What is your dealership worth? How do you know? Gut feeling? Accountant's opinion? Articles in Automotive News — Published articles from "experts"?

Most likely your opinion was formed based on recent articles that speak about the concept of "multiple of earnings."

Publications refer to "multiple of earnings" as a benchmark of valuations and offer monthly or quarterly fluctuations by brand. It is concerning that such publications have made their way into formal valuations prepared by automotive CPAs relying on that data. Some even state that a specific brand will trade 3-5 times earnings. Well, the difference between 3 times and 5 times is 66 percent ...

Beware: Such representations are incomplete at best, and they could mislead dealers to false pricing expectations, flawed financial planning and costly decisions.

In June 1995, an article published by the National Automobile Dealers Association referred to this rule of thumb as a "greater fool's theory."

We sold a Chrysler dealership showing a net profit for 2016 of $1.2 million — the goodwill portion was sold at $9.5 million.

Does that mean Chrysler dealerships trade at 7.9 times earnings?"

No comparable or any rule of thumb can determine the value of a dealership. Establishing value using only a multiple of earnings is an irresponsible approach. Which earnings? The most recent 12 months? Three-year average? Five-year average? Weighted averages? And if so, what weight is given to each year? And if the dealership loses money, what multiple is used? We have sold for millions of dollars dealerships that lost millions of dollars.

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