Dealership Franchise Rights – What Are They Worth?

Our friends and WANADA kindred-line member FORVIS recently shared the following article for the benefit of the dealer members:

In determining the value of a dealership (including retail automotive, heavy truck, machinery and equipment, power sports, and motorsports), the most subjective asset is what is known as the blue sky. The blue sky is considered the entire bucket of intangibles in a dealership. For various purposes, but most frequently for generally accepted accounting principles (GAAP) financial reporting purposes related to the purchase of a store, the blue sky must be delineated between goodwill and identifiable intangible assets. The identifiable intangible assets, which frequently have the most value, are the franchise rights associated with the dealership.

What Are Franchise Rights?

Franchise rights represent the dealership’s ability to sell and service vehicles in a certain area of responsibility (AOR) as outlined in the franchise agreement with the manufacturer. Franchise rights are initially granted to dealerships by the manufacturer through an “open point” application. The type of franchise(s) held by a dealership is a significant component of its value, and the franchise agreement is protected by strong franchise laws in each state.

Valuation Approaches to Consider

In determining the appropriate approaches, it is important to consider the standard of value. For GAAP financial reporting purposes, the standard is fair value as defined below:


Continue reading here…

Download Bulletin PDF