How to Build the Value of Your Automotive Business

Employing 283,265 people across 87,675 businesses, the Australian Auto Repair and Automotive Business sector has seen its fair share of ups and downs in the last year. However, there are several promising factors that are driving the Australian automotive industry forward into a successful future.

Australia’s Automotive Business: Tentative Revival and Forward Outlook

While the automotive and auto repair industry is currently valued at $138.9bn in 2021 so far, making it the 8th largest in Australia, it is actually made up of a patchwork of sub-industries within the motor vehicle supply chain. This consists of motor vehicle manufacturers, car dealerships - whether they’re wholesalers or retailers - parts suppliers and auto repair businesses.

Automotive Business: Tentative Revival and Forward Outlook

Technically considered in the decline phase of its lifecycle, revenue for the automotive industry has actually started to make a comeback and is expected to rise annually at 2.2% over the next five years to $1.55B as the Australian economy recovers. 

Depending on which area you find yourself in, these next five years may look a little different for you. 

For instance, passenger vehicle manufacturing has stopped, causing ripple effects through the parts and manufacturing segments. But this section of the industry is expecting to be overtaken by the rise of the ute. Volvo, PACCAR and Iveco are now the largest players in truck manufacturing. This is because of an increasing domestic freight task as truck demand by businesses continues to rise. Employment is set to increase slightly as car dealerships and wholesalers will need to meet those added demands. 

Despite the decline in manufacturing, auto repair shops, electricians, and other service-related industries will also benefit from more and more vehicles on the Australian roads. 

Automotive industry - Industry outlook

Changing Lanes: M&A Opportunities for Automotive Businesses in Australia

M&A Opportunities for Automotive Businesses in Australia

While the major players like Toyota and Eagers are reporting record profits in Q1 (Eagers totalling profits of $105M), there is also reporting of strong movements of Mergers and Acquisitions for the 85.7% of the market currently run by franchises and SMEs. 

The movement in the market is marked by a wave of consolidation across what we know is a fragmented industry. 

A majority of the estimated 3,000 car dealerships across the country are owned by single or small operators and we’ve seen big M&A movement in this market. Most recently, with the Private Equity firm, Quadrant, buying a significant portion of the Peter Warren Automotive Group. 

Upon acquisition back in 2016, Mr Warren noted the rising price of technology meant it was more important than ever to be able to scale and operate efficiently. Last month, Peter Warren Automotive was valued at up to $1B.

Automotive retailing is considered a high-volume, but low-margin business. This lends to a business landscape where “bigger is better.” What this means for you, as a small operator, is that your auto repair or automotive business could be a prime candidate for acquisition by many of the larger players who are seeking to add scale. 

Business Owners in the Automotive and Auto Repair Industry - How to build company value and position yourself for opportunities in your industry

This is a good time to shift gears and move your business into the fast lane. Think of the future. Do you want to remain in the business, step away entirely, or sit somewhere in the middle? This will help you design your ideal exit. 

How can your company help you achieve your goals?

Once you know where you’re headed, you can figure out how your business can get you there. Do you want your auto repair business to be acquired by a larger franchise? How are you going to ensure you stand out from your competition? 

It all starts with a strategic plan that will bolster both your growth as well as your company value. 

Growth refers to businesses that display above-average revenue earnings and are expected to continue to rake in profits. 

Value refers to businesses that are increasing in worth, they may not have super flash revenue predictions, but these are companies that implement the right ‘value drivers’, are resilient to market fluctuations, and have attractive attributes in the eyes of potential acquirers.

Especially in a volatile industry, focusing on value over growth will ensure you, as a business owner, will get the ultimate payday. Here’s how to do it in three steps.

1) Identify your business model

Simply stated, your business model is based on how you use your resources to achieve your goals. Your success is determined by your profits, but more importantly, how well you are able to set yourself apart from your competitors. How are you different, and do your customers actually care. Those fundamentals make up your unique value proposition - or UVP. If you can’t concretely answer those two questions, we recommend going back to the drawing board to determine what changes you can make in your business model to give you that competitive edge.

2) Put yourself in the shoes of an acquirer

One of the biggest lessons you can learn is to build a business that operates without you. This is called Escaping the Owners Trap and is one of the most common hurdles business owners face when it comes time to sell.

This is because a potential buyer will assess your business’s dependence on you as a risk rather than an asset. They’re looking for a turnkey company they can walk right into. Plus, if you can’t walk away from the day-to-day of your business, you’ll never be able to work on it, hindering its growth, value and not to mention your lifestyle.

Look at the business through the eyes of a buyer. Your ultimate goal should be to improve business performance and scalability. Do you want to see how your business stacks up against this lever and the other 7 drivers of value? You can access the tool here.

3) Figure out where you sit in the industry

As mentioned, the automotive and auto repair industry is incredibly diverse. Each segment will be affected by different economic fluctuations. The value of your business depends on determining its true measure of performance. 

You can do this through benchmarking. This style of evaluation will look at both your financial and non-financial elements to see where the opportunities and roadblocks lie. You’ll learn where you slot in against your industry peers, as well as learn more about your current performance, giving you a concrete action plan to take the relevant steps.

While chasing a growth model might seem more alluring, it's the slow and steady, value-building companies that truly lead the charge. They are what acquirers are looking for in this type of market. So, whatever your long term goals are, let your business be the vehicle to help you achieve them. 

At Exit Advisory Group we help business owners maximise the value of their company and exit at the top of their game.

Here’s how we can help you:

Discover what your business is worth: Knowing what your business is worth is the first step in unlocking the value.

Understand your exit options: There are many ways to exit a business. We'll help you discover the option that matches your business, lifestyle, and personal goals.

Increase the value of your company: Whether you want to exit in a specific time frame or reach a desired valuation. We'll give you a game plan to maximise company value and achieve your goals.

Sell your business: If your desired exit option is to sell, we are a licensed business broker and can take your business to the market. Find out how we do things differently from most other brokers to get the best results.

Find out more here:

About the Author:

Simon Bedard is Managing Director of Exit Advisory Group, an Australian business broking and advisory firm that helps entrepreneurs develop growth strategies, build company value and create successful exit options for maximum value.

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