Car Dealerships

Car dealerships are the auto industry’s way of getting their product out to the public.The auto industry itself is huge and is dominated by very big “players:” General Motors, Toyota, Ford, Hyundai, and down the list.

Together with our software and internet giants, these make up the world’s largest corporations.

A large proportion of advertising is devoted to the marketing of cars.But, for sales, these giants rely on a network of local car dealers.Car dealers operate like franchisees.They lend a local, personal face to what would otherwise be a faceless international company.If you own a dealership, that's your opportunity to become a local TV personality.

You can be Herb Chambers, smiling for the camera.What’s not to smile about?

You’ve been hugely successful.

You can be Charlie Daher, with your son and daughter in the ads.You can be Ernie Boch, Jr., with your own rock band.Ernie Boch, Jr., son of Ernie, who used to invite all of Boston: “Come on down!”

Car dealerships as physical facilities need to meet certain minimum requirements: acres for parking, a 5,000-square-foot showroom, and a repair garage at least that big, all with visibility from an easy-to-get-to, high-traffic local road.If a facility can’t meet those minimums, it will likely become an unaffiliated “pre-owned” car dealership instead.

Car dealerships tend to locate in clusters.

An isolated dealership can survive, but it has a better chance of thriving if it is clustered in a “critical mass” with others of its kind.The major cluster in Greater Boston is the Automile in Norwood.Others are along Route 114 in Danvers and Pond Street in Norwell.The remnant of an early cluster is at Commonwealth Avenue in Allston.There, Peter Fuller’s dealership has been absorbed into the Boston University campus, and the Packard building at Packard’s Corner is now a Super 88 Asian market.

Only Herb Chambers’ dealership remains.

The auto industry’s giants don’t own their sales facilities, but they control them, through a rental arrangement known as the “site control lease.”A standard arrangement is for a land owner to enter into a long-term land lease with a car manufacturer, which in turn leases the site to a dealer.

The site control lease held by the manufacturer allows the manufacturer to require the dealer to construct or upgrade the facility to the manufacturer’s specifications, with a façade that matches the facades of all the other dealers selling the same brand nationwide.That way, the brand presents a consistent, recognizable image to the public.

At times, the land owner and the dealer are the same person.The rent that the dealer pays may be the same as the land owner receives.

The only wrinkle is that the manufacturer is in the middle and under the lease terms has considerable control.

Another wrinkle of the car business is that the dealer is not really in the car selling business to sell cars.

The dealer is in the repair business.There is money to be made in selling cars but more in their repair.Once, the repair business was dominated by small shops.

As engines have become more complex, their repair more and more has required more complex, computerized equipment.The public trusts the dealer to have access to the proper equipment.

And, so, more and more, the public has turned to the original dealer for repairs.

Appraisers who take on assignments to value dealership facilities base their analyses on comparable sales.

Among the important sales of dealerships that are useful to an analyst in Greater Boston in recent years are these:

·         Cadillac, Route 1, Norwood, $13,200,000

·         Toyota, Route 9, Wellesley, $5,000,000

·         Volkswagen, Hanover, $2,100,000

·         Saab, Norwell, $6,000,000

·         Lincoln/Mercury, Peabody, $5,400,000

For an appraiser to make use of these in the valuation of a dealership facility requires knowledge of the terms of each sale.

Was the property subject to a site control lease?Was it free and clear?Was the dealer required to enter into an expensive upgrade?Did the dealership use continue?  Dealerships occupy large sites at high visibility locations.At times, alternate uses produce more value than continued use as a dealership.

An appraiser of car sales facilities needs to be alert to that possibility.