REQUIREMENTS FOR INVESTMENT: U.S. − November 2021
Motors Holding invests with persons who currently operate General Motors dealerships or who have been approved to operate GM dealerships. The basic qualifications for a candidate to invest with Motors Holding are:
Upon Motors Holding's preliminary review of information provided, candidates may be required to go through a two-day Dealership Expertise Assessment (DEA) process to assist in determining whether they have the necessary skills and knowledge required to operate a successful GM dealership. The DEA includes targeted interviews by trained GM dealers, role-plays, exercises, and a computer-based simulation conducted by trained third-party assessors that measures such key competencies as financial management and decision-making skills related to dealership operations. The DEA recommendations, interviews and assessment ratings, as well as candidate background, experience, and other relevant information are reviewed by a Data Integration Committee which consists of third-party experts, GM employees and GM dealers. The Data Integration Committee makes the final decision regarding the candidate's status and determines whether the candidate is “Ready Now” to operate a GM dealership.
THE INVESTMENT PLAN
The following is a brief overview of certain significant features of the Motors Holding Investment Plan. It does not include a complete description of all provisions of the investment agreements that will govern an investment in any particular Dealer Company. Complete documents will be available for you to review with an attorney of your own selection before you invest in a dealership.
Form of Investment
Motors Holding and the Operator each invest in the Dealer Company by purchasing shares of its capital stock for $100 per share. Motors Holding purchases the Dealer Company's preferred stock, and the Operator purchases the Dealer Company's common stock. Motors Holding receives voting control of the Dealer Company for as long as it holds any shares of preferred stock. In addition, Motors Holding may provide a capital loan to the Dealer Company in certain circumstances.
Operator's Minimum Investment
At a minimum, the Operator must invest 15% of the total franchise capital shown in the business plan as being required by the Dealer Company. Motors Holding provides the balance of the required capital. It is expected that the Operator invests substantially all available resources before Motors Holding provides the balance of the required capital.
Operator's Compensation
The Operator is employed by the Dealer Company and is not an employee of General Motors Company. In addition to the salary received for operating the business of the Dealer Company, the Operator of a profitable Dealer Company also receives deferred compensation in the form of the growth in value of the common stock, resulting from the allocation of earnings as well as the redemption of preferred stock at below its book value.
The Operator may also elect to receive current compensation in the form of a cash bonus, based upon the profitability of the Dealer Company. The Operator's annual cash bonus is equal to 20% of the Dealer Company's annual net pre-tax operating earnings (calculated without deducting the amount of the bonus) above 15% of the Dealer Company's initial franchise capital. If applicable, this bonus is determined annually by the Dealer Company's Board of Directors and is paid by the Dealer Company during the first quarter of the next year. If the Operator elects to waive the cash bonus, the resultant increased profitability may accelerate the redemption of Motors Holding's preferred stock interest.
Operator's Risk
The Operator is required to develop and manage a business plan that supports a successful dealership operation. Because the Operator is responsible for the day-to-day operation of the business, a greater loss, if any, may be allocated to the Operator, as a common stockholder, than to GM, as a preferred stockholder. As with any investment, both the Operator’s and Motors Holding's investment funds are at risk, and both may lose their entire investments in an unprofitable dealership venture.
Book Value Allocation of Earnings/Losses
The Dealer Company's net earnings are allocated first to make up any decrease in its net worth due to losses (if applicable) and then pro-ratably to all shares of its capital stock (whether preferred or common).
Any losses by the Dealer Company are allocated equally to each class of stock (i.e., 50% to preferred stock and 50% to common stock) until the Dealer Company's accumulated losses exceed 20% of the initial price of the common and preferred stock originally purchased. Additional losses are allocated first to the common stock, up to its remaining value, and then to the preferred stock.
As an example, if Motors Holding invests $3,300,000 and the Operator invests $700,000 for a total of $4,000,000, the 20% loss threshold is $800,000. If the Dealer Company has accumulated losses of $825,000, the losses would be allocated as follows:
| MH | Operator | Total | |
| Original Investment | $3,300,000 | $700,000 | $4,000,000 |
| Loss Threshold | ($400,000) | ($400,000) | ($800,000) |
| Additional Losses | $0 | ($25,000) | ($25,000) |
| Value of Investment | $2,900,000 | $275,000 | $3,175,000 |
Investor Stock Option
Motors Holding may, without the consent of the Operator, purchase all of the Operator's common stock if any of the following events occur:
If Motors Holding exercises this option, it may purchase the Operator's common stock at its book value, which may be significantly less than the Operator's original investment.
Agreement to Arbitrate Investor Disputes
The Operator will not be allowed to bring a lawsuit against General Motors for claims arising before and during the time Motors Holding is an investor in the Dealer Company. Instead, the Operator, GM, and the Dealer Company agree to submit any and all unresolved claims to mandatory and binding arbitration, including those pertaining to any GM sales and service agreement. The results of the arbitration will be binding on the Operator, the Dealer Company, and GM.
Dividends and Redemption of MH Stock
The Dealer Company will pay dividends only on its preferred stock. Each quarter, the Dealer Company will pay dividends and redeem preferred stock if earnings are available for that purpose (that is, if earnings are not needed to make up prior losses). Generally, the amount of the dividend will be 50% of the Dealer Company's net after-tax earnings for the quarter multiplied by the preferred stockholder’s ownership percentage at that time. All remaining after-tax earnings are available to redeem shares of preferred stock at a price of $100 per share. The reduction of the preferred stock effectively increases the Operator's ownership of the Dealer Company with each distribution. There are no dividends paid on the common stock.
Final Buyout Redemption of MH Stock
When the Dealer Company has used its operating earnings to reduce the preferred stock held by Motors Holding to 20% of the originally issued preferred shares, it is required to redeem the remaining preferred shares at a price of $100 per share, using any available source of funds. At this time, the Motors Holding representatives will resign from the board of directors and the company will be owned solely by the Operator.
Dividends and Stock Redemption Calculation
To illustrate the dividend and redemption calculation, the following example shows the results in a Dealer Company with a total capital of $4,000,000, an investment on the part of the Operator of $700,000 of the Dealer Company's capital and annual net operating profits before bonuses and taxes (NPBBT) of $950,000. Although dividends and redemptions will be made quarterly, to simplify the illustration, all calculations show a single annual dividend and redemption.
| Dividend Calculation | Stock Redemption Calculation | ||
| Annual NPBBT | 950,000 | Annual NPBBT | 950,000 |
| Less: Operator Bonus* | (70,000) | Less: Operator Bonus* | (70,000) |
| Less: Taxes @ 25% | (220,000) | Less: Taxes @ 25% | (220,000) |
| Annual NPABT | 660,000 | Annual NPABT | 660,000 |
| 50% Avail. For Dividends | 330,000 | Less: Annual Dividends** | 264,000 |
| MH Ownership (Avg. Yr.) | 80% | Stock Redemption** | 396,000 |
| Annual Dividends | 264,000 | ||
| Total Redemption To Reach 20% of Initial MH Investment | 2,640,000 | ||
| *Operator Bonus = 20% of NPBBT in excess of 15% of Franchise Capital | Redemption of Final 20% (No Dividends on Final 20%) | 660,000 | |
| **Dividends and Redemptions Are Actually Calculated and Paid Quarterly (Annual Figures Are For Display Only) | Total Stock Redemption (Total Initial MH Investment) | 3,300,000 | |
This illustration is intended solely as an aid to understanding the mechanics of the Investment Plan. The economic returns to the Operator shown in this illustration are not intended, and should not be interpreted, as a representation of any kind with regard to the economic returns any particular Operator or Dealer Company may realize.
Investment Proposal Process
Motors Holding investments are made only in new or existing General Motors dealerships. One of the first steps in applying for capital from Motors Holding is to obtain approval from the GM sales and marketing organization through its regional offices. (Click on the "Email Us" tab.)
Upon selection of a candidate by the GM sales and marketing organization, the applicant (in consultation with the local Motors Holding Regional Manager) prepares an investment proposal and recommendation to the Motors Holding Investment Committee.
The proposal process typically involves the following:
Dealer Company Structure
When the Motors Holding Investment Committee approves an investment and notification is received that the GM sales and marketing organization has approved the candidate, a new corporation will be organized (the "Dealer Company"). At that time, the Operator and Motors Holding will execute a series of agreements which will set forth in detail, among other things, the terms of the investments of both the Operator and Motors Holding, and ultimately the actual occurrence of the investment in the Dealer Company.
Typically, the Operator, the Motors Holding Regional Manager, and one additional representative of Motors Holding will each be elected as Directors, and they in turn will elect Officers of the newly formed Dealer Company. The Operator is elected President of the Dealer Company, manages the day-to-day affairs of the business, and is required to sign an acceptance of office confirming that he or she will devote substantially all capabilities and time to the Dealer Company's business operations. Typically, the comptroller is elected Secretary-Treasurer and is required to maintain the Dealer Company's books and records in accordance with procedures approved by the Board of Directors. It is the responsibility of both the President and the Secretary-Treasurer to provide accurate and timely financial information to the Board of Directors and GM.
The Motors Holding Regional Manager will be available to consult with and advise the Operator for the entire investment period on matters of dealership operations, business opportunities, forecasting and development of business plans, and corporate governance. A Motors Holding Regional Accountant will periodically review the financial records and internal controls of the Dealer Company and make recommendations to its Board of Directors. In addition, the Dealer Company's independent auditor will be required to produce annual certified financial statements, prepare the Dealer Company tax returns, as well as perform an interim review of the books and records of the Dealer Company. Motors Holding requires that the Dealer Company install the General Motors Dealer Standard Accounting System and certain other purchase, inventory, daily operating, internal, and administrative controls.