Value Drivers for a Used Car Dealership
Car dealerships are experiencing a shortage of cars on their lots. This is primarily due to supply chain shortages in the new car market. The lack of new cars is causing more individuals to hold onto used cars rather than buy a new car. Hence, used car dealerships are seeing an impact. As such, many used car dealerships are seeking to exit the market. And many individuals are seeking to enter the market. Whether you plan to buy, sell, or grow a used car dealership, here are several value drivers to be aware of. Focusing on value drivers for a used car dealership can help you maximize the value. In addition, a valuation expert will consider these factors when valuing a used car dealership.
Value Drivers for a Used Car Dealership
Below are several value drivers that impact the value of a used car dealership. A business valuation report determines the fair market value of the business as well as discusses key value drivers. A valuation expert can help you understand what value drivers are applicable to your car dealership.
One of the main value drivers for a used car dealership is the location. Car dealerships located near freeways and high-traffic shopping centers receive premium valuations.
Next, the condition of the used car dealership matters. Well-kept car dealerships tend to attract more consumers which in turn impacts the bottom line. Investing in the physical appearance of your car dealership can be well worth it. Up-to-date equipment and the use of current technology are also helpful.
Revenue Streams – Servicing Bays
One of the largest value drivers of a used car dealership is its revenue streams. Primarily how many servicing bays the used car dealership has. The most valuable used car dealerships create recurring revenue through service contracts. Other valuable revenue streams besides parts and services include financing and insurance. For more information see Diversifying Revenue Streams.
Next, the economic condition will impact the value of a used car dealership. A valuation expert will analyze factors such as oil prices, interest rates, tax incentives, among others. In addition, they will assess the overall market and economic condition when valuing a used car dealership. This includes the national economy and the local economy where the car dealership is located. This factor impacts the operations and profitability of the car dealership.
Across the country, prices for used cars have seen a drastic spike. This is creating higher margins for used car dealers. Because of this, many new car dealerships are selling used cars. This creates even more competition. However, the margins for used cars can still be significant. A valuation expert will assess the car dealership’s margins compared to similar car dealerships.
Types of Transactions
Most used car dealerships offer a variety of transactions. This includes sales to consumers, sales to other dealers, trade-ins, consignment sales, scrap sales, and in-house deals. A valuation expert will want to know what types of transactions your car dealership experiences.
What types of financing does your used car dealership offer? Is it primarily in-house financing? Or do you use third-party financing? Expanding the financial offerings of your used car dealership can increase the value of the company.
Inventory Levels and Turnover
Inventory is one of the largest value drivers of a car dealership. Carrying hundreds of cars on a lot can be expensive. Inventory turnover can range anywhere from 30-45 days and more than 90 days during a recession. A valuation expert will consider your inventory turnover range compared to similar car dealerships.
Last, a valuation expert will assess the level of competition and how competitive your car dealership is. The competition includes online platforms and other local dealers. The automotive industry particularly for used cars is extremely competitive. This is due to low barriers to entry. As such the market is very saturated and fragmented. Within the business appraisal, the valuation expert will discuss the level of competition. And how your car dealership operates compared to similar car dealerships in the industry.
There are many factors a valuation expert considers when valuing a used car dealership. Peak Business Valuation provides business appraisals for dozens of individuals buying or selling a used car dealership. A business appraisal determines a fair market value and identifies key value drivers. Understanding these can help you determine a listing price if you plan on selling a used car dealership. A business appraisal is helpful for buyers of used car dealerships to decide on a fair purchase price. A business appraisal can also help you grow a used car dealership by identifying factors to maximize the value.
For specific information about a used car dealership, schedule your free consultation today! Peak Business Valuation, business appraiser, is always happy to help! You can reach out via email or by clicking the link below.
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