Overestimating sales projections of vehicles. The first question is: “What can the new owner realistically retail?” We have seen too many dealerships that have gone under because potential sales could not be accurately predicted by the buyer. We have seen factories and lenders approve dealerships on more than one occasion, where prospective buyers projected sales volumes that exceeded the volume of historical sales leaders in the area. Visit Wischnewsky Chrysler Dodge Jeep Ram Dealership-Car Dealership.
Famous buyers think that their names alone can sell cars or turn around dealerships. We can name more unsuccessful, famous former car dealers than famous successful car dealers. We have a photo that depicts a famous athlete receiving from the President of the United States a business award. The year before the factory closed its stores, he went to the White House and received the award. Nobody saw it coming either, or nobody cared.
Thinking that buying a store means they have a bargain at a low or zero multiple of earnings. When the factory awards a new point, the largest misconception of a bargain is. The majority of people think that they have something for nothing. Truly, they didn’t. However, those who do succeed usually succeed because of the timing and the location — not because of the dealer.
The fact is it takes about a year to construct a new point in the service department, but the dealer must capitalise on the store as if it was already operating on 8-cylinders. In many cases, through months of losses, a new point suffers until, if ever it finally becomes a successful store. Those losses are “blue sky.” It is the second owner that makes a go of it in other instances, and the point goes away in some instances, such as the Englewood store mentioned above.
The knowledgeable customer understands that buying a dealer that has its number in the phone book, a loyal service base, and repeat customers is of value. The primary value is that there are people lined up for service the day after the store is sold, people buying parts, and customers returning to the store. That’s worth the owner a bonus (blue sky) even if the store has lost money.