What's Your Dealership Worth? | SDR #304
Chris Collins and Chris Jones discuss how dealerships are valued and what drives their worth. They cover the financial pressures dealerships face and specific strategies to make service departments more profitable.
Chapters
Welcome everybody to the big show. Today. We're going to talk about what your D is worth, what your dealership is worth. We also have a barbecue announcement, a jet ski announcement. Christian tells us about being fired even though he's never been fired. And much, much more coming up on this edition of Service Drive Revolution.
So we were just watching testimonials from the Leadership Squared experience that we're doing.
That was pretty fun.
And you, you have described it and I don't think it's this at all, but you've described it that it's. It's like the workshop equivalent. Thank you.
Of the sphere in Vegas.
Yes.
Remember when you said that?
Yes.
Do you know that none of those testimonials that we watched say anything about the library and the technology we're using?
Really?
Nothing?
Oh, no. That was like they all was impressive.
Thing to me that they all talk about. Think about what we were just watching in my office. None of them talk about it.
Yeah, you're right.
Isn't that crazy?
Take that as a compliment.
No, I do.
Yeah.
Like if the technology is so effective that what they're talking about is the empowerment and the outcome, then the technology worked. Oh, right.
I was actually headed to. The technology was worthless. And the next leadership workshop will be broadcast from public storage spot number 274.
Tell everybody what we're drinking right here. The listeners.
Gorgeous.
We call it the in house heroin machine.
You got a little beard and everything. Oh, I got a. A milk mustache.
Yes.
We have an espresso machine and we stock it with the best espresso beans in the world.
I like that. It's so good that we won't share the name of the beans because we don't want anyone else to buy the beans from. From and us not have a inventory.
Yeah.
Like they're that good.
Because it is. They only like when they roast is when you can buy them. You can't just go on there and buy it.
Yeah. I can tell you that you can find the beans somewhere in the western half of the United States. And I think that that's.
You can tell them it's Seattle.
Okay. It's the city of Seattle and the state of New Mexico.
God, it's so good though. It's the best. Yeah, you have. You get the best latte in the world by working here. You don't have to fly anywhere.
Yeah.
And she's pretty good at making them. The only, the only thing we don't have down is the art. The latte art.
So we have somebody that works with us. That's very artistically creative. And he can do a latte with some really good stuff. He's got the leaf. He's got a couple other things.
It looks more like a really, really chubby girl with cellulite.
I.
I always joke with Missy that she did. She did Art of the Moon.
Yeah.
Like, it's just a white circle.
It's abstract for sure. The jet skis are coming out this weekend.
Okay. A lot of people are concerned about that. They're wondering, are you going to put the Jet Ski to sleep for the winter or are you going to trade it in and get the new model now? Are you going to wait?
Yes.
Okay. That doesn't help them.
I got to figure out. So the, the drama with the jet skis is. Remember the, the blue one sucked up a rock.
Right.
It wasn't running. We had an appointment to take it in two weeks out. In the meantime, Timbo got frustrated and looked under there, found the rock, removed the rock, and then he took it for a spin and he got going 50. He said he thinks it's fine. So we canceled the service appointment. I will see this weekend if it's really good or, you know, he's not going to drive it like we would drive it. And then my plan is they will go into storage.
And I will order the new ones. I don't think they have the new ones. And I. Oh, so yeah, that makes sense. Here's my, here's my dilemma. You. I don't know that people care about this or not more than you think you would care. I need more than two now. The amount of people that are coming to the lake house, like, remember, it got a little like people were lying.
There's a lot. There's a waiting list. That's.
So do I want to trade it in or do I just. What, What I was thinking.
I'm gonna guess he's gonna get two brand new ones.
No, no. I was thinking I keep those cuz they're the three hundreds. I get myself at 325.
And that one's not to be shared.
But I'm always faster than everybody else.
Yes, you'll. You'll always be in first place.
And I'll personalize it to the degree that people would feel weird writing it. They'd be like, oh, I don't want to ride that one. It's too fancy.
That's great.
What do you think? Because I don't know what kind of bath I'm going to take on the trading.
I Don't know anything about the.
So they're two years old. So how much do they depreciate?
I don't know.
I feel like. I feel like that's what I say. Yeah. I gotta figure it out. I got a lot of research to do and talking.
Yeah.
I do think that it would be fun for us to buy one of those dealerships.
A Power Sports one.
Yeah.
I think there'd be an opportunity and it'd probably be reasonable to get into it and then run it the right way. Could be really cool.
Yeah. Really. That'd be a lot of really fun.
This is impromptu, but I just wanted to ask you about this. So I've noticed, and it's just personalization is what remind me of. It is.
I think one of the coolest things that you're doing right now is the way that you're personalizing the signatures on the I Am Leader books.
Oh, the pictures I draw.
Yeah. I was going to ask, like, how long did you have that in mind that you were going to do that? Because I think that people just absolutely.
Are eating it up, what I draw.
Yes. Oh. And I thought I could leave it. You can talk about it or be vague that way, but I just think it's really cool that you're doing these, you know, the personalized things and, like, it's a pretty profound effect on the people that are getting them. I'm excited for Adam. Our friend Adam is going to get his books this week and for him to see.
I want to. Yeah, I want to send one to his. To his daughter, too.
She's four now, by the way. Yeah. So another year.
But I. Yeah, well, I don't know. I try to approach it, you know, even, like, with the service books, I try to learn as much as I can about the person before I sign it. So I don't know. I don't. I. I don't know.
I just.
I appreciate the connection and I'm trying to encourage, you know, community, I guess.
Yeah. And I think that. That the lesson, I suppose that let me bring this whole full circle here is that, like, it doesn't take you that long to do those, but, like, the profound impact that it makes on people.
It's pretty cool because I get to.
Hear all the stuff on.
That surprising me the most about the leadership thing.
What's that?
That people are buying them in bulk.
Yeah.
Like the. The one company where we signed them.
Like, he asked us to sign them all to his individual employees, and he had a specific thing he wanted in there. But the picture they posted in the app of all of them holding them, like, I don't know, how does it get better than that?
No, that's it. So. So the full story behind that is that they actually. So that gentleman owns a company that does mentoring for young men and. Oh, really? Yeah. And so those were all wedding gifts for.
See, I knew the wedding gift.
Yeah. But all the men in the picture were graduates of that mentorship program. So, like he's out doing God's work and then all those people, like he's trying to turn them into leaders and you can see.
Get them into the experience.
Oh, I think they would have it. Conversation later on down the road. But I think that the. The picture of them all holding their books and everything like that, that was pretty cool. And you.
No, it's very touching.
Yeah. And what you did, the personalization inside the book, those books was pretty cool too. And that makes me think back to my early 20s.
And you were walking to work today.
Well, this was a different job. I had to drive to this job.
What job was this?
Yeah, so I used to work and I'm kind of embarrassed to say this now because it's the only time I've ever gotten fired in my entire life, but I got fired from my job at. At the M M's Factory because I kept throwing out all the W's.
Oh, that's pretty good.
Thank you.
So next week we're recording an SDR with a very, very special guest.
I'm hungry just thinking about. What do you.
What do you call somebody who wins barbecue awards like a barbecue champion?
A barbecue badass.
Barbecue badass. So he is. The reason why he's coming in is he's going to be cooking for the elite group at Top Dog coming up. So what we do at the elite meetings for our elite managers in our coaching group is we always study somebody else's business. He's going to put his barbecue pit thing in my driveway. He's going to cook and then he's going to explain the business model of how his business works. The merch.
He's.
He's one of the only humans that has a Lego made after him. He's got a lot of sauces and rubs and all that for sale too.
Yeah.
Harry. Sue.
Yep.
Is. Is coming in next week. We're excited about that. The elite group is going to be really excited about having him cook for us and explain his business model. And it's interesting because business owners always walk away from those elite meetings feeling like they got more out of it than we did because the elite group is that talented and they just offer.
It because that's just the way that they look at things. It's so cool to see. I'm selfishly a little bit excited. I don't know if you know this or not this. I'm attending the elite event this year for the first time since I was a client. Oh.
Because somebody else is doing the masterclass.
Yeah. So the coaches actually are doing a. They as a team are doing the masterclass. They did this a year ago and. And it was amazing. So they're going to be better this time around. But, like, the masterclass is going to be. There's a couple of slots left, but it's not a bad time to get a part of our coaching group either.
When we do Top Dog for new clients coming in or just clients that want a refresher on the masterclass Boot camp. We do those the day before Top Dog starts. So you can do back to back. That's also when we're doing the elite meeting. So they're going on at the same time, which is why it's at my house. So elite is historically at my house. And then the. The master classes here in the library. Then that night we have a dinner, and then that's the opening of Top Dog. And then Will Guer is our speaker on Friday.
You want one of the speakers?
We got a couple speakers that are pretty exciting. It's going. It's going to be fun. But the Man Presc is my favorite.
It's one of the first times I've watched a YouTube video and gotten. Like, I could.
I almost drooled like.
Yeah, like I could smell it. It's super weird. But. But Harry knows what he's doing now.
For the first time I think that I can remember, we're not selling tickets to Top Dog because we will have a hard time fulfilling our coaching clients.
It is.
Will is a big draw.
We're nearing capacity already and we're. We're a ways till the event.
A lot of general managers and owners want to come see him, so it's good.
Yeah, he's. He's on the. He's on the up. Upsw swing.
Then that morning that Will speaks, Elite gets to have breakfast with them in their picture and hang out with them before the meeting starts.
Yeah. That doesn't suck.
Yeah. The elite group is getting pretty spoiled. It's fun.
Well, they earned it.
Yeah. What's in the news? Chris Jones.
I am bringing misery and shame to the News today, our friends up above the border, the northern part of North America in Canada, Auto Canada considers selling their US stores reports data breach and a $24 million second quarter loss. So this is a crazy thing. Now I'm going to guess that there's other assets that kind of played into this. They reported a total loss of $33 million for a quarter. Now this is a crazy thing is just if you didn't think things were changing year over year, what do you think they reported for profit or loss in the second quarter of 2023, just 12 months earlier? So they reported a loss of 33.1 million. What do you think they did a year ago?
They did 40 million in profit.
45.2 million. That's amazing.
Yeah, that's a $75 million swing.
78 million, $78.3 million swinging.
There's Christian with that on the spectrum math. That is the Rain man math that he can do in his head.
The math isn't the only thing that puts me on the spectrum. They're reporting huge losses out of. They only have 10 stores in, in the United States and they lost $22 million, $24 million.
Oh my gosh, they must be big stores.
It's so wrong. But.
Well, I think they have their own.
In house training and their shares went down to Canadian dollars. This is their. They slipped 16. They're now at 15.20 just to do the, the exchange rate in American money. That is 75 cents a share.
That's a lot of money to lose out of 10 stores.
Yeah. Their DMS going down doesn't help.
Never.
I mean, it's plus plus, right? It's just like, then there's some point you just want to consolidate and regroup.
I don't blame them for thinking about selling those stores.
There's a lot of stores for sale.
Very interesting. You know what my second story is?
There's a lot of stores for sale.
Auto Nation sale of two Ford stores may just be the start. So they sold Ford store, I think in Minnesota and in Georgia. But that wasn't really the interesting part of that, that thing. Well, I would tell you that I think that you and I might have talked about this, but maybe down on an episode, just kind of in our regular conversation, is that I've noticed that the big groups like your Lithia, autonation, Asbury, Sonic, lately, let's say the last five or six months, they're constricting, not growing. We're like, how many years have they been on the growth train Those groups. Right. So they've been acquiring, acquiring, acquiring, acquiring. Now they're kind of constricting and selling. So like I think it was like last year at this time Asbury had like $23 million in assets listed for sale. Let's see if you can go two for two on this. What do you think they have in total sales available right now of assets for assets.
So this is dealership that they're trying to sell.
Yes. So it's held for sale and they have to regulatory file this because they're a publicly traded group.
Is it 100 million?
It's $206 million.
That's a fire sale.
That's a fire sale.
Wow, that's scary.
It's pretty interesting.
This is Asbury.
This is Asbury.
What is AutoNation have for sale?
It didn't say. I really wish it did.
Well, I mean, think about if they have that much for sale, AutoNation probably has way more for sale. Right. So you know what kind of happens Right. In these sort of downturns is you can make the stock go up by selling your least, your lowest performing assets.
Yeah. Because it would make the, the earnings and all that other stuff change.
And you can also kind of make the fact that you overpaid for them go away too. Like you can ride it off. And you know, there's, there's ways that they, they just make that stuff kind of disappear in a quarter and then it's gone.
Well, it reminds me of like the, like your Warren Buffetts and stuff like that. Like the, there's always people that are way ahead of the game and they're like seeing the writing on the wall and it feels like that's these people right now that they're seeing something. It's like, okay, so maybe we spent a year overpaying for stores. We got to fix it.
Well, the reason why Warren Buffett is selling everything he has so much cash is because there's going to be, it's going to be a buyer's market.
Right. So that makes a lot.
The other thing to, to think about here is, you know, if dealerships were selling for 8, 10 times earnings, that's going to come down to 3 or 4. I bet you some of those dealerships are, are almost just like blue sky. Like just take it off our hands and give us a little something or.
Nothing and just walk away.
Yeah, like we're going to close it or take it over.
There's some signs for people to pay.
Attention to this subject. What is your dealership worth? Was Christian's idea in the sense that I think a lot of times we talk about how dealers are looking at their financial statements all the time, how. And service managers are told, just get gross. Just get gross. And what we always say is that that's misleading because what they mean is, get us profitability. And they're telling you, just get gross, because that's the narrative that they think drives fixed absorption. But they don't understand that we could expense our way into more gross. So just more gross in and of itself doesn't mean more profit. In fact, most of the time we. What we see is the expenses will go up more than the gross goes up because the service managers don't have access to it. They don't see it. They're not judging their performance by it. And if they do see it, they don't really understand how to influence it in a positive way, because you can't really influence something you don't understand.
I remember that you did a great job of explaining to me about how dealership valuations kind of made, which I didn't understand up until the point where you told me, but it made a lot of sense. I thought maybe you could share that with. With everybody. But I'm super excited, like, in. And you know, maybe another reason that I thought about this is that how many service managers are becoming GMs? Like, I think that these are things you should start thinking about if you're a service manager and you, you want to know or move up. Like, you should understand how a dealership's valued.
And so let's just think about this from an entrepreneurial perspective, is if you're buying a business, right? So you're going out and you're buying a business. Let's just say you're buying somebody's hot tub business. What you want to concern yourself with is, If I pay $100,000 for this hot tub business, how long will it take me with current earnings to pay myself back? Right? So if the thing's making $5,000 a month in profit, what does that do? That math in your head, how much.
Did you pay for the business?
100,000. And it's doing 5,000amonth.
20 months.
20 months. Okay, so you. Now what if. If the profits go down because let's say the guy who owns it currently is, is. Is not taking a salary, he just owns it as an investment.
Okay. And the, the money you have to.
Work it full time and pay yourself a salary, then what?
Then that eats into the profits even more.
So your profits would go down.
Yeah.
What if you bought it right before a recession and nobody's getting hot tubs?
Then you claim bankruptcy.
Yeah. And so now what if you're a really good operator and you buy it and you can increase the profits, then you'd pay it off sooner.
Yeah. And then maybe expand or something like that.
Yeah. And so in business in general, the rule of thumb for most, like just, you know, businesses on Main street that you would buy from somebody else is four times earnings, which means you would recoup the money you paid to buy it in four to five years. Right. So sometimes you can get them for three times earnings, but usually four in, in most industries is kind of the average.
But if you can get it for three, you're getting a really good deal, right?
Well, depending on the business. I mean, some businesses, like, let's say you're gonna buy somebody's Amazon store, which.
Should have no overhead for the most.
Part, but also like somebody from China can come in and undercut your frying pans pretty quick. So it's pretty volatile.
Oh. So yeah. So you can go to relevant to irrelevant in a very short amount of time.
So the, the risk associated with, you know, if you're buying a business and that business has been there for 30 years and they have a customer base and it's, it's in an industry that's pretty secure, then you know that to varying degree, like, is the business going to be here in four years? Well, an Amazon store, you don't know.
Yeah.
Because you don't really, An Amazon store doesn't really have any sort of leverage. Same thing with something that you're selling on Google. Like, you don't really have a lot of leverage because if Google changes their algorithm, you're out of business.
Okay.
Like, all your eggs in one basket. Right. Okay. So now when it comes to, to car dealerships over, I don't know, the last so many years, like, let's maybe say like 15, probably, maybe a little more car dealerships. When, when we had the, the aggressive introduction of autonation and these public companies buying up dealerships, they, they completely blew up the market in the sense that they were over, they were paying more than a regular car dealer would pay for another dealership. Because a regular car dealer is saying like, hey, I want to, I'll buy this, this Chevy dealership, but if it's making a million dollars a year, I'll pay 4 million for it. You know, I'm going to recoup my money in four years. And then after that he's making a profit on what he spent. Right. Oftentimes. And I've made this mistake before. You don't want to buy something with the thought that you're going to be able to make more money. I did a deal on a dealership that I bought knowing I could make more. And fundamentally it wasn't the smartest way to, to do something. You want to buy it on the fundamentals, and then if you can make more, make more. But don't let that be your decision most of the time.
Right. Especially if that's the way that you have to be successful, is that it has to grow. You should. If you can't make it. So I'm just trying to understand, if you can't make it, pencil at what you're buying it for. Based on what they're doing, it might not be a good idea. Yes, but the, but the big companies were coming in and offering crazy amounts of money. Right.
But it's not their money.
Yeah. Okay.
So a dealer is going to be more conservative in the sense that he, he puts out $4 million, has to capitalize the thing has all the employee issues, all that. Now the public company comes in and they go, well, you know, we can cut their scalability there. It's public money, it's not our money. For a long time they're, they're graded more on how fast they were growing, not the profitability. Like if you look at profitability for a lot of those public companies per dealership, it is horrendous.
Yeah.
Like we've done the math before in a couple, don't say the names of the public companies, but remember, we've done the math on them. We're like, oh, they, they made $7 million of this quarter and then we divided it. Divided by a hundred and something dealerships. That's terrible. Yeah, Right. And so they, they don't have, they don't function in the same way that a dealership would function inside of a group owned by a car dealer. And so they're, they came in, So a lot of the public companies came in and said, we want these premier dealerships, we will overpay for them. So they were paying 10 times earnings or even more for some of the more prestigious dealerships, Knowing that that helped open doors for them to buy other little dealerships because they were acquiring some pretty valuable assets and overpaying for them. And so most of what the public companies have bought on the surface has been way, way closer to eight times earnings in most situations. Right, okay. And so now if you, let's say you got a dealership that's making a million dollars a year and you pay $8 million for that and you have to finance some of that or whatever, that's a pretty big hole to dig out of.
Yeah. Because now you have interest, like unless.
You have the 8 million in the bank and you can write the check. And it's a tax thing. It's a tax play. It's, it's a little bit harder to deal with. Right.
Okay.
So businesses and car dealerships are they, they are sold and bought, you know, on a. What times earnings, basically. Now think about that Canadian company, their dealerships are losing money. They're going to try to. Or even asbury the dealerships that are losing money, they're going to try to get people to pay over what they're worth in the hopes that they can turn them around. But it's a unique dealer that would be capitalized enough to go do that. Or it's a guy who's a general manager and he's taken a swing. But usually those, it's 50, 50 where they're, that dealership's around in two years. A lot of those dealerships go. The manufacturer pulls them back or they end up trading hands a couple times within a couple years. Because it's really hard for somebody to come in with a couple million dollars and buy a dealership that's losing money. You gotta advertise. You got you. It cost a lot of money to get to where the thing breaks even. Even if you're really, really good at selling cars and you got to market, you got to advertise, you got to get people in there, you got to have capital and the, usually your reputation is bad. You got to turn that around. It's a, it's, it takes a year to turn a, a bad dealership around.
Doesn't it usually go down before it comes?
Sometimes. Like a lot of those guys will say the broom sweeps clean. Like they just come in with new people. I've had a couple of those guys argue that point with me that the broom sweeps clean, everybody's got to go.
I would guess that if they do the broom sweeps clean, the, the turnarounds faster. Maybe it's not more profitable, but at least happens in six months instead of 12.
Thing that I've noticed is they, they're pulling from their other assets so they.
Weaken the other asset to strengthen that thing.
Because think about staffing a whole dealership. Like if you, even if you own 10 dealerships you're pulling a lot of assets to staff a new dealership if the broom sweeps clean.
That's right.
So I don't really think it's the best strategy. I think leadership, like, if you put good leaders in there, they can turn it around.
Yeah.
And, I mean, I don't know, we've proven that many times that it's more about the. The systems and the leadership than it is the people. Some people gotta go, but not everybody.
And you can make a career as a turnaround specialist.
Okay, so now. Now let's take a car dealership, right? And let's say the sales department of the car dealership, new and used, f and I parts or whatever, let's say combined, the dealership is making $100,000 a month. Okay. But in this scenario, the service department is losing 50. So really, it's making 150, but giving 50 back to the service department, that's losing 50.
Yeah.
Okay. What does that dealer say to us when he calls us?
Any training?
No, if I could give the service department away, I would. How many times have we heard that?
206.
We hear that, right. If I could give the service department away, I would. Now, why are they saying that? Because if they were, what's the difference between making 100,000 and $150,000 a month? If you go to sell your asset and you're getting eight times earnings, 4.8 million. Okay, so the service department is costing 4.8 million in the. The personal net worth of that dealer, in a sense. So if you. If just say every dollar you make or every dollar you lose. Because it's a little bit different than, like, let's say you're buying a Chevy store and the Chevy store is losing 20 grand a month. It's losing 20 grand a month. And you can negotiate from that position if you're buying the dealership. But if a dealership's making 50,000amonth, but service is losing 100, they're paying 8 times the 50. Yeah, but they could be paying 8 times 150. Just think about. Think about how many dealers have brought us in to fix the numbers and then sold right after.
Oh, we just had one. Yeah.
And it's. They're making like eight to ten dollars on the return. So if we take a service department that's losing to making 80 or 100, they think about a hundred thousand dollars a month. 1.2 million times 8. What is that?
9.6 million?
So we made them 9.6 million in less than six months.
That's nuts.
Well, that's why they do it.
It's a million and a half a month.
Yeah.
Yeah. Okay.
So now when a service manager is running a department where they don't understand the financials and it's losing money, the, the reason why the dealer, it has this, like, internal struggle or whatever is, is it's attached to their net worth, like it's what their assets are worth. And whether you like it or not, anybody who owns a business, their identity is attached to the businesses they own.
Well, and don't you think for some of these.
