Oldsmobile dealers need new franchises, but the supply is tight.
Few dealers of any make want to sell their stores and leave the business, said Ben Hicks, a broker whose company arranged the sale of about 40 dealerships last year.
The dealers who are willing to sell still expect high prices, in part because large public dealership chains drove up purchase prices in the late 1990s, Hicks said.
Dealerships last year sold for about three times net profit for so-called blue sky, the intangible value of a dealership business above the value of the physical assets.
For instance, a dealership business that posted net profit of $3 million sold for $9 million, in addition to the price paid for real estate, inventory, tools and other tangible assets.
Now, blue sky is tailing off as sellers get more realistic. Blue sky this year is heading toward about two times net profit, Hicks said.
Joe Collins, a broker for Thomas J. Hayes & Associates in Kent, Conn., agreed that the blue sky price is falling to about two times net profit.
Hicks said the sudden influx of Oldsmobile dealers into the buyer's market has not slowed the fall of dealership prices. The influx has not been great enough to change the underlying economics of dealership operations.
He said the outlook for Oldsmobile dealers is mixed. Many eventually will find new franchises, but 'some will fail' after they lose their Oldsmobile business, said Hicks, chairman of Ben Hicks & Associates Inc., based in Arlington, Texas.
Collins said the one-line, mom-and-pop dealership is outdated. GM is overdealered, and the company 'needs to do something about it.'
'That's no surprise to anyone in the brokerage business,' he said.
According to GM statistics, only 271 dealerships in the United States rely on Oldsmobile for half or more of their unit sales. Sixty-three dealers sell only Oldsmobile.
GM has been overhauling its dealership network and dualing patterns for six years under the so-called channel strategy.
Reducing the dealership count has not been a high priority, but still, the number of franchises has dropped only 11 percent, from 19,056 in 1996 to 16,906 on Jan. 1, 2000.
GM still has more than twice as many franchises as Ford Motor Co., which had 8,141 on Jan. 1, 2000.