Dealership Valuation Multiples Rising

Part 1 of 3: What’s Driving the Increase?

by Michael E. Stover, CPA/ABV

Dealership valuations, as measured in a multiple of earnings, have continued to rise during the industry recovery. In a previous blog, I discussed the role of earnings and other important factors that can affect this multiple, introduced dealership valuation, and gave an overview of the valuation process.

Now I’d like to address some of the circumstances that have contributed to the increasing numbers of transactions and the rise of dealership valuation multiples: vehicle sales, expected sales growth, reduced real estate risk, and basic supply and demand principles.

Vehicle sales

Unit sales dropped from 16 million in 2007 to just over 10 million in 2009. The number of vehicles sold in 2013 will once again top 16 million, on the way to over 17 million units by 2015. New vehicle sales growth has been an important component of overall growth, with 2013 per dealership new unit sales growing by over 50% from the low of 2009.

Increased unit sales, with stable profit margins, increase overall dealership profitability. But, due to issues of scale and leverage, post-2009 per dealership profit levels have increased at a much faster rate than the sales recovery (more than tripled compared with 60% unit sales growth).

Expected sales growth

Sales trends, and the associated increase in profit, play a large role in determining dealership value and the multiple of current earnings that buyers are willing to pay. So what does the future hold? Overall consumer confidence is improving and consumer lending is loosening, especially for buyers with poor credit. These two trends combine to favor unit sales growth.

But industry analysts and experts foresee unit sales growing at slower rates than experienced in the 2009 to 2013 period. The average double digit percentage growth seen through the recovery so far is expected to cool off into steady, but low, single-digit growth over the next few years.

Therefore the ability for dealerships to leverage increased sales into an even higher increase in profits bodes well for valuation multiples to increase, although at a slower rate.

Next week, I’ll discuss how Reduced Real Estate Risk and Basic Supply and Demand Principles are influencing the rise in dealership valuation multiples.

For more detailed information about dealership valuation, or to determine the value of your dealership, contact Michael Stover at mstover@bradyware.com or 800-893-4283.

Mike’s Accredited in Business Valuation (ABV) credential denotes specialized training and access to resources that allow him to go beyond the core service of reaching a conclusion of value. He also creates value for dealership clients through the strategic application of his valuation analysis.


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