Handbook of Business Valuation

By Thomas L. West; Jeffrey D. Jones | Go to book overview

CHAPTER TWENTY-TWO
Valuing Automobile Dealerships

TONY L. ARGIZ POONAM VAIDYA

The automobile industry celebrated its 100th year anniversary in 1996, but today's auto industry is vastly different from its early history. As the industry evolved, so did the dealership profile. This industry has seen unprecedented change in the past decade, and most dealers realize that the challenges in the next century will be even greater. In the past, an auto dealership was a place to buy and sell cars and have the cars repaired. Today, the dealership role has been augmented and expanded to include provider of vehicle financing, insurance, extended warranties, service, leasing, and more.

Automobile dealers play an important role in the American economy, and are vital to its well-being. Total dealership dollar sales in 1997 were over $500 billion. Franchised dealers are vital to local communities, as they are a substantial source of employment, both direct and indirect. Not only do dealerships employ personnel from local communities, but the bulk of their expenditures, excluding cost of goods sold, are made locally. Franchised dealers are a major source and generator of tax revenue.

Recently, a wide range of issues have affected the retail auto industry. New vehicle purchases have been stagnant at best, as a result of some sobering and long-term demographic trends such as the affordability problem; aging of the baby boomers; inability of disposable incomes to keep pace with new vehicle prices; a drop in actual and perceived job quality; soaring consumer debt as a percentage of personal incomes; anemic personal consumption; quality improvements

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