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A third car dealership heads for an IPO

The public car lot is about to be a bit tighter. Western Australia businessman John Hughes is taking his car retail company public next March or April, according to The West. The 77-year-old is planning on offering up a minority stake in the John Hughes Group, a corporation he built from one dealership in 1980 to a corporation pulling $650 million in sales.

But despite the public offering, Hughes doesn’t expect much change for his company. “I’m not retiring, I’m not taking a step backwards,” Hughes told The West. “It will be like water off a duck’s back.” The businessman himself will retain his position as majority shareholder, and the company’s real estate will be kept separate from the offering altogether.

Are other dealerships done for?

While taking a company public doesn’t inherently change its business, Hughes’ decision does change the game for not only his corporation, but potentially Australia-New Zealand auto retail as we know it. John Hughes may be small change compared to Automotive Holdings Group (ASX: AHE) and  AP Eagers (ASX: APE), but this latest move will increase its competitiveness for two main reasons.

First, like it or not, the transition phase is more secure than ever for Hughes’ eventual exit. With an elected board of directors, the company’s future stands a fighting chance. Second, car companies are all about cash, and a public company can typically raise funds much more easily than a private one.  Part of the reason John Hughes is headed to the markets in the first place is to retire some of its debt, and the corporation will be poised to grab more growth cash in the future if it needs it.

Foolish takeaway

For the moment, however, the John Hughes Group just doesn’t have the scale to compete. AHG sales clock in at $4.2 billion annually across its 150 dealerships in Australia and New Zealand. At just over half AHG’s size, AP Eagers’ $2.6 billion worth of yearly revenue still overshadows Hughes’ highest hopes.

In a sector as cut-throat as middleman auto dealership, Hughes will have an especially hard time breaking into new markets without cutting into deep into its own margins. Investors should keep an eye on Hughes’ IPO, but a partial public offering of this 40-year-old company won’t change the car dealership world overnight.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

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