Blue Sky is the domestic value of a car dealer, in addition to the value of its tangible assets. It is sometimes equal to the goodwill of car dealers.
Most articles about the blue sky value of new car dealers cite a majority of the winning formula, such as three times earnings, four times revenue, and so on. The idea that blue skies can be determined by something times something is simply wrong.
Also, the NADA National Automobile Dealers Association in its publication entitled A Dealer Guide to Valuing a Automobile Dealership, NADA June 1995, Revised July 2000, partially failed to value a reseller using a multiple of profit: A Thumb Threshold Rating is more correctly referred to as a major idiot theory. However, it is not valuation theory.
In its 2004 update, NADA released its reference to folly but referred to the multiple formula, rarely based on sound economic or valuation theory, and continued to say: If you are a seller and the rule of thumb, give a high value, since it is not a matter of great concern. Go to it, and maybe someone will be stupid enough to pay you a very high value.
A retailer's blue sky is based on what a buyer thinks it can produce in profit. If potential buyers believe it can not make a profit, the store will not sell. If it can give profit, then variables such as location requests, balance will mark to lead to other existing franchises owned, regardless of whether the factory will require upgrades of the facility, etc., Determine whether a buyer will buy the specific brand on the particular the location, at the current time.
I have been consulting with dealers for almost four decades and have participated in over 1000 car transactions from 100,000 dollars to over 100,000,000 dollars and have never seen the price of a resale sales determined by any multiple of profit unless and until all of the above factors have been considered and the buyer then decided that he or she was willing to spend x times what the buyer thought the dealer would earn, to buy the business opportunity.
Thinking otherwise would be to subscribe to the theories that even though you think a retailer could make a million dollars, the store is worth zero blue sky because it did not make any money last year and if a store has made 5 million dollars a year you should pay say 3 to 5 million dollars as blue skies even though you think you will not produce that kind of profit. Both propositions are absurd. If a buyer does not think a retailer is worthy of blue sky, then he really says he does not see any business opportunities in the purchase and therefore, in my opinion, he should not buy the store.
Each dealer is unique considering its potential, location, balance as the brand gives a reseller group and conditions for the facility. The sale is also unique in terms of whether it is a compulsory liquidation, orderly liquidation, arm length, insider or a case where a keen buyer tries to induce an unwilling seller. There are management factors to consider, length and maturity, opportunities or opportunities to buy the facilities and whether the factory wants to move the store or open a new store on the street.
In the automotive industry, it's impossible to choose a retailer or franchise out of a hat, multiply its profit with some mysterious number and predict either what the dealer is hosting or what price it would sell for - and it does not matter if you're talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge or any other retailer. At any time, a franchise may be considered more or less desirable than another, but they are all worth the same.