The used car auto industry is expected to perform well as many Americans opt for used vehicles rather than new ones. Due to this expectation, there is excellent demand, and many investors are willing to make offers equal to or greater than fair market value. This creates an excellent opportunity for sellers. In this review, we discuss how to value and sell your used car auto dealership.
About The Used Car Auto industry
The used car auto industry involves the purchase and sale of used automobiles, including sports cars, sedans, SUVs, trucks, cargo vans, and more. This can include family vehicles as well as vehicles used for public transport. Both gas-powered and electric vehicle (EV) sales are included in this industry. Notable industry data includes:
- There are approximately 146,000 used car auto dealerships in the U.S.
- There was a 2.4% annual growth for the used car auto dealership industry from 2018 to 2023
- The used car auto dealership industry generates $146.5 billion in annual revenue
- The annual profit for the used car auto dealership industry is $4.1 billion
- Experts predict a slight increase in annual growth (0.6%) from 2023 to 2028
The majority of people get their family vehicles from a used car auto dealer. In fact, the size of the used car auto dealer industry is twice the size of the new car industry. There was an industry financial decline in 2020 due to the COVID pandemic. However, the used car industry experienced a significant bounce back in 2021, leading to strong growth numbers over the past five years overall. The market is expected to stabilize with slight growth moving forward. Many new car dealers also sell used vehicles, which creates demand for established used car dealerships.
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How to Value a Used Car Auto Dealership
Used car auto dealerships are often tricky as the rule of thumb data is not always reliable. However, as is the case with all business types, rule of thumb data (acquisition multiples) are a great place to start. Here is the most recent data for the used car auto dealership industry, provided by Business Reference Guide:
- Used car auto dealerships sold between 0.90 and 1.56 times the Seller’s Discretionary Earnings (SDE)
- Used car auto dealerships sold between 0.70 and 3.83 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Used car auto dealerships sold between 0.05 and 0.26 times the annual net sales
Other factors that may influence the value of your dealership include the quality of your inventory, the quality of your workforce, your geographic location, whether or not you offer new cars as well as used ones, and your purpose for selling. Your broker will examine all details to form the best market-based valuation for your company.
The Sales Process for Used Car Auto Dealerships
There are many steps involved with the sales process for used car auto dealerships. Additionally, the sales process may look different for every seller according to the specifics of their company and their goals. In simplest terms, you will need to plan and prepare, find a buyer, and then close the sale. Below is a review from a business broker about each step.
Plan and Prepare
You will need to prepare all of the documents before the sales process begins. Otherwise, you could run into issues during negotiations and due diligence, and the risk of broken deals may increase. Your attorney and business broker should provide you with a list of documents you may need throughout the sales process and where you can collect each document. The most notable documents you will need are:
- Tax returns (three years)
- Profit and loss statements
- Cash flow statements
- Balance sheets
- Employee lists
- Lease information
- Insurance policy
- Car inventory lists
After you collect all your documents, you will need to set your goals for the sale. This, of course, includes financial goals (i.e. asking price). However, it goes beyond your financial aspirations for the sale. For instance, you should decide if the maximum sale price or a quick sale is more important. In some cases, a buyer who keeps the same organizational structure and staff is important.
Find a Buyer
This second stage involves finding a buyer. This is done through private channels, networks, and databases. In some cases, the business broker lists the business anonymously, only providing the financial and legal information and not disclosing the company name or location to ensure confidentiality.
Your broker screens offer as they arrive and notify you about the details of each one. Negotiations and contingency discussions take place during this stage as well. Ultimately, you decide on the buyer that allows you to best reach your exit strategy goals. The stage ends with the buyer signing a letter of intent (LOI) to purchase your used car auto dealership.
Close The Sale
Lastly, you close the sale. There are certain documents you may need to bring to closing to close the sale, ensure the payment is sent, and officially transfer ownership. Your attorney is there to help you through the closing, and the broker of the sale may attend as well to help ensure all goes well and both parties are happy with the deal.
Contact The Pros at Sigma Mergers and Acquisitions
It is important to work with a business broker that you can trust and who has a track record of selling businesses for fair market value. Here at Sigma Mergers and Acquisitions, we have successfully sold hundreds of businesses at or significantly above fair market value. To find out more about how we can help you sell your used car auto dealership, schedule a consultation today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
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