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 Car Dealerships: The Difference Between Pre-Owned and a Clunker GMC Sierra K1500 SLE Z71 Colfax WI 54730 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 GMC Sierra K1500 SLE Z71 Colfax WI 54730 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 Why Car Dealerships Are A Good Thing GMC Sierra K1500 SLE Z71 Colfax WI 54730 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 GMC Sierra K1500 SLE Z71 Colfax WI 54730 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 GMC Sierra K1500 SLE Z71 Colfax WI 54730 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. GMC Sierra K1500 SLE Z71 Colfax WI 54730 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, GMC Sierra K1500 SLE Z71 Colfax WI 54730 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, GMC Sierra K1500 SLE Z71 Colfax WI 54730 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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  • Kenneth Close

    Ken was born on November 16, 1938 in Eau Claire, WI to parents Stephen & Mildred (Brown) Close. He graduated from Colfax High School in 1957, & married his wife, Joan Lorraine (Olson) the next spring ...

  • Every Wisconsin City Ranked By Home Value: New Report

    WAUKESHA COUNTY, WI -- When it comes to real estate and home values ... $104,300 Babcock CDP -- $104,200 Hixton village -- $104,200 Colby city -- $103,900 Colfax village -- $103,900 Stetsonville villa...

  • 12-7 through 12-8 Prep Roundup: Menomonie's Skillings, Fenton win titles at Barron wrestling invite

    Boyceville's Schlough, Joles unbeaten at Devils Duals At Wisconsin Rapids ... off until wrestling at Osceola next Saturday. Bloomer/Colfax's Rothbauer fifth at Husky invite At Eau Claire, Bowen ...

  • Karen Marie Halvorson-Falk

    Halvorson-Falk, Karen Marie 66, of Colfax, WI, passed away unexpectedly at home from massive pulmonary embolisms on Wednesday, November 28, 2018. She was born in Minneapolis, MN on July 3, 1952 to Har...

  • Doctors around Colfax, WI: Doctors Around Colfax

    AARP offers tools to answer your health care questions, to help manage your health information and to help you learn about medical conditions, symptoms and procedures. Start now by selecting a tool be...

  • AARP Events Around Colfax

    There are no AARP events currently scheduled. Check out things to do around Colfax or visit our [email protected]+ for webinars and other online events. Is there an event that we should know about? Share it wi...

  • James Riefe Peterson

    James Riefe Peterson, 98, passed away on October 12, 2018 at the Colfax Health & Rehabilitation Center in Colfax, Wisconsin. He was born on April 28, 1920 in Vinton, Iowa along with his twin brother D...

  • Colfax, WI Area Hotels

    no preference Less than 5,000 sq. ft. 5,000 or more sq. ft. 10,000 or more sq. ft. 20,000 or more sq. ft. Meeting Space Sq. Ft. no preference Less than 10,000 sq. ft. 10,000 or more sq. ft. 30,000 or ...

  • Colfax Health and Rehabilitation Center

    A continuing-care facility or community meets a continuum of needs as residents age, from independent living to assisted living to nursing home care. Resident and family councils provide an organized ...

  • A Gas Station Surveillance Camera Captured a Direct Hit From a Tornado

    A gas station in Colfax, Wisconsin took a direct hit from an EF-1 tornado last Friday, and the dramatic event was caught on video by a surveillance camera directly in the path of the twister. The came...

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