Valuing a Used Car Dealership
The automotive industry is experiencing shortages of cars. Due to COVID-19, many supply chains are seeing an impact. The lack of new cars is causing fewer individuals to sell their used cars. Hence, many used car dealerships are experiencing a shortage of cars on their lots compared to demand. This is causing an increase in the transactions of used car dealerships. Whether you plan to sell a car dealership or buy a car dealership, it is important to understand the fair market value of a used car dealership.
There are dozens of factors a valuation expert considers when valuing a used car dealership. Peak Business Valuation helps dozens of individuals buy or sell a used car dealership as a business appraiser. The first step in doing so is obtaining a business valuation for the car dealership. A valuation report will determine a fair market value. It will also discuss key value drivers for a car dealership. For specific information about valuing a used car dealership you are buying or selling, schedule a free consultation. Peak Business Valuation, business appraiser, is happy to help!
Market Multiples for a Used Car Dealership
- SDE Multiple Average: 1.38x – 4.10x
- EBITDA Multiple Average: 1.76x – 5.37x
- REV Multiple Average: 0.11x – 0.31x
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
Blue Sky Value
A valuation expert often values a car dealership using a variety of business valuation methods. One common method is known as blue sky in conjunction with the asset value. “Blue sky” is equal to the car dealer’s pretax income times the blue sky multiple. The blue-sky multiple includes the value of hard assets plus any intangible goodwill. A blue-sky multiple can range from 2x – 9x depending on the car dealership.
Another unique factor that impacts the value of a used car dealership is the dealer’s financial statements. Most car dealerships operate on a 13-month calendar. They also report the value of their new and used vehicles on a Last-In, First-Out (LIFO) basis. This type of accounting allows the dealer to reduce the value of their inventory to pay fewer taxes. As such, a valuation expert will request dealer financial statements rather than audited financial statements. 13-month financial statements include the year-end tax adjustments to adjust the vehicles to fair market value by reflecting current depreciation.
Business Valuations for Used Car Dealerships
A business valuation can help you understand what your used car dealership is worth. If you are looking to grow a car dealership, a business valuation will help identify opportunities to maximize the value. If you plan on selling a car dealership, a business appraisal will help determine a fair listing price. A business appraisal can also help individuals who are buying a car dealership determine a fair purchase price. Below are several factors that will impact the value of a used car dealership. For specific information about a car dealership you are interested in, schedule your free consultation with Peak Business Valuation.
Key Success Factors
Peak Business Valuation values used car dealerships regularly. Below are several success factors that can help distinguish your car dealership. These key value drivers can also increase the value of a car dealership.
Location & Facility Condition
One of the primary value drivers of a car dealership is the location and condition of the used car dealership. Car dealerships with prime real estate in high-traffic locations receive higher valuations. In addition, how up-to-date and well-kept the facility is can also impact the value.
The next largest factor impacting the value of a used car dealership is the economic state. The automotive industry is dependent on the national economy as well as to a large degree the local economy of the auto dealer. The economic condition of both will impact the operations and profitability of the used car dealership. A valuation expert will analyze the current economy when valuing the car dealership. This includes current oil prices, interest rates, tax incentives, among other factors.
Many car dealership’s primary sources of revenue are through parts and services. As such, the number of service bays available plays a large part. Creating recurring revenue streams through servicing can be unbelievably valuable and an essential part of a car dealership.
Competition from online platforms as well as new car dealers is ever-increasing. The used car dealership market has low barriers to entry as such, it is an extremely competitive, fragmented, and saturated market. Most anyone can open a used car dealership. When valuing a used car dealership, the analyst will assess the competition and how your car dealership operates compared to similar car dealerships.
Type of Transactions
What types of transactions does your car dealership experience? This includes sales to other dealers, consignment sales, scrap sales, in-house deals. A valuation expert will analyze the transactions comparative to industry averages.
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 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 where your inventory turnover range is compared to similar car dealerships in the industry.
A valuation expert considers these along with other important factors when valuing a used car dealership. Understanding the value of a used car dealership is important if you buy, sell, or grow a car dealership. Obtaining a business appraisal can help you understand the fair market value of a car dealership. It will also identify opportunities to maximize the value of a used car dealership.
Peak Business Valuation, business appraiser, values used car dealerships across the country. We are always happy to answer any questions you have about the value of a used car dealership. Get started today by scheduling your free consultation below!
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