A Buy/Sell Prediction: A Velocity-Focused Store Is Worth More
There’s been a fair amount of industry press articles highlighting renewed interest among public and private dealer groups to acquire stores in the coming year.
In this week’s Automotive News, the venerable CEO Roger Penske of Penske Automotive Group discusses his company’s interest in acquiring dealerships here and abroad. A week earlier, the publication highlighted Sonic Automotive’s plans to step up its acquisition efforts.
Such signs point to an active year in the dealership buy/sell arena. This trend will inevitably lead buyers and sellers to ask themselves and each other, “how much is this dealership’s used vehicle performance really worth?”
Historically, the answer has been, “not too much.”
The reason for this effective devaluation of a dealership’s used vehicle performance owes to the tendency among buyers and sellers to focus on the value of the dealership’s franchise, its past performance in new vehicle sales, its facilities/related obligations and location as the key determinants of a store’s fair market value.
Why, one might ask, wouldn’t a string of plus-positive growth in used vehicles matter more?
The answer here also owes to tradition. In most dealerships, the used vehicle manager (aka, the “Guy with the Golden Gut”) has traditionally been the architect of a used vehicle department’s past success. For buyers, this reality posed a problem: What if the guy leaves? And, even if he stays, do we think we can replicate the past performance? The end result is that buyers often give very little credit for a dealership’s past success in used vehicles as they complete their future-focused valuations.
To all this, I’ll offer a prediction: Over time, the devaluation of used vehicle performance in buy/sell deals will diminish. Buyers will give greater credit to selling dealers whose past success in used vehicles is driven by well-executed, market-focused and velocity-driven processes rather than the stewardship of a single person.
The early signs of this shift are already occurring.
I’ve had several conversations with region-minded velocity dealers who favor stores where “turn and earn” discipline and a “total gross” mentality are already built into a dealership’s DNA. These dealers recognize that a consistently strong, process-driven performance in used vehicles contributes to a stronger new vehicle department—and both are necessary to fully realize the return on investment (ROI) they expect from a store they purchase.
In fact, it’s this more “holistic” view of a dealership’s profitability and ROI potential that drives my prediction. As this mentality becomes more of the norm among dealers, it’ll be more difficult to dismiss the relevance of past used vehicle performance in dealership valuations than it has been in the past.