LAS VEGAS — The current dealership mergers and acquisitions environment is the most active they have ever seen, Scott Gorden, managing principal of dealerships with CliftonLarsonAllen tells Automotive Buy Sell Report. But dealerships face slowing sales and an increasingly uncertain future.
Now is a good time to sell, says Gorden.
“In the next two or three years, valuations should start to slide,” he says. “If you are a dealer looking at selling, you should be selling today if you want to maximize the dollars you get.”
It is still a good time to own an auto dealership, says Gorden. “Dealers are still making a lot of money,” he says.
But sales, though high, are slowing. Cox Automotive forecasts 16.7 new vehicles will be sold in 2018, down from 17.1 million in 2017.
A dealership’s valuation is based on current profitability levels and the expectations of future earnings, he says.
There are also uncertainties looming.
Auto manufacturers and other are investing billions of dollars in technologies that could radically change a dealership’s business, such as autonomous driving.
If self-driving cars become the norm, that will have a huge impact on dealerships. But, says Gorden, studies are now showing that people will still want to own their own vehicles, even if they can call up an autonomous vehicle for a ride.
“There are more unknowns now there have ever been in the industry,” says Gorden.
These changes – slowing sales and new technologies – likely won’t have a big impact on dealership valuations in the next five years, he says. But the way they will impact dealer earnings beyond that can’t be predicted, which makes determining a dealership’s future value difficult.
“Blue sky value will start to change when the future earnings of the stores either go down or significantly change,” says Gorden. “The outlook today, the way things are being priced (assumes) there is not going to be a lot of change in earnings for the next ten years. But the question is – is that pricing model right?”
The “really good dealers” are probably looking down the road and wondering what the industry will look like not in the next five years, but the next ten to fifteen years, he says.
A key point to ponder: “How do you position the store or stores to be successful in the future? There are going to be opportunities, but what do they look like and how do you compete?”
Be proactive, he advises dealers, because “if you are reactive, you are probably going to be in trouble.”