It’s in the details

Dealers that are contemplating selling in the next few years should start now in preparation to maximize dealership’s market value. With already high interest rates that are expected to rise, low consumer credit scores, real estate value in flux, and tariffs having a big impact on profits, a laser focus on the core operating characteristics of a dealership are important to a seller looking to obtain maximum value for their dealership.

What are some key characteristics that buyers are looking for? They want to know if they can improve sales and expense control, or if they can maintain the level of income if the store beats operating statistics.

What is the seller looking for? Maximum value for the dealership and a safe place for the staff to remain.

To achieve both ends, the current dealer needs to examine all aspects to increase the value. From the sales perspective, can market share be increased? Review market reports from the manufacturer to see how much market share the dealer is controlling. Can customer loyalty and retention be improved? What is the UIO (units in operation) percentage sold by the dealership to total UIO’s in the market? Is pump in or pump out levels acceptable or meeting expectations?

Perhaps review lost sale reports to understand the market competitiveness. Constantly review “lost souls” reports for service customers -- why are they no longer servicing their vehicle at your dealership? Create follow up methods and incentives for bringing them back. Market share, penetration, and customer retention and loyalty are important factors that buyers of dealerships review, and high marks can add tremendous value to your dealership.

Generating income over and above the competition also is a big factor. Subtle metrics reviewed in the back end include average hours per repair order. Much can be said about a dealership’s passion amongst the staff for exceeding metrics in the peer groups. If a dealership is generating a legitimate 3.5 hours per RO, with high customer satisfaction scores and a low number of lost customers, this supports a higher value and ROI for a buyer as proper sales and customer-first techniques have evolved in the dealership. With customers keeping vehicles for longer periods of time, high service penetration, customer satisfaction/retention and skilled professional sales techniques add to customer and staff longevity, and value.

Another factor to review is pay plan management. Have pay plans been in effect for a reasonable time and are they fair and incite good protocol for gross profit, volume, customer satisfaction, and exceptional pay for exceptional performance? Do they attract the best talent available? Do they take into account market conditions, talent, mentoring, and great management techniques by department? If they show constant “penciling” that could be a sign of dissention among the ranks and a deterrent to good morale, which could lower the value.

Inventory management for maximum dealership value

Asset management is also a big consideration. Regarding inventories, a quality inventory of vehicles that sell the quickest for the highest gross profit should always be in stock. A high turnover vehicle inventory costs less to maintain. Interest expense will be lower as will other carrying costs such as insurance and cleaning. A lower reconditioning cost per unit in stock also suggests quality buying habits for used vehicles. Coupling that with a higher wholesale/retail ratio to maintain a quality inventory adds to higher income and value.

Parts inventories are often overlooked as a sign of quality management. Constant review of parts reports lead to a quality parts inventory that is free of slow moving and obsolete parts. Keeping current with parts returns, cleanliness and good organization of the department also adds value to the dealership. A low supply of paid for special order parts suggests top notch management. A high parts turn rate (computed by both dollar and items turn) demonstrates a well-run department that adds value. The same goes for dealerships with a good-sized boutique business. A messy, disorganized department with a lot of aged special order parts suggest multiple problems and issues in that department.

Maintaining quality inventory over quantity adds value for great asset management.

Superior people management also boosts a dealership’s value. Reviewing gross profit per staff by department suggests proper utilization of personnel, which leads to higher morale and efficiency, and less payroll for higher profitability.

Small items add up

Other items to review would be condition of the facility, the service equipment, stall management for technicians and small things like staff parking and lot management of inventory. Does the lot allow for customer optimization of searching for vehicles, access to the service department, viewing areas and overall appeal?

These are all small items and metrics but in total they can add significant value to a dealership in challenging times.

Ken Rosenfield is Founding Partner at Rosenfield & Co. PLLC, a CPA firm based in Florida and New York with a large automotive dealership practice.