Nissan blue-sky blues
|Nissan dealerships' blue sky - the value of a dealership beyond its physical assets - remains below rivals'. Here are comparisons, given as a multiple of adjusted pretax profit.|
|Source: Haig Partners|
The value of a Nissan-brand dealership lags that of its closest rivals when it should be higher given Nissan's growing sales, buy-sell experts say.
Those experts blame Nissan's policies, such as setting sales targets that dealers consider unrealistic and withholding rewards when dealers miss those goals, for turning off potential buyers and eroding valuations.
In addition, when a store comes up for sale, Nissan sometimes selects a "preferred" buyer for that market, thereby undercutting competitive bidding, which again reduces a store's value.
"If you're a preferred dealer, and you know that a dealer in your market is going to sell their Nissan store, why even submit an offer? Let someone else make an offer and match it," said Alan Haig, president of Haig Partners, a dealership buy-sell advisory firm in Fort Lauderdale, Fla. "That's what chills the value on your franchise."
Dealership values are commonly known as blue sky, a term for the intangible value of a dealership beyond its physical assets and expressed as a multiple of adjusted pretax profit. Those multiples -- which can vary enormously based on a dealership's location and other factors -- are based on actual adjusted earnings by normally performing stores.
Haig estimates Nissan stores' blue sky ranges from 3 to 4 times adjusted pretax earnings. He had assigned Nissan a value of 4-4.75 times in mid-2012, but by that year's end, he lowered it to its current level.
In contrast, he estimates dealership blue sky for Honda and Toyota at 5-6 times earnings, Chevrolet at 3.5-4.5 times and Ford at 4.5-5.5.
Similarly, Erin Kerrigan, managing director of buy-sell advisory firm Kerrigan Advisors in Irvine, Calif., said Nissan's top-end multiple has remained at 4 times since April 2014. In the third quarter of 2014, Kerrigan increased the low-end multiple to 3 times from 2 times, where it remains.
Kerrigan and Haig said Nissan stores should be valued higher based on the brand's strong sales.
"It's partly due to their strategy of selecting dealers for certain markets," Kerrigan said.
"The dealers perceive them as difficult to work with, and because of Nissan exercising its right of first refusal, Toyota, Honda and the domestics have all risen in valuation [while] Nissan has not."
Michael Colleran, Nissan North America's regional vice president of the Northeast, said multiples on Nissan dealerships in his region have been rising over the last six months as Nissan has accelerated sales there.
"There's been much more interest in dealers wanting the franchise," Colleran said. "As demand goes up, price goes up."
Neal E. Boudette contributed to this report.