COO Teresa Van Horn, with salesman Matt Sukowaty, says the ESOP adds "a personal touch" in how employees and customers are treated. In mid-2015, Van Horn Automotive Group's leaders discussed how to attract and retain talent, increase store count and keep family control of the business.
They decided to become the first partially employee-owned car dealership group in Wisconsin, said COO Teresa Van Horn.
The group's 400 full-time employees own 30 percent of the company as part of an employee stock ownership plan launched Dec. 31, 2015.
"The ESOP really adds a personal touch in how your employees are treated and how your customers are treated," said Van Horn. "We never want to become that faceless corporation."
The ESOP quickly benefited the group in two areas: hiring and company growth. Van Horn was able to hire a top service technician by touting employee ownership. And the company bought Safro Ford in suburban Milwaukee, in a rare deal featuring a female dealer selling to another female dealer. The employee-ownership and a sisterly connection sealed the deal last September, said Van Horn.
"She could have sold to anyone. Ford is a valuable franchise and it's a store in a nice area, but it wasn't just about the dollars," said Van Horn.
In fact, Safro Ford was not for sale when Van Horn approached owner Jeanne Safro. But, Safro said, "I liked the way they cared for their employees. The ESOP is a great thing. So when I told my employees about the sale, I could do it with a good conscience that they'd be cared for the way I cared for them."
Safro, 63, sold her three other Safro Automotive Group stores to Ed Napleton Automotive Group in suburban Chicago in March, she said.
Van Horn Automotive, of Plymouth, Wis. -- smack between Green Bay and Milwaukee -- has nine dealerships across Wisconsin that sell Chrysler, Dodge, Jeep, Ram, Ford, Chevrolet, Hyundai and Mazda. The group sells about 8,800 new and used vehicles a year.
Van Horn, 54, and her brother Chuck Van Horn, 56, run the company their father started in 1966 as Van Horn Chevrolet. It was Chuck's idea to form an ESOP.
"It was a way to do many things," Teresa Van Horn said. "It gives back to the employees, gives them vested interest and something when they retire. Hopefully, it would be a way to attract skilled employees, which gets harder every day. And it sets you apart from competitors."
An ESOP can be a form of a retirement plan that follows rules similar to an employee 401(k) plan, except the assets must be primarily invested in the securities of the employing company. It can borrow funds to buy those assets.
Depending on how the dealership is structured, dealer principals could permanently defer capital gains taxes by selling shares to an ESOP, experts say. Also, the ESOP is exempt from paying federal income tax on its share of the ownership.
An ESOP can also aid in succession planning by allowing an owner to cash out all at once or little by little. The ESOP creates a market for an owner to sell shares to. By selling the business over time, an owner also can transition control to a management team.
Between Teresa and Chuck there are 11 children and grandchildren. It is unclear, she said, which ones will want to run the business long term.
"We don't want to force them, so this is a way to make some kind of succession plan," said Teresa Van Horn. "We don't lose complete control of everything."
About 8,000 U.S. businesses operate under ESOPs, said Michael Keeling, president of the ESOP Association in Washington. Only about nine are auto dealerships, he said, because some automakers consider employee ownership that exceeds 50 percent to be "not in accord" with some franchise agreements.
At Van Horn, an employee's ownership stake is based on tenure, which also dictates if the employee is vested. Once the employee retires or leaves, he or she is entitled to a payout depending on the vested level, Van Horn said.
"If someone has been here 10 to 20 years, their immediate payout would be in the tens of thousands if they retired in the next year or two," Van Horn said. "If they are here another 10 years, the payout could be a six-figure sum."
Those sums also reflect the company's financial health, motivating employees to ensure their work helps the company succeed.
Van Horn said the ESOP has helped attract new talent. She cited a highly skilled service technician who "could go anywhere and command any pay plan he wanted."
"We talked about the ESOP with him," Van Horn said. "He's working for us now."
The average Van Horn employee has about 10 years of service, Van Horn said. The company values homegrown talent; some managers started as sales staffers and porters. The ESOP will inspire employees to become "directly engaged in their own careers," she said.
That, in turn, will attract more talent and lengthen tenure, giving the company the ability to buy stores because it has people prepared to run them, Van Horn said.
That's a common motivation for many companies that form ESOPs, Keeling said.
"The data is overwhelming that companies with ESOPs are less likely to have layoffs," said Keeling. "Many of those companies that have an ESOP are in growth mode. So it's win-win in that it's a way to cash in my chips without destroying the company and yet putting it in a position to move ahead in a growth mode."
Van Horn wants to buy one store per year, and said the ESOP is an asset that sets her group apart from other buyers. "It's something almost no one else offers."