Known or Knowable Industry Events
April 28th, 2009 by Brian Alwine | Tags: Dealerships, Industry Analysis, Known or Knowable, Markets, Report Writing | Posted in Dealerships, Industry Analysis |Most business valuations are prepared as of a specific date. So, the issue of whether or not an event was known or reasonably knowable at that date can be crucial.
For example, what assumptions would you use in valuing a Pontiac or Saturn franchised dealership as of December 31, 2008? What about at the end of January, February or March 2009?
- The New York Times noted back in December (12/8/08) that, “Car Dealers Brace for Closings, or for a Fight, as Detroit Seeks Help.”
- However, early in 2009 (1/25/09), Automotive News reported, “GM gives dealers some breathing room on Saturn.”
- Less than a month later (2/18/09), The New York Times reported that GM would phase out the Saturn brand by 2012 in “A Painful Departure for G.M. Brands.”
- One cannot ignore the government bailout issue, as the Economist noted in late March (3/30/09), “General Motors and Chrysler get a little more time; GM’s boss does not.“
- Near the end of April (4/25/09), The Wall Street Journal announced, “Pontiac Headed for Junk Yard.”
- Finally, an AP story today (4/28/09) revealed, “GM to force more than 1,000 dealers to close.“
What difference do events like these make in valuation?
Check out the recent trading history of the publicly traded dealership groups (ABG, AN, GPI, LAD, PAG and SAH). Declines of more than 50% and gains of more than 200% within a six-month period cannot be ignored!
Final Thoughts: Valuation should never be a “plug in the numbers” exercise. Times like these require extra effort in research and in explaining appraisal assumptions. Use extreme caution to avoid being blindsided by known or knowable events!
