Important Considerations in Auto Dealer Valuations and Pitfalls to Avoid
In the upcoming month, Scott Womack and David Harkins will present at three different forums, shedding light on the pivotal aspects and considerations of auto dealer valuations, including special considerations in litigation/buy-sell matters. They will delve into why traditional market approaches are generally not applicable for the valuation of auto dealerships, especially single rooftop operations, and explore the limitations of existing database evaluations. Beyond this, they will also explore the changing dynamics of value drivers like real estate and employee management, highlighting the shifting landscape as the industry moves towards digital and online platforms, and offer insights and suggestions for navigating buy/sell litigation and ensuring fair and consistent transactions.
Whitepaper: Understand the Value of Your Auto Dealership
If you’ve never had your auto dealership valued, chances are that one day you will. The circumstances giving rise to this valuation might be voluntary (such as a planned buyout of a retiring partner) or involuntary (such as a death, divorce, or partner dispute). When events like these occur, the topic of your auto dealership’s valuation can quickly shift from an afterthought to something of great consequence.
The automotive industry in August 2023 saw a 13.6% year-over-year growth in SAAR (Seasonally Adjusted Annual Rate), marking the thirteenth consecutive month of such improvements. However, this growth is gradually tapering off, suggesting that the industry’s recovery is becoming more nuanced.
Lower New Vehicle Supply Boost Fails to Lift Profits; Used Vehicle Prices Drop Amid High Demand
The automotive market is experiencing a shift as improved new vehicle availability is affecting used vehicle prices and profitability. Insights from industry leaders like Lithia, AutoNation, and Asbury indicate important trends, from stock incentives for General Managers to the implications of electric vehicle maintenance on dealerships. This piece explores these dynamics, touching on the potential for pent-up demand and the future of dealership sizing in a post-COVID landscape.
The value of an auto dealership is shaped by several factors, similar to how certain components make sports games iconic over time. Some of these value drivers, such as franchise affiliation and real estate conditions, can be influenced by the dealer, while others, like economic performance and location, are largely external. Just as sports fans revel in the nostalgic moments of iconic games, auto dealers can enhance their dealership’s value by understanding these drivers, focusing on what’s within their control, and adapting to external market conditions.
The July 2023 SAAR shows a consistent year-over-year growth in auto sales volumes for the twelfth consecutive month, reflecting the industry’s journey of recovery since mid-2022. While sales projections remain positive through 2023, the volatility of the auto industry over the last three years and potential economic factors warrant vigilance for the future.
Breakthrough or Yet Another Long-Dated Production Target?
In early July, Financial Times reported Toyota’s solid-state battery breakthrough. According to Keiji Kaita, president of Toyota’s research and development center for carbon neutrality, the goal is to cut the size, weight, and cost of both liquid and solid-state batteries in half. In this post, we get into the details of this report, what auto dealers should know about solid-state batteries, and provide some context for realistic expectations.
Cooling Statistics, But Perspective Is Key
The first half of 2023 has been successful for auto dealers despite a decline in some metrics from previous record highs, according to recent industry reports. Although new vehicle profitability has experienced a reduction compared to the end of 2021, it’s still notably higher than pre-pandemic levels. In this blog, we provide a deep dive into key indicators such as new vehicle supply, average trade-in equity values of used vehicles, and vehicle miles traveled to give a comprehensive view of the current auto industry trends.
Why Auto Dealers Might Not Pay “Market” Rent
In business valuation, appraisers seek to normalize historical earnings to establish the level of earnings an investor might reasonably expect from an investment in the subject company. These adjustments may increase or decrease earnings, and they can be for a variety of reasons. Normalization adjustments include surveying various expense categories and determining whether the amount historically paid is considered “market rate.”
Rent paid to a related party is frequently judged to be above or below market, which can be for a variety of reasons. Dealers’ priorities lie more with sales and operating efficiency than tracking what the market says they should pay in rent. The rent paid also may be artificially high or low for tax purposes. In this post, we examine what exactly this means, and why auto dealers may hold real estate in a separate but related entity from the one that owns the dealership operations.
Direct-to-Consumer Sales—Gaining Traction or Losing Their Footing?
A fundamental shift is underway in the industry, with manufacturers like Mercedes-Benz and Volkswagen moving towards a direct-to-consumer sales model, inciting mixed reactions from auto dealers and legal scrutiny in various states. Meanwhile, July 2023’s SAAR outlook remains positive despite looming recession concerns and the potential impact on consumer behavior.