Most Dealership owners and Service Managers don’t fully grasp how your Service Department directly impacts your Dealership’s overall value. This isn’t just financial jargon…it’s about understanding the real worth of your business. 

The 8x Multiplier 

Every dollar your Service Department makes or loses is potentially multiplied by factor of 8x when determining your Dealership’s worth. It’s not complicated math, but it has significant implications. 

Let’s break it down: 

Say your Dealership is making $100,000 a month overall, but your Service Department is losing $50,000. In reality, you’re making $150,000 and giving $50,000 back to Service. Now, if you’re looking to sell and you’re getting eight times earnings, that $50,000 monthly loss in Service translates to a $4.8 million decrease in your Dealership’s value. 

The “Give It Away” Mentality 

I’ve often heard Dealership owners express frustration with their Service Departments. It’s a common sentiment, but it overlooks a crucial fact: the Service Department’s impact on overall Dealership value is significant. 

If your Dealership is making $100,000 a month overall, and your Service Department starts contributing an additional $50,000 to $100,000 monthly, the effect on your Dealership’s value could be substantial. At an 8x earnings valuation, that’s potentially an extra $4.8 to $9.6 million in Dealership worth. 

This isn’t about pointing fingers. It’s about recognizing the untapped potential that often exists in Fixed Ops. By understanding the financial impact of the Service Department, Dealership owners and managers can make more informed decisions about resource allocation and improvement strategies. 

Shifts in the Dealership Market 

There’s been a noticeable trend lately with some of the larger public automotive groups. We’re seeing a shift from aggressive acquisition to strategic divestment of Dealerships. 

This change in direction isn’t random. Over the past several years, these public companies have often paid premium prices for Dealerships – sometimes 8 to 10 times earnings, or even more for particularly desirable locations. When you’re working with public funds rather than private capital, there can be more latitude in valuation and purchasing decisions. 

Now, we’re observing a recalibration. Some of these groups are reassessing their portfolios and choosing to sell off certain assets. This doesn’t necessarily mean these Dealerships are failing; rather, it could be part of a broader strategy to optimize their holdings and focus on core performers. 

This shift in the market creates both challenges and opportunities for independent Dealers and smaller groups. It’s a reminder of the importance of maintaining strong financials and understanding the true value drivers in your Dealership. 

The Service Manager’s Challenge 

In many Dealerships, there’s an opportunity to enhance the connection between Service Department operations and overall financial performance. 

The challenge lies in balancing revenue growth with profitability. It’s possible to increase gross revenue while expenses rise at a faster rate, ultimately reducing net profit. This scenario can occur when there’s a disconnect between operational metrics and the broader financial impact. 

For Service Managers, having access to and understanding the full financial picture can be a game-changer. It allows for more informed decision-making, better resource allocation, and ultimately, improved departmental performance that positively impacts the Dealership’s bottom line. 

Turnaround Realities 

Turning around a Dealership isn’t about sweeping everyone out. It’s about putting good leaders in place and implementing effective systems. 

When we fix a struggling Service Department, we’re not just looking at immediate numbers. We’re looking at the long-term impact on the Dealership’s value. Taking a Service Department from losing money to making $80,000 or $100,000 a month isn’t just adding to the bottom line – it’s potentially adding millions to the Dealership’s value. 

Fixed Ops in Today’s Market 

With new car sales facing serious challenges, your Fixed Ops Department is crucial.  

A consistently profitable Service Department gives you flexibility to be more aggressive on the variable side when needed. When inventory is stacking up and you’re paying high interest on flooring, a strong Service Department can be the difference between staying afloat and sinking. 

The Bottom Line 

Whether you’re a Dealer, General Manager, or Service Manager, it’s time to look hard at your Service Department’s impact on your Dealership’s overall value. 

Service Managers: Push to understand the full financial picture. 

Dealers and GMs: Ensure your Service team has the tools and knowledge to make informed decisions that boost your bottom line and Dealership value. 

Remember, every dollar counts – and in Dealership valuation, it counts eight times over. 

If you want to implement these strategies in your Service Department, let’s talk. Book a 15-minute strategy session with our team. We’ll explore how to unlock your Dealership’s real value.