Expectation vs. Reality: Automotive Dealerships in the Covid-19 Era

July 28, 2022

As Covid-19 swept the nation, there was serious concern among valuation professionals that auto dealership values would decline due to these businesses being non-essential and consequently closed to customer traffic. Then, as the microchip shortage came into focus, added concerns spun up around limited new vehicle inventory and the related impact on dealership revenues/profits and dealership real estate values.

Scott Tew, MAI, Senior Managing Director of Valbridge Property Advisors | Orlando shares his insights on the health of the auto dealership industry and its implications for property values. The Orlando office appraises auto dealerships with regularity and is tuned into economic trends of this unique property type.

Except for the very early stages of the pandemic, there were a limited number of dealers who had notably lower profits between 2020 to 2022. As businesses nationwide waded through uncertainty, there was no evidence to support the opinion held by some appraisers that Covid-19 and the microchip shortage must certainly result in lower dealership values. Shortly thereafter, it became more common knowledge that the issues confronting the auto industry were not negatively impacting profitability.

In fact, many dealerships became more profitable in the face of the challenges presented by the pandemic. Most dealerships appraised by Valbridge Property Advisors were reporting steady revenues and increasing profits due to payroll reductions and other streamlining efforts.

According to Automotive News, as of Q2 2022, economic indicators for many of the larger dealership groups remain strong. Revenue at one such group is up 20% over Q2 2021 and profit is up 11%. This has been achieved despite constrained new car inventories by increasing used car sales volumes and from benefits stemming from continued appreciation of new and used car prices (gross profit on new vehicles has soared 43% to $5,970, while used vehicles achieved an 11% gain to $2,955 per unit).

Dealerships have used the nationwide health crisis to their economic advantage by streamlining and developing new operating models. While there is no guarantee of continued profit growth, the industry has reacted extremely well to the pandemic and the signs for the future appear optimistic.

In addition to tracking trends of more traditional property types, Valbridge Property Advisors follows the economic patterns of the special purpose properties we appraise. Need an auto dealership or other special purpose property appraised? Contact us to learn how we can help.

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