We don’t need to get too deep into statistics or demographics to know we will see some dramatic changes to the dealership body profile over the next five years.
I’m not referring to changes in laws or regulations or in how we retail vehicles, but rather the characteristics of dealers themselves.
We are surrounded by an aging dealer body. While the aging itself is not the issue, it’s the inevitable volume of ownership transfers we expect to see in the coming years that may present valuation and succession issues for dealers looking forward to selling and retiring.
What we are seeing in the dealership buy-sell markets is that many dealers are waiting to wrap up 2012 before offering their store for sale.
I can understand why a dealer would opt to wait until the end of the year; after all, 2012 is the best year most dealers have had since 2007. That would allow them to command a higher sale price for their stores because most dealerships sell based on a multiple of their earnings.
While most dealership brokers tend to rationalize that no matter what the current or foreseeable market conditions, “today” is always the best time to sell, the fact is that now may indeed be the best time to bring your store to market if you were planning on selling.
Our recommendation to dealers planning to sell in the next few years is to bring their store to market now or, at a minimum, get the process started. Doing so will minimize the potential downside value risk of buyers having too many options, a trend we anticipate seeing toward the second quarter of next year.
Imagine there are 25 houses in a neighborhood and three or four focused people with an eye to buy. Say two houses are for sale, and they have been on the market for a while. One house, while nice, is priced so unreasonably high that no one is interested. The other is such a mess, it may as well be sitting on toxic radioactive ground.
You know from neighbors that you’re not the only one planning to sell next year so that you can retire and move somewhere warmer. By your own estimates, you figure there are at least five people, including yourself, who plan to sell in the next year.
Knowing all of this, do you wait until other neighbors list their properties or do you try to come to market first? Coming to market now gives you the best shot at the best buyers.
Waiting can risk diluting these buyers over more properties, which can have a negative impact on your pricing. Besides the pricing impact, when buyers have too many options, you no longer have the undivided attention of your buyer, causing the sale process to drag along.
Every part or your house gets nitpicked and contrasted against others. While you may be asking for a reasonable and fair price, one or more of your retirement-minded neighbors may just decide to sell below that in order to get on the golf course as soon as possible.
As consultants and not brokers, we have the freedom to be objective without affecting our bottomline. Our advice is that if you plan to sell by 2014, it would be both safe and advisable to place your store on the market sooner.
There is enough traction on 2012 earnings and sales that a buyer will allow you to annualize your results. You won’t have to wait for the ball to drop on 2012 to be able to use current-year performance. So you might as well snag that early tee time while it’s still available and before the course gets crowded.
Phil Villegas is a principal at Axiom Advisor, an automotive dealership consulting firm. He can be reached at PV@AXIOM-AUTO.COM.