Dealerships blue sky values are increasing, study says

Article by Christian A., on March 30, 2012

The brands that are most in demand by dealership groups have expanded. This also means that their blue sky values are increasing. Blue sky is the intangible value of a franchise and is expressed as a multiple of adjusted pretax income. A report from financial services firm Presidio Group came out last week.

It said that in 2011, the buyers’ interest in Audi, Chevrolet, Ford, Hyundai and Nissan increased significantly. Alan Haig, who runs Presidio's automotive services, said that the interest is wider. From the Big 5 of most in-demand franchises composed of Toyota, Honda, BMW, Mercedes-Benz and Lexus, there is now the Big 10.

Haig said that Presidio has met with various dealership groups, which are hoping to be granted any of the Big 10 franchises. He said that the trend is changing. Instead of looking for the one perfect franchise, the groups are taking on an “omnivorous approach,” similar to what took place in the 1990s. He pointed out that several dealer groups have expressed an interest in both BMW and Kia – something that’s very unusual and “pretty profound.”

Presidio expects that in 2012, the acquisition activity will still be at a brisk rate because buyers have capital to invest and there are low interest rates, rising vehicle sales, and stronger dealership profitability (likely to be experienced over the next several years). He concluded that buyers are eager to pay higher for the blue sky of the flourishing or recovering franchises.

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