One of the most complex valuation exercises is the automobile dealership. These businesses are actually comprised of five distinct operations, with separate financial information for each.
- New cars/trucks
- Used cars
- Parts
- Service
- Financing and insurance
The other important aspect of the valuation is whether the real estate is owned or leased. If the real property is owned inside the business, then the valuation treatment is another complication, especially with high real estate values in California. The correct technique involves the following steps:
- Remove the real estate amount from the balance sheet
- Appraise the real estate
- Estimate a reasonable market rent
- Value the business enterprise (BEV) based on the reasonable market rent
- Add the real estate value to the above BEV
One major value driver is the "blue sky" value. Each brand has a different "blue sky" amount, often based on a multiple of profit. The market is the barometer of "blue sky" value, and it reflects the success of the car/truck manufacturer.
Other key considerations to business enterprise value are the following:
- Experience level of the general manager and sales team
- Location in an auto mall is a plus, since it focuses consumer traffic
- Flooring
- Current upgrades to the showroom are critical for appeal
- Sales volume impacts dealer incentives
- Used car margins