Volkswagen's settlements of its diesel emissions cheating scandal likely will spark increased VW dealership buy-sell activity, but the impact on valuations is less certain. That depends on how the deals affect dealership profits, said buy-sell advisers.
"You'll see an increase in the number of stores that trade hands because now it's clearer on what will happen," said Alan Haig, president of Haig Partners, a dealership buy-sell advisory firm in Fort Lauderdale, Fla. "Some dealers will give up on it and sell. Others will be optimistic and want to buy."
But he warned, "That doesn't mean the franchise value will increase."
Buy-sell adviser Bob Morris agreed.
"Before the scandal, VW stores were not a hot franchise, unlike Toyota. When [Toyota] had the floor mat and tsunami issues, that franchise was hot and rode out the problems and never looked back," said Morris, the Southeast director for Tim Lamb Group.
VW will spend $15 billion under settlements with car owners, the federal government and many states. Included is up to $10 billion for customer buybacks, early lease terminations and customer restitution payments.
In part because the settlements could spur new- and used-vehicle sales, as well as service business, some buy-sell advisers said the deal could boost valuations for VW stores eventually.
"This will start to cleanse the brand of the scandal and you will start to see improvements in the franchise value," said Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif. "Dealers say there is pent-up customer demand."