Ihab Salloum[ad_1]
Blue Sky, baby! It’s that intrinsic value, that mojo, that makes an automobile dealership worth more than just its tangible assets, ya know? Some folks equate it to the goodwill of a car dealership.
Now, you may have read some articles talkin’ ’bout the blue sky value of new car dealerships and throwin’ around multiples of earnings like three times earnings, four times earnings, and so on. But lemme tell ya, the idea that you can determine “blue-sky” by multiplying anything by anything is just plain wrong, man.
Even the National Automobile Dealers Association, or NADA for short, in this snazzy publication called “A Dealer Guide to Valuing an Automobile Dealership” – NADA June 1995, Revised July 2000 – they get all bugged out when it comes to valuing a dealership with a multiple of earnings. They say it’s more like playin’ the “greater fool theory,” ya dig? It ain’t really valuation theory, bruh.
In their Update 2004, NADA dropped the “fool” reference – gotta keep things polite, ya know – but they still called the multiple formula rarely based on solid economic or valuation theory. And get this, they even mentioned, “If you are a seller and the rule of thumb produces a high value, then this is not a matter of great concern. Go for it, and maybe someone will be stupid enough to pay you a very high value.” Oh, snap!
So, the blue sky of a dealership is all about what a buyer thinks it can churn out in net profit, ya know? If potential buyers think it ain’t gonna make a profit, that store ain’t gonna sell. But if it can bring in them sweet profits, then a whole bunch of factors come into play – like how rad the location is, how it’ll fit in with other franchises, whether the factory will need any upgrades, and so on, man.
Now, I’ve been doin’ this dealership consulting gig for almost four decades, and I’ve been in over 1,000 automotive transactions, from a hundred grand to over a hundred million bucks, bro. And let me tell ya, I’ve never seen a dealership sale price determined by a multiple of earnings until all them factors I mentioned earlier get considered. It’s only when the buyer decides to drop some mad cash – “x” times what they think the dealership gonna earn – that the sale goes down.
If you think otherwise, well, then you’re subscribin’ to some ridiculous theories. Like, sayin’ a dealership ain’t worth no blue sky just because it didn’t make any money last year, even though you think it can rake in millions. Or sayin’ you gotta pay three times the annual earnings as blue sky, even if you don’t think you gonna make those kinda profits. It’s all a bunch of baloney, my friend. If a buyer don’t see no business opportunity, well, they shouldn’t be buyin’ the store, that’s my two cents.
Every dealership is one-of-a-kind, you feel me? They got their own potential, location, brand power within a dealer group, and facility condition. And the whole deal is unique too – forced liquidation, orderly liquidation, arms length, insider scoop, or a buyer tryin’ to twist an unwilling seller’s arm. Plus, you gotta consider management factors, lease length, whether you can buy the facilities or not, and whether the factory wants to up and move the store or open a new one down the block.
Let me tell ya this straight, my friend. In the car biz, you can’t just pick a dealership or a franchise outta thin air, multiply its earnings by some mystical number, and predict what it’s worth or what price it gonna sell for. And it don’t matter if you talkin’ ’bout Toyota, Honda, Ford, Chevy, Chrysler, Dodge, or any other dealership. At any given time, one franchise might be hotter or colder than another, but they all get valued in the same way.
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