Valuation Methods for Auto Dealers

While valuing an auto dealership involves using the same three approaches that are used to value any business (income, market and asset), there are unique factors that should be considered under each approach.

Income Approach – There are many factors that influence the expected earnings and required return of an auto dealer that may not affect your average business. What brand of car does the dealer sell? What’s the dealer’s relationship with the manufacturer? How many dealers compete in the same geographic area? Does the dealer sell luxury cars in an area where people want to buy trucks?

Market Approach – Using the market approach, you have to make sure that the dealers you are comparing to your subject company are similar. For example, is an Acura dealer in Seattle similar enough to a Ford dealer in Youngstown? If the answer is no, adjustments should be made, if possible.

Asset Approach – An auto dealership’s balance sheet generally doesn’t account for “blue sky” or goodwill value. But, you could be missing a big piece of value if you fail to consider it. 

These are just a few of the potential issues to consider when valuing an automobile dealership. For more information on valuing auto dealerships, please contact Tom Claassen at 412.697.5330 or tclaassen@schneiderdowns.com or Steve Thimons at 412.697.5281 or sthimons@schneiderdowns.com.

Schneider Downs provides accountingtax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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