Now Might Be a Good Time to Sell Your Dealership
In the past couple months of analyzing dealerships, I have been surprised by the levels of value for some clients. They were at a time in their lives that it was time to sell no matter what. I was dreading having to tell them that the value of their dealership was down because of the current events. To my surprise, however, as we dug into the financial and operational analysis, we learned that some dealerships are actually performing better than in previous years.
While the current events are causing real hardships, there have been upsides for some dealers. The value of your dealership may have increased this year and put you in a good position to sell if:
Demand has increased and revenues are up: Your business provides something that has seen increased demand this year! Motorcycles and recreational vehicles have seen an increase in demand as travel is restricted and people are looking for socially distanced activities. Automobile demand has increased with stimulus payments and the desires to avoid crowds in public transportation – airports included.
Restricted supply has increased prices and margins: Many manufacturers have not been able to keep factories open, resulting in a decreased supply. Dealers who had an excess of inventory benefitted from increased prices and margins. This can be, of course, a double-edged sword. If inventory runs out, then there are no sales to make. Dealers who have managed to keep inventory in stock, however creatively, have profited from the situation.
Expenses are down: Personnel is typically one of our biggest expenses as dealers. Ironically, many dealerships laid off employees in March and then experienced a resurgence of demand. In some cases, dealers realized they did not need so many employees, while some pared down to core services and others just made it work with a skeleton crew. In all these cases, the lower personnel expenses served to improve net income.
Risk is down: Volatility = risk. If your dealership maintained or increased revenues in this volatile year, your stability versus the volatile market shows lower risk. Lower risk means a lower interest rate. All other factors being equal, lower interest rates result in high values.
Interest rates drive consumers to your business: Dealerships provide products that consumers usually finance, therefore, low interest rates increase demand. Automobile and outdoor recreation sales have doubly benefitted from the increased demand due to the situation, as well as an increase in ability to finance large purchases at favorable interest rates.
Competition has decreased: Many dealerships were already at risk coming into 2020. Some have had to foreclose. While this is an unfortunate situation because of the families and livelihoods impacted, the loss of a competitor affects the surrounding competitors. Less competition can make your dealership more attractive to an investor.
Running a dealership is more than having the right product in the right place at the right time. It takes intentional management to bring all the factors together to keep all the dealership departments profitable. As this year has demonstrated, there are external factors that also affect dealerships. The situations listed above may have impacted your sales, margins and profits in positive ways, and may enable you to grow or sell your dealership sooner than you may have thought several months ago!