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Alysha Webb

Alysha Webb Editor and Publisher

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Will Online Sales Crash Dealership Valuations?

Location has always been a huge factor in dealership valuation and it is still important. But as digital sales grow, location is becoming less important. That has huge implications for dealership valuation. I talk to dealers large and small all week as part of my job. Most aren’t thinking about how online sales may hurt the value of their dealership – yet.

To be sure, exactly what the impact will be is uncertain because online sales are a new phenomenon, and professionals still don’t have a good method of valuing a digital sales process.  “Digital sales” can also be hard to define. Almost all dealerships have a digital presence, and many customers already do a great deal of the pre-purchase portion of a deal online.

By digital sales, I mean a sale that occurs mostly online, and whose finalization is not dependent on location i.e., it can take place anywhere, from the dealership that first communicated with the buyer online to delivery at the buyer’s house. That isn’t as far-fetched as it may sound. Atlanta-based Carvana already does the entire sales process for its used cars online, then delivers the car to the buyer’s home.

A good online sales process does make a dealership more valuable to a savvy buyer, James Taylor, managing director at the Presidio Group in San Francisco told me. But there isn’t an established appraisal process for it yet, he said. An appraisal process “will absolutely happen in the future,” he told me.

Not everyone believes an online sales process has value. Nancy Phillips, owner of dealership buy sell advisory firm Nancy Phillips Associates Inc, told me she doesn’t adjust valuation if a dealership has above or below average online sales. Why? Because the process is not unique to that dealership. An online sales process can replicated.

Indeed, many of the speakers at the Automotive Customer Centricity Summit, hosted by Thought Leadership Summits in June in Los Angeles talked about their digital sales process and how it could be duplicated across many stores. Many of the big auto dealership groups, from Larry H. Miller to AutoNation, have created online sales processes they plan to use in all their stores.

Nonetheless, the rise of online sales has changed the way real estate appraisers think about a dealership’s location, said Brad Carter, a principle at Greystone Evaluation Services. “We used to look at unit sales and use that to guide us in the value of the location but today you can sell a lot of cars without a good location,“ said Carter. To preserve the value of their franchise dealers can no longer assume physical convenience will trump all in the mind of the consumer or appraiser.  They must also be selling, or be ready to sell, plenty of cars in the virtual world to fend off competitors who may not even be on their radar.

Keep that in mind that if you are thinking of selling your dealership, or if you are looking to acquire. A dealership may have a prime location, but a prime physical location without a prime virtual presence isn’t worth what it once was. 

Alysha Webb is editor and publisher of Automotive Buy Sell Report, on online news and resource center for dealers and professionals in the dealership mergers and acquisitions industry. She can be reached at alysha@automotivebuysellreport.com. Subscribe for free to Automotive Buy Sell Report at www.automotivebuysellreport.com.

Clint Jones
I can see the possibility. I don't know that the drive by traffic is as important as it once was. Now don't get me wrong, I believe that a dealership still needs to be visible and accessible, just not to the degree that it once was. We are in a very high traffic area (2 block stretch with the highest traffic count in the county), but we are seeing less lot traffic that is the result of a drive by. In fact, it is quite the opposite. A couple weeks ago we sold a Ford pickup to a customer that lives LITERALLY 2 blocks from the store. The first thing she said was "I just saw a blue Ford pickup on your website, and I would like to see it". Personally, I believe that I would think twice before I spent a premium for real estate in a high traffic area. I just don't know that there would be enough incidental business to justify the additional cost of the real estate.
Alysha Webb
My point is not that online sales will hurt dealerships. Rather, that they may impact the value of a prime location. Clint Jones makes a very telling comment on that point.
Andrew Compton
One of the dealers I work with sells nationwide online, provides delivery and is opening delivery centers by converting old parking garages to hold the vehicles. Couple delivery specialist at the deliver centers without fancy office space because all sales are handled online from a centralized location. There cost per unit sold is much lower than traditional dealerships. Square foot price for a parking garage going vertical is much cheaper than land in the city, not to mention he's not paying property tax like a 4 acre lot. I wonder how the Barnes and Noble retail locations are holding value?
Chris K Leslie
Alysha, I really like where you are going with this article. I think if a dealer doesn't already own the dirt that the dealership is built on. In turn paying themselves rent. It doesn't make sense to try it now.

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