In recent years, the U.S. auto retail sector has seen a growing number of foreign firms and individuals seeking to acquire dealerships here. Meanwhile, U.S. dealership groups are also starting to look across the border for acquisitions. In 2022, firms from Mexico, Canada, Vietnam and Finland, among others, were involved in several California dealership acquisition and establishment transactions.

A dealership buy-sell transaction is remarkably complicated, involving legal, accounting, environmental, regulatory and many other layers. Having an attorney who can handle due diligence as well as licensing and permitting can resolve unique issues that some regulatory bodies may be encountering for the first time. Those skills allow the firm to provide superior customer service as well.

But, it’s not enough to be experts in the U.S. distribution system. There are many intricacies of doing a deal where one party is not based in the U.S. A knowledge of the non-U.S. parties’ distribution systems is key. That allows acquisition experts to clearly explain the differences in both foreign and U.S. distribution systems.

For example, foreign clients may want to tell investors that they will be up and running very quickly. However, that requires an extremely problem-free transaction process. The U.S. franchise system can be very difficult for a foreign buyer to navigate, especially if the potential non-U.S. buyer is private equity or a family office. It helps if the investor has a prior relationship with the auto manufacturer, who must approve the transaction.

Chris Scali, founder and managing partner at Scali Rasmussen, PC, and an expert in this field, said, “We find most of our foreign clients already have dealerships in other parts of the world, and they are used to a certain way of doing business.” He continued, “It is very different than the way we do business here in the automotive sector. It is kind of an education for them, and I’ve noticed they appreciate that we have that knowledge and can explain the difference.”

Having a local point of contact is important for any foreign entity looking to acquire automotive assets in the U.S. Most U.S. regulatory agencies want to work with an individual here who is at least nominally in charge, and they want that person to have a U.S. driver’s license and a social security number. Many foreign clients don’t have that person, and it can really slow down the process.

Additionally, many foreign firms already have dealerships in other parts of the world and they are used to doing business a certain way, which is very different than the way business is conducted in the U.S. The process of buy-sell can be complicated and they most often need to be educated on the differences — specifically in California.

“If you don’t do it right from the beginning,” says Bert Rasmussen, a franchised specialist under California law with Scali Rasmussen, “there is so much risk that the deadline will not be met. And then everybody gets disappointed, and sometimes bad things happen like an investor decides he has had enough.”

Today, business model convergence is driving more cross-border activity. Companies in Mexico and Canada have been actively acquiring auto franchises here, but that wasn’t always the case. NAFTA has undoubtedly helped drive this activity, but the primary driving factor is more in terms of the relationship kind of approach. Changes in the European system have some foreign entities looking here as well.

The proliferation of electric vehicle companies is also driving a lot of international automotive work. Some foreign EV makers are not looking to open dealerships. Instead, they are following Tesla and going with a storefront approach. That and the lack of an internal combustion engine — and the accompanying layers of approvals needed from the U.S. Environmental Protection Agency and, if they are selling in California, the Air Resources Board — makes market entry much smoother. There are virtually limitless opportunities to grow.