Value Drivers of a New Car Dealership
The automotive industry is experiencing a drastic lack of cars due to supply chain shortages. This is severely impacting new car dealerships. With such a significant change in the automotive industry, many car dealers are looking to exit the market or enter the market. Whether you plan on buying or selling a new car dealership, it is important to understand what drives the value of a new car dealership. Below we focus on these main value drivers for a new car dealership. These factors can help you grow and maximize the value of a car dealership.
Peak Business Valuation, business appraiser, helps dozens of car dealerships with business valuations. Our goal is to help businesses thrive as such we seek to provide valuable information for individuals looking to buy or sell a business. Get started by scheduling a free consultation today!
For more information on car dealerships, be sure to also read Valuing a New Car Dealership.
Key Value Drivers for a New Car Dealership
Location & Quality of Facility
The location and physical quality of your car dealership will impact the value. Car dealerships located near freeways and high traffic areas tend to be more valuable. Areas with growing populations and strong demographics such as higher disposable incomes receive premium valuations. In addition, facilities that are well-kept and up to date are worth more. Not to mention, potential buyers will also find it more attractive. A valuation expert will assess each of these areas as well as the costs associated with the specific location.
Car dealerships under franchises may be requested by the factory to invest in and upgrade a facility if it is in disrepair. If you plan on buying or selling a new car dealership, be sure to inquire about what the factory may request in the transaction of the business. Most new car dealership transactions require factory approval.
The next value driver of a new car dealership is whether it is a franchise or independently- owned and operated. Franchises tend to be more valuable than independent operations. The type of franchise also makes a difference. Luxury and European dealers like BMW, Lexus, and Mercedes typically receive higher valuations. While Hyundai, Mitsubishi, and Volkswagen are towards the lower end. The spread of value also depends on the quality, stability, product development, and long-term outlook for each of the brands. This also includes the product supply.
Revenue Streams – Parts & Services
One of the most valuable pieces of a new car dealership is its parts and services arm. This is where most new car dealers make money. New car margins are often slim if non-existent. Providing parts and servicing is essential to successful new car dealerships. The more service bays a car dealer has the more valuable it becomes. Parts and services also provide an opportunity for new car dealerships to generate recurring revenue. Other new car dealerships diversify their revenue streams by providing financing, insurance, among others.
The economic condition plays a large part in the value of a new car dealership. Aspects like oil prices, interest rates, and tax incentives for new cars impact the value. A business valuation expert will analyze the current economic condition and market when determining the value of a new car dealership.
Particularly in the current market, new car buyers are demanding more transparency with consistent changes in preferences. Online sources provide much more information about pricing, value, and competition than ever before. Consumer preferences are also highly impacted by online reviews. This includes customer satisfaction, safety, reliability, etc… Many individuals are buying new cars based on these aspects rather than sticking with one brand or type of vehicle.
In addition, many consumers are seeking the next new thing. This includes electric cars, autonomous vehicles, new safety features, etc… Consumers are seeking new ways to support technology and lower their carbon footprint.
A strong management team is key to increasing the value of your car dealership. Long-term and quality employees are critical to a successful car dealership. Employees with excellent customer service generate customer satisfaction and loyalty. As well as a team committed to staying through the transaction can be valuable for a potential buyer.
Last, a valuation expert will assess the level of competition. This includes how your car dealership operates compared to similar car dealerships. The competition includes other dealers but also substitutes such as car rental, car-sharing companies, and public transportation availability and demands. Competition for new car dealerships is not quite as intense as used car dealerships. This is due to franchise agreements that limit the number of dealers in each area.
Understanding what drives the value of a new car dealership can be immensely helpful. If you are looking to grow a car dealership, a business valuation can help you identify areas to maximize the value. If you plan on selling a new car dealership, a business appraisal will help determine a fair market value to decide a listing price. Individuals looking to buy a new car dealership seek a business valuation to determine whether the purchase price is fair.
Be sure to also check out Valuing a New Car Dealership.
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