Ford shakeup could affect dealership buy-sells -- later

The shakeup at Ford Motor Co. -- with Mark Fields, 56, out and Jim Hackett, 62, in as CEO -- could erode buyer demand and dealership valuations on Ford brand stores, buy-sell advisers said Monday.

But not right away.

Ford's product lineup and demand from would-be store buyers remain robust enough that the news of changes to Ford management will have little immediate effect, they said.

"Ford dealers are nervous, of course, in our conversation with them. But the drop in [Ford's U.S.] market share is only 1 percent," said Moshe Stopnitzky, president of buy-sell advisory Performance Brokerage Services in Irvine, Calif. "Ford is strong. In the last couple of years, they have released at least a dozen new or refreshed models."

Ford brand dealers will reap benefits from those products for a "couple of years," helping support franchise valuations, Stopnitzky said.

"I have a couple of large groups who are in a desperate search for a Ford store now," Stopnitzky said. "CEOs come and go. It is my firm opinion it'll have no impact on valuation on the short term. In the long term, it's less predictable."

If Ford's corporate earnings continue to decline, dealership buy-sell activity will suffer, others said.

Mark Johnson, president of buy-sell advisory firm M.D. Johnson Inc. in Seattle, said many buyers will use the management changes and any other corporate instability as a "bargaining chip" with sellers even if a dealership is a stable profit performer.

Erin Kerrigan said, "It's never positive to see a manufacturer's earnings decline, nor is it positive to see management turnover at a manufacturer in reaction to [an] earnings decline because it can be an indication of instability at the manufacturer, which ultimately can have an effect on the value of the franchise."

Kerrigan is managing director of buy-sell advisory firm Kerrigan Advisors in Irvine, Calif. "The jury is still out whether that's the case," she said.

Kerrigan is holding her blue-sky multiple steady on the Ford brand. She has not assigned a value to the Lincoln brand, saying it is not actively traded enough for her to track the value.

Blue sky is the intangible value of a dealership, typically expressed as a multiple of adjusted pretax profit. Multiples vary based on a dealership's location and other factors. They are based on actual adjusted earnings by normally performing stores.

Kerrigan rates Ford's blue-sky value at 4 to 5 times earnings. That's consistent with her ratings on Chevrolet and Chrysler-Dodge-Jeep-Ram stores, she said.

But she warned: "The decline in Ford's earnings is something we're going to keep an eye on, and it could have a potentially negative effect on the franchise's blue-sky value in the future if those earnings continue to decline."

Buy-sell adviser Alan Haig is holding his blue-sky value at 4.5 to 5.5 times earnings, he said.

"The impact of this news on the buy-sell business is negligible," said Haig, president of Haig Partners in Fort Lauderdale, Fla. "There's been no loss of appetite for Ford stores."

In fact, Ford dealers told him a leadership change at Ford might provide more profit margins for dealers.

"Buyers will want to wait and see what happens, but I think they're a little more optimistic," said Haig. "Depending on what they see with the new management, that will determine if they want to pay more or not for the dealership."

Some dealers were "relieved" to hear Fields is out, said Brad Bickle, director of the north central region for buy-sell adviser Tim Lamb Group.

"The sense from well-established Ford stores is that those dealers are happy or relieved," said Bickle. "They felt that Fields was returning to the old way of doing things."

But the key to sustaining buyer demand for Ford rests on "who is going to be the next guy because the feeling is Jim Hackett is an interim CEO," Bickle said. Ford has given no indication that that's the case.