Two dealerships with the same brand and similar earnings can draw very different offers. Often the difference is location and market share. This guide breaks down how those two factors shape dealership blue sky value, step by step, so a seller can understand and explain their own store's position.
MD Johnson, Inc. discusses blue sky on its own page if you want to read more here. Below is a general framework, with no multiples or market statistics, because those depend on facts specific to each store.
Background: what blue sky measures
Blue sky is the goodwill value of a dealership above its tangible assets, such as inventory, parts and equipment. Buyers usually relate it to adjusted earnings. Location and market share influence both the earnings a buyer expects and how much they are willing to pay for them.
Step 1: Define the market area
Start with the area the manufacturer assigns to your store and the area your customers actually come from. Sales and service records show where customers live. A buyer will compare those two pictures.
Questions to answer
- Where do most sales and service customers come from? Is the population in that area growing, stable or shrinking? Where are the nearest same-brand competitors?
Step 2: Assess the physical location
Visibility, road access, lot size and proximity to population centers https://mdjohnsoninc.com/sell-your-dealership/ all matter. A store on a busy corridor with room for inventory and service expansion offers options a cramped site does not. Real estate value versus rent expense also enters here, since location drives property value.
Step 3: Understand market share
Manufacturers measure how a store performs against expectations in its area. A store that captures more than its expected share shows strength. One that underperforms may still appeal to a buyer who believes they can improve it, but the seller should expect that buyer to price in the effort.
Why market share matters to buyers
- It signals how well the store is run. It shows upside or risk relative to the area. It affects how the factory views the store and the buyer.
Step 4: How buyer footprint changes dealership blue sky value
Location value is not fixed. A buyer who already owns stores nearby may value your location for shared advertising, staffing and logistics. Another buyer may see none of that. This is a major reason dealership blue sky value varies between offers for the same store.
Step 5: Connect location to fixed ops
Service customers tend to stay close to home. A store surrounded by a large population of the brand's vehicles may have strong fixed ops potential. Buyers look at absorption and bay capacity alongside the location.
Step 6: Put it in the valuation
All of this belongs in a written valuation alongside the numbers. MD Johnson says its valuation considers at least three years of financial statements, non-recurring expenses, real estate value versus rent expense and market conditions. Location and market share are part of explaining why a store deserves the value placed on it.
Common pitfalls
- Assuming a busy road guarantees value Ignoring weak market share because earnings look fine Comparing your store to one in a very different market Forgetting that the buyer's own footprint changes the math
Context
For broader franchise and industry issues that can affect location and market areas, the National Automobile Dealers Association is a helpful resource.
General information, not financial, legal or tax advice.
Summary
- Define your real market area with customer data. Assess site quality and property value. Know your market share and be ready to explain it. Remember that buyer footprint changes what location is worth.
Location and market share do not set dealership blue sky value alone, but they explain much of why offers differ.