$4 Million Blue Sky for a Chrysler Dealer in Chicago?

[XDCX]

I was reading through the classified ads in Automotive News and noticed an ad for a Chicago area CJD Dealership that was for sale and the dealer was asking $4 Million Blue Sky + Assets + Lease or Blue Real Estate.

Now I'm a pro-dealer guy and I'm all for a dealer maximizing his selling price but I'm betting it's been a long time since Auburn Hills saw a deal cross their desks which included $4 Million in Blue Sky.

The ad indicates the dealership is high volume and very profitable but I wonder what the earnings multiple is? Are there buyers out there who are willing to pay 2 to 4 times earnings for a Chrysler store?

[steve_biegler]

Originally Posted by XDCX

I was reading through the classified ads in Automotive News and noticed an ad for a Chicago area CJD Dealership that was for sale and the dealer was asking $4 Million Blue Sky + Assets + Lease or Blue Real Estate.

Now I'm a pro-dealer guy and I'm all for a dealer maximizing his selling price but I'm betting it's been a long time since Auburn Hills saw a deal cross their desks which included $4 Million in Blue Sky.

The ad indicates the dealership is high volume and very profitable but I wonder what the earnings multiple is? Are there buyers out there who are willing to pay 2 to 4 times earnings for a Chrysler store?

Maybe someone with a short memory and more money than brains.

[Moshe @ Performance Brokerage Services]

A multiple of earnings is not how the price of the intangible portion of a dealership, commonly referred to a blue sky, is determined.

What if a dealership is losing money? What would be the multiple then?

Doesn't a dealership have a goodwill value if it is losing money? After all, it is a franchised business with territorial protection!

We have sold dealerships for millions of dollars that lost millions of dollars!

[XDCX]

Originally Posted by Performance Brokerage Services

A multiple of earnings is not how the price of the intangible portion of a dealership, commonly referred to a blue sky, is determined.

What if a dealership is losing money? What would be the multiple then?

Doesn't a dealership have a goodwill value if it is losing money? After all, it is a franchised business with territorial protection!

I'll concede that determining a dealership's Blue Sky value contains many variables beyond a simple multiple of earnings calculation. That said, I contend the multiple is still a useful gauge for determining the strength of the market or the strength of a particular franchise.

Additionally, I'd be amazed if a dealer could find a buyer willing to pay $4 Million Blue Sky for a full-line Chrysler franchise in the current environment. Maybe I'm wrong; from the seller's perspective I hope so.

[XDCX]

Originally Posted by Performance Brokerage Services

We have sold dealerships for millions of dollars that lost millions of dollars!

I'm not 100% sure who the current owner is, but these people need your help.

[Moshe @ Performance Brokerage Services]

Originally Posted by XDCX

I'll concede that determining a dealership's Blue Sky value contains many variables beyond a simple multiple of earnings calculation. That said, I contend the multiple is still a useful gauge for determining the strength of the market or the strength of a particular franchise.

Goodwill value as a multiple of past earnings - that rule of thumb should have never been used. We have never been a fan of it. Yet, brokers and dealers (still) like to use them. In June 1995 NADA publication referred to it as a “greater fool theory”. Later on in a 2004 publication, it further stated that it is “rarely based upon sound economics or valuation theory”.

To that we add - until we have a sustained stabilization in the auto industry, it should not be used at all. In light of the volatility the industry has experienced since 2008, and the extreme fluctuations in sales and profits of dealerships in the last 3 years, what should we use to multiply? Earnings of the last 12 months? A 3-year average? A 5-year average perhaps? Each of course will produce a radically different number.

[The StraightShooter]

Originally Posted by XDCX

I'm not 100% sure who the current owner is, but these people need your help.

LOL, snorted a little coffee on that one

[XDCX]

Originally Posted by The StraightShooter

LOL, snorted a little coffee on that one

I was hoping some of our members would find some humor with that post.

I sent Moshe a PM last night explaining the post - I wasn't sure if he was familiar with Chrysler's $30 Million Motor Village of Los Angeles saga.

[XDCX]

Originally Posted by XDCX

I sent Moshe a PM last night explaining the post - I wasn't sure if he was familiar with Chrysler's $30 Million Motor Village of Los Angeles saga.

On a side note, I still don't know who owns Motor Village of Los Angeles at this point. I've made three inquiries and no one is saying anything.

[Noah]

Huh. No one believes me.

[XDCX]

Originally Posted by Noah

Huh. No one believes me.

No, it's not that I don't believe you, I just think it's unlikely that Chrysler would have been able to dump Motor Village of Los Angeles without any news coverage of the event.

That said, the fact I haven't heard back from the California New Car Dealers Association could be an indication that Chrysler quietly divested their interest in Motor Village of Los Angeles and CNCDA agreed to drop their suit and not discuss the case. Who knows?