A simple visual model called The Value Triangle illustrates
the competencies required to achieve long-term success and
increase dealership value. Excellence in any of these areas
can create bursts of short-term success. However, consistent
attention to all four areas of The Value Triangle creates high
performance dealerships that can thrive in an extremely
competitive automotive retail marketplace.
Financial
Conventional wisdom tells us that the financial performance
of a dealership depends on a balance of management
practices and marketplace dynamics. But the strongest
dealerships utilize disciplined management practices (those
issues within their control) as the driving force to sustained
levels of profitability. These dealers see operating profitably as
a choice. Underperforming dealerships tend to credit or blame
changes in the marketplace or manufacturer requirements (that
are out of their control) as the most significant force impacting
profits.
Our experience in the dealership industry has shown us that
profitability and financial performance are mostly choices made
by leadership and management. When it comes to financial
performance, the ability to consistently generate positive cash
flow under varying market conditions becomes a primary
focus of any buyer. Profitability and consistent cash flow fuel
the investments needed to sustain long-term growth and high
levels of dealership performance. On the flip side, inconsistent
profitability or weak cash flow significantly increases business
risk and makes a dealership more vulnerable to market forces
and the influence of the manufacturers.
to a single manufacturer to look for organic growth prospects
within the dealership or with other franchises. The key areas that
dealers are using to successfully mitigate franchise concentration
risks include a greater focus on used vehicle sales and finance
and insurance processes.
In order to remain relevant, dealerships must understand
the unique value proposition of their brand within a market
and how it aligns with their customers. Differentiators like
a superior customer experience, efficient sales and service
processes, and competitive pricing are key characteristics that
distinguish successful dealers from their competitors. The
ability to differentiate a dealership’s brand can create growth
opportunities in any economy.
Execution
The best dealers continually execute within every department in
their store. Execution is not just the ability to deliver or service
a vehicle in a timely manner. It includes the ability to implement
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Growth
Growth and profitability for many dealerships have rebounded
to pre-recession levels. This is welcome news and confirms that
growth opportunities do exist, especially for strong, disciplined
performers.
Two areas that can dramatically impact valuation are
new vehicle franchise concentrations with a specific
manufacturer, and the unique value proposition of a
dealership brand in a market. Those with revenues
concentrated with a specific manufacturer will rise
and fall to some extent with the new vehicles being
developed by the manufacturer.
How effectively dealers manage and mitigate
franchise concentrations is critical to the
survival of the business, especially during
periods of economic volatility. While the
recent economic downturn was traumatic, it
also forced many dealers who were captive
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