Sunday, March 26, 2023
  • PRESS RELEASE
  • ADVERTISE
  • CONTACT US
198 Automobile News
No Result
View All Result
  • Home
  • Videos
  • Business
  • Brands
  • Clubs
  • Ratings & Reviews
  • News
  • Blog
  • Ad
  • Autodeals
  • Auctions
  • Global Trends
  • Contact Us
  • Home
  • Videos
  • Business
  • Brands
  • Clubs
  • Ratings & Reviews
  • News
  • Blog
  • Ad
  • Autodeals
  • Auctions
  • Global Trends
  • Contact Us
No Result
View All Result
198 Automobile News
No Result
View All Result
Home Clubs

Automobile Dealerships – Valuing Blue Sky

by The Editor
October 11, 2020
in Clubs
0
Automobile Dealerships – Valuing Blue Sky
Share on FacebookShare on TwitterShare on EMail

[ad_1]

Blue Sky is the intrinsic value of an automobile dealership, over and above the value of its tangible assets. It is sometimes equated to the goodwill of a car dealership.

Most articles regarding the blue sky value of new car dealerships cite a multiple of earnings formula, such as three times earnings, four times earnings, and so forth. The idea that “blue-sky” can be determined by anything times anything is just plain wrong.

Even NADA the National Automobile Dealers Association in its publication entitled “A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995, Revised July 2000 bemuses, in part, with respect to valuing a dealership by using a multiple of earnings: A Rule of Thumb valuation is more properly referred to as a “greater fool theory.” “It is not valuation theory, however.”

In its Update 2004, NADA omitted its reference to “fool”, but referred to the multiple formula as rarely based upon sound economic or valuation theory, and went on to state: “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.”

A dealership’s blue sky is based upon what a buyer thinks it can produce in net profit. If potential buyers think it cannot produce a profit, the store will not sell. If it can produce a profit, then variables such as desirability of location, the balance the brand will bring to other existing franchises owned, whether or not the factory will require facility upgrades, and so on and so forth, determine whether or not a buyer will buy that particular brand, in that particular location, at that particular time.

I have been consulting with dealers for nearly four decades and have participated in over 1,000 automotive transactions ranging from $100,000 to over $100,000,000 and have never seen the price of a dealership sale determined by any multiple of earnings unless and until all of the above factors have been considered and the buyer then decided he, she or it was willing to spend “x” times what the buyer thought the dealership would earn, in order to purchase the business opportunity.

To think otherwise would be to subscribe to the theories that (1) even though you think a dealership could make a million dollars, the store is worth zero blue sky because it made no money last year; and (2) if a store has been making $5 million per year you should pay say 3 times $5 million as blue sky even though you think you will not produce that kind of profit. Both propositions are absurd. If a buyer does not think a dealership is worth blue sky, then what he is really saying is that he sees no business opportunity in the purchase and therefore, in my opinion, he should not buy the store.

Each dealership is unique with respect to its potential, location, balance that its brand brings a dealer group, and condition of facility. The sale is also unique with respect to whether it is a forced liquidation, orderly liquidation, arms length, insider, or a case where an anxious buyer is trying to induce an unwilling seller. There are management factors to consider, length and term of leases, possibilities or non-possibilities of purchasing the facilities and whether or not the factory wants to relocate the store or to open a new store up the street.

In the car business it is impossible to pick a dealership or a franchise out of a hat, multiply its earnings by some mystical number and predict either what the dealership is worth, or what price it would sell for – and it doesn’t matter if you are talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge, or any other dealership. At any given time one franchise might be considered more or less desirable than another, but they are all valued in the same manner.

[ad_2]

Source by John Pico J.D.

ShareTweetSend

Related Posts

How to Start a Walking Business

How to Start a Walking Business

by The Editor
October 14, 2020
0

Starting a hiking or walking tour business can be fairly simple, and it offers many benefits to business owners....

What’s the Difference Between Stereo Speakers and PA Speakers?

What’s the Difference Between Stereo Speakers and PA Speakers?

by The Editor
October 14, 2020
0

When it comes to HiFi, it can be easy to find yourself confused by the sheer range and variety...

Top Airlines in 2011

Top Airlines in 2011

by The Editor
October 14, 2020
0

Many airlines are growing fast in serving international destinations. The services from different airlines are also top rated and...

An Introduction to Autocross

An Introduction to Autocross

by The Editor
October 13, 2020
0

Autocross is a form of racing that not many people outside the sport know about. This overlooked motorsport is...

Group 44 Dart – The Beginning of an American Road Racing Epic

Group 44 Dart – The Beginning of an American Road Racing Epic

by The Editor
October 13, 2020
0

By the middle 1960s, road racing in America had enjoyed steady growth; spreading from Watkins Glen and Elkhart Lake...

Enhance Your Compensation Claim With A Personal Injury Attorney

Enhance Your Compensation Claim With A Personal Injury Attorney

by The Editor
October 13, 2020
0

There are people who miss having an office near their homes as they hate driving to their office. However...

Load More
Next Post
Top 10 Most Expensive Mercedes Benz Cars In The World

Top 10 Most Expensive Mercedes Benz Cars In The World

Keith Moon Drove a Ford T-Bucket Roadster!

Keith Moon Drove a Ford T-Bucket Roadster!

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

No Content Available
Load More
198 Automobile News

Get the latest automotive news and follow the coverage of updates, new release, auctions, deals and and more from the world's top trusted sources.

Follow Us

Categories

  • Auto Auctions
  • Autodeals
  • Blog
  • Brands
  • Business
  • Clubs
  • Global Trends
  • News
  • Reviews
  • Videos

Recent News

CerebrumX’s deep learning platform hints at the future of connected vehicle data

CerebrumX’s deep learning platform hints at the future of connected vehicle data

August 5, 2022
Food delivery strike in Malaysia today – Grab responds

Food delivery strike in Malaysia today – Grab responds

August 5, 2022
  • Disclaimer
  • DMCA
  • Privacy Policy
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2020 198 Automobile News.

No Result
View All Result
  • Home
  • Videos
  • Business
  • Brands
  • Clubs
  • Ratings & Reviews
  • News
  • Blog
  • Ad
  • Autodeals
  • Auctions
  • Global Trends
  • Contact Us

Copyright © 2020 198 Automobile News.

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?