes to their long-term dealership relationships.
  • Consolidation has spread well beyond the big public auto companies and is now a focus of many smaller to mid-sized privately held dealer groups. These dealers are actively seeking capital to help them buy the additional dealerships they need and assure they have the working capital available to support their growth strategy. Most agencies don’t have that capital at their fingertips, and some of the administrators who will assist in this area drive onerous bargains with the dealers and the agents when they do.
  • As dealers look to align with providers who can fulfill their “human capital” as well as their cash capital needs, smaller to mid-sized agencies can end up struggling to keep their relationships in place as the dealer starts to consider other options.
  • Many agencies depend on just a few dealerships or a couple of small to mid-sized dealer groups for their overall income. The loss of a single client to consolidation or one of the institutional providers can cause a negative impact on agency income that is significant enough to threaten its survival.
  • The age and tenure of many agent principals has lengthened significantly. Many of them have neither a succession plan nor an exit strategy in place to continue their legacy or fully capitalize on their success.

There has never been a time when the theory of “grow or die” has been more relevant, and there has never been a time when growing has been more challenging. This is particularly true for agent principals who don’t have the capital or are unwilling to invest the money into the people it takes to grow the business.

Strategic Alignment

External forces may threaten your business, but they can’t undo the deep, long-term relationships you have developed with your dealers. You have significant influence over the providers and products represented in their F&I offices. You can leverage those relationships to realize the full potential of your hard work.

Whether you are looking to capitalize now or in the near future — or you are motivated and excited about building out your agency into the future — starting to consider your game plan now is the right thing to do. Here are some things to consider:

  • Look for the right partner who can bring new capital and resources into the agency to help you continue to grow and can be your exit strategy when the time is right for you. If your current providers don’t fit this bill, look for one that does.
  • Make sure the partner you pick brings more than money to the table. The right partner can help you help your dealers with more technology, more capital, more training and more benefits, and they can help you significantly increase the revenue generated by your current dealers.
  • Some suitors offer an all-or-nothing proposition. If you are not yet ready to talk about a merger or acquisition, look for someone who understands the agency business and is willing to engage with you today and offer an optional, long-term plan for an ownership change in the future. They should have a well-defined, flexible and executable exit strategy as a part of their business proposition to you — not just look to get you to switch providers.
  • Finally, and most importantly, look for a partner whose core values match your own and who thinks and believes as you do. No matter how good the deal looks, the final outcome and your level of fulfillment will be determined by how you are able to work together.

At the end of the day, the objective is to start planning now for what you want out of your business in the future if you want to maximize the return on your hard work and commitment.