How To Raise Your Auto Dealership’s Value Without Raising Revenue

The value that can be assigned to your dealership is a product of many different factors. While top-line sales can be an impressive-looking number, a savvy buyer will look deeper, focusing on the efficiency and value of all aspects of your business, which are reflected directly on the bottom line.

The all-important EBITDA is definitely something to address before placing your dealership on the market. Boosting your EBITDA will directly and positively affect the valuation of your dealership. While raising your total revenue can help your EBITDA, there is also a more direct route that is easier to navigate than trying to increase overall sales under these difficult pandemic-related conditions.

Let’s take a closer look at four ways to raise your auto dealership’s value without raising revenue:

Reducing your overhead costs will not only improve your dealership’s profitability, but also can be a competitive advantage. A decreased cost of operation will let you price your products and services at or below those of your competition, while making just as much or more profit.

How do you lower your overhead? By taking a very close look at all of your operating costs, and reducing them wherever you can, by as much as you can – without losing your organization’s ability to perform at its expected high level. Here are some strategies for lowering your overhead:

Personnel:

• Reduce your headcount by terminating your least productive employees

• Cut overtime and excess staffing in sales, service, parts, and the body shop

Advertising/Marketing:

• Cut back on general advertising (newspaper, radio, TV, etc.)
• Put some of your savings into digital marketing and long-term strategies

Professional services:

• Shop around for lower insurance premiums
• Renegotiate your accounting and legal fees
• Look for lower costs from cleaning services, uniform suppliers, etc.

Other:

• Reduce waste
• Look for better deals on office supplies
• Upgrade the efficiency of your heating, cooling, and lighting systems to reduce energy usage
• Lease office equipment instead of buying (if you already are, shop around for lower prices)
• Switch to business credit cards with rewards and low or no annual fees
• Shop around for lower credit card processing fees
• Go paperless, and store your data in the cloud instead of in filing cabinets

Keep in mind that the best way to lower your overhead is through a comprehensive approach that shaves a reasonable amount off of each expense category, rather than trying to make big cuts in just a few areas.

Raising your prices can be a very touchy subject. Pricing is both an art and a science. It has a lot to do with how you see your dealership vs. the competition, as well as how your customers see you. But if you can make it happen without losing sales, your profitability will increase immediately.

Is your dealership the rock-bottom low-price leader, willing to undercut all other deals to get the sale? Or are you the high-touch luxury brand flagship, with hot and cold running cappuccino and Italian leather sofas for your customers to lounge on?

As you might expect, price increases can be more difficult for a low-price leader type of dealership, where the price of every aspect of the sales and service experience is closely scrutinized. Increasing the prices at the high-end luxury dealer tends to be less of an issue, because the dealership’s image can justify it, in terms of their customers’ expectations.

What about the majority of dealerships that fall somewhere in between these extremes? An in-depth analysis of your business’ products and services will yield numerous opportunities to raise prices, as long as you do it in a targeted fashion. Knowing what competing dealers charge is also useful information.

Do not increase prices on routine, everyday service procedures like oil changes and tire rotations. People tend to remember those prices and will notice any significant increases. Instead, try to improve your pricing in less sensitive areas like these:

• F&I items
• Accessories added to vehicles at point of sale
• Servicing done at manufacturer-recommended intervals
• Complex mechanical repairs
• Parts not used in routine services
• Branded accessories sold in the parts department
• “Elective” services like detailing and dent removal

As long as you have a good relationship with your customers and they trust you to do the right thing where their transportation needs are concerned, you should not have a problem with reasonable price increases over time.

Related: How Can Auto Dealerships Compete in the New High-Value, High-Expectations Environment?

As a potential buyer goes through your dealership’s operational details to determine an appropriate dealer valuation for the purchase, the value of your existing team is one of the most important factors to be considered. Most buyers want an engaged, high-performing team that is in total charge of all aspects of a finely-tuned operation. Every member of the team should be highly skilled and fully trained, ready to hit the ground running when the new owner steps in.

What does it take to develop such a team and the culture that goes with it? Investment is about more than money – It also includes time energy, effort, and education. Here are a few suggestions:

• Proper onboarding of new team members

• Sharing knowledge of the company’s mission and core values

• Opportunities for interaction between team members and across departments

• Ongoing training in communication, collaboration, cooperation, and problem-solving

• Customer service training

• Pairing newer team members with mentors

• Competitive compensation and benefits

• Work-life balance

• Recognition of team members’ contributions and successes

• Celebrations of employee milestones (birthdays, work anniversaries, etc.)

Investing in your team, and doing it right, can reap amazing rewards in terms of employee engagement. Fully engaged team members become evangelists for your business, promoting the dealership’s principles because they completely believe in its goals. It’s an investment well worth making.

If you’re looking for the best ways to improve your dealership’s valuation, contact DCG . We’re one of the country’s leading, fastest-growing automotive M&A firms. Our network of connections – with manufacturers, lenders, dealership buyers and sellers, and more – helps us build you a qualified and competitive environment on either side of the sale.

Contact DCG  to speak directly with an automotive M&A and dealership valuation specialist. Learn how our expertise can get you more out of your next dealership acquisition or sale.

Continue reading about dealership valuation: Valuation and M&A Trends in the Auto Dealer Industry