The credit crisis has popped the franchise bubble, slashing dealership prices to levels not seen since the mid-1990s, before dealers started going public.
And prices may sink further before they begin to recover.
"The market for dealerships has been turned on its head," says Phil Vogel, a dealership broker in San Francisco.
The value of Detroit 3 dealerships has been sinking for two years. Now even some premium import-brand dealerships are worth less than half of what they were a year ago, according to investment bankers who specialize in car dealership transactions.
Dealers who want to sell face a double whammy because both key numbers in the dealership-value equation have tanked.
-- Dealership profits are down sharply or are nonexistent.
-- The multiplier that measures so-called blue sky -- intangibles such as good customer relations, a strong brand and a prime location -- has plunged, too, with some brands being hurt far worse than others. The multiplier traditionally has been teamed with store earnings to suggest a selling price.
Desirable dealerships in metropolitan markets that would have fetched more than six times net pretax earnings even a year ago would command just three times net pretax earnings today, not counting the real estate and equipment.
Even if they were shopping for stores, most dealers lack the credit lines to finance acquisitions. Dealership mortgages and capital loans are hard to come by.
"Unless you've got lots of cash, you're not going to be able to buy anything," says dealer David Wilson, president of David Wilson Automotive Group in Orange, Calif. The group is No. 11 on the Automotive News list of the largest U.S. dealership groups ranked by 2008 retail new-vehicle sales.
And dealers who could afford stores might have trouble obtaining inventory financing because most lenders are not accepting new floorplan business.
The result is a stagnant market in which few buyers have the finances to make purchases and sellers are reluctant to let their dealerships go at bargain-basement prices.