Blue Sky is the intrinsic value of an automobile dealership, over and above the value of its tangible assets. It is sometimes equated to the goodwill of a car dealership.

Most articles regarding the blue sky value of new car dealerships cite a multiple of earnings formula, such as three times earnings, four times earnings, and so forth. The idea that “blue-sky” can be determined by anything times anything is just plain wrong.

Even NADA the Auto Dealerships – The Sales Dept Sells the First Car Chevrolet Traverse LS Elk Mound WI 54739 National Automobile Dealers Association in its publication entitled “A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995, Revised July 2000 bemuses, in part, with respect to valuing a dealership by using a multiple of earnings: A Rule of Thumb valuation is more properly referred to as a “greater fool theory.” “It is not valuation theory, however.”

In its Update 2004, NADA omitted its reference to “fool”, but referred to the multiple formula as Chevrolet Traverse LS Elk Mound WI 54739 rarely based upon sound economic or valuation theory, and went on to state: “If you are a seller and the rule of thumb produces a high value, then this is not a matter of great concern. Go for it, and maybe someone will be stupid enough to pay you a very high value.”

A dealership’s blue sky is based upon what a buyer thinks it can produce in net profit. If potential buyers think it Service the Rest Chevrolet Traverse LS Elk Mound WI 54739 cannot produce a profit, the store will not sell. If it can produce a profit, then variables such as desirability of location, the balance the brand will bring to other existing franchises owned, whether or not the factory will require facility upgrades, and so on and so forth, determine whether or not a buyer will buy that particular brand, in that particular location, at that particular time.

I have been consulting with dealers for nearly Chevrolet Traverse LS Elk Mound WI 54739 four decades and have participated in over 1,000 automotive transactions ranging from $100,000 to over $100,000,000 and have never seen the price of a dealership sale determined by any multiple of earnings unless and until all of the above factors have been considered and the buyer then decided he, she or it was willing to spend “x” times what the buyer thought the dealership would earn, in order to purchase the business opportunity.

To think Chevrolet Traverse LS Elk Mound WI 54739 otherwise would be to subscribe to the theories that (1) even though you think a dealership could make a million dollars, the store is worth zero blue sky because it made no money last year; and (2) if a store has been making $5 million per year you should pay say 3 times $5 million as blue sky even though you think you will not produce that kind of profit. Both propositions are absurd. Chevrolet Traverse LS Elk Mound WI 54739 If a buyer does not think a dealership is worth blue sky, then what he is really saying is that he sees no business opportunity in the purchase and therefore, in my opinion, he should not buy the store.

Each dealership is unique with respect to its potential, location, balance that its brand brings a dealer group, and condition of facility. The sale is also unique with respect to whether it is a forced liquidation, Chevrolet Traverse LS Elk Mound WI 54739 orderly liquidation, arms length, insider, or a case where an anxious buyer is trying to induce an unwilling seller. There are management factors to consider, length and term of leases, possibilities or non-possibilities of purchasing the facilities and whether or not the factory wants to relocate the store or to open a new store up the street.

In the car business it is impossible to pick a dealership or a franchise out of a hat, Chevrolet Traverse LS Elk Mound WI 54739 multiply its earnings by some mystical number and predict either what the dealership is worth, or what price it would sell for – and it doesn’t matter if you are talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge, or any other dealership. At any given time one franchise might be considered more or less desirable than another, but they are all valued in the same manner.

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  • Karen A. Farnsworth

    Karen A. Farnsworth, age 69, of Elk Mound, WI, passed away Sunday, July 15, 2018,at her home in Elk Mound, WI. Karen Ann Walker was born September 13th 1948 in Mulberry AR, the daughter of Raymond Wal...

  • Robert Moats

    Robert E. Moats, 84, of Elk Mound, died peacefully at Comforts of Home in Menomonie, WI, on Monday, May 7, 2018. Robert was born on October 18, 1933, to Bert and Alma (Adams) Moats in Eau Claire. He m...

  • Daryl Spagnoletti

    He was born March 23, 1939 in Eau Claire, WI to Don J. and Donna (Cartwright) Spagnoletti. He was raised in Elk Mound, WI and graduated from Elk Mound High School in 1957. While attending school, Cork...

  • Elk Mound talks to students about consequences of bomb threats

    ELK MOUND, Wi. (WEAU)--Whether it's personal, legal, or educational, the consequences behind initiating a bomb threat are no joke. That's why the Elk Mound School District decided to partner with loca...

  • Addell Louise (Halverson) Dahlen

    Dahlen, Addell Louise (Halverson) born August 8, 1921 to Hjalmer and Lillian (Kohnke) Halverson of Elk Mound, WI, died on June 2, 2017 in Minneapolis, MN. She was preceded in death by her husband Karl ...

  • 2 horses die after falling through pond ice near Elk Mound

    ELK MOUND, Wis. (AP) -- Two horses died when they escaped their enclosure and fell through the ice on a nearby pond near Elk Mound. The Dunn County Sheriff's Office says the horses succumbed to cold, ...

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