The U.S. retail automotive industry enters 2026 facing one of the most complex operating environments in more than a decade. New tariffs, rising cost structures, and shifting OEM strategies are reshaping the market in ways that extend well beyond the post-COVID normalization period.

The record profits of the COVID era, which pushed dealership valuations to historic highs and fueled aggressive consolidation, are largely behind us. Inventory levels have stabilized, margins have compressed, and costs across floorplan, parts, and labor continue to rise. Tariff-driven impacts that began emerging in 2025 are now fully embedded in dealership financials, increasing MSRPs, pushing the average new-vehicle transaction price above $50,000 for the first time, and contributing to a slowdown following the surge of “front-loaded” sales ahead of tariff implementation.

While consumer affordability has been a persistent headline in recent years and briefly supported by easing borrowing costs and income growth, those offsets are proving insufficient against rising vehicle prices and longer loan terms. As a result, overall demand is softening, and The Economist Intelligence Unit now projects U.S. new-vehicle sales to decline by approximately 3% in 2026.

For dealers tracking these trend lines, the question is no longer whether valuations will be affected, but how much and how quickly. In this environment, every dealer, regardless of brand, size, or geography, needs a clear, data-backed valuation to understand what their business is truly worth and how best to position it for the next phase of the cycle.

Why a valuation matters in 2026

A valuation is often misunderstood as merely a number, a static multiple applied to earnings. In reality, it is a dealer’s strategic anchor point. It influences every major decision an owner or family makes about the future of their business. Should you sell now or hold for a few more years? Is succession realistic for the next generation, or will future earnings pressure make that financially unfeasible? Is your store’s earnings trajectory in line with where the market is moving? How will tariffs, OEM program shifts, and consumer affordability trends reshape earnings over the next 24 to 36 months?

In a market where buyers have become more selective, valuations serve as both a reality check and a planning tool. They force a clear-eyed view of performance, risk, and opportunity. They replace guesswork with insight. And in a time where major variables are outside a dealer’s control, a valuation gives structure to decisions that will shape the next decade.

The two sides of valuation: What you control versus what you don’t

Every dealership valuation is shaped by a blend of internal and external factors. The internal elements – those you control – define how well your business is performing today. These include the composition of revenue and gross profit, discipline in expense management, the strength and consistency of each department, leadership depth, retention performance, cultural cohesion, and the accuracy and clarity of financial reporting. These factors directly influence adjusted operating profit, the key metric for almost all valuation models.

Then there are the external variables – those that no dealer can control but must consider. Tariffs and trade policy shape cost curves and pricing dynamics. Interest rate conditions influence consumer affordability and deal structure. OEM incentive changes can materially shift back-end performance. Market-level supply and demand cycles dictate regional elasticity in both pricing and throughput. Consumer affordability and shifting attitudes toward EVs shape volume and mix. And the inherent risk profile of a brand in 2026 affects the multiple buyers are willing to apply.

A valuation must incorporate both sides: how your store performs and how the market factors influence that performance, considering what upside potential may not have been realized. Only by understanding both can a dealer see a realistic, risk-adjusted picture of what their business is worth.

What the valuation process should look like in 2026

A proper valuation requires a clear brand, market, and competitive review. Brand strength matters, particularly as some OEMs face headwinds related to product strategy, EV alignment, or compliance demands. Market demographics, income trends, competitive throughput, and facility requirements all influence future earnings potential. The brand-market combination is the most dominant element of the multiple, and it’s one many dealers underestimate.

No valuation today is complete without a review of the store’s EV/ICE risk exposure. Inventory mix, aged EV risk, ICE demand durability, OEM product planning and pipeline changes, and EV-related facility investments all factor into future earnings potential. Some stores carry meaningful EV exposure risk without realizing how significantly it impacts forward-looking value.

The days of applying a simple multiple to last year’s earnings are over. Buyers are analyzing dealerships more granularly than ever, and a credible valuation must reflect that sophistication. The first step is financial normalization, an essential process before any multiple is applied. This involves stripping out non-recurring income and expenses, normalizing owner compensation and rent, correcting misallocated expenses, evaluating pack and doc fee structures, and isolating unusual OEM-related fluctuations. Without normalized numbers, valuation conclusions are almost always inaccurate.

A clearer understanding of dealership performance also requires a deep assessment of departmental performance and earnings. Buyers and lenders want clarity to understand both stability and risk. By analyzing gross-to-expense ratios by department, absorption trends, the balance between new and used sales, consistency in F&I performance, and the predictability of fixed operations, underlying trends, risks, and opportunities emerge. Buyers want to know what portion of earnings is recurring and what portion is exposed to volatility. More than any other single factor, earnings quality determines whether a buyer underwrites a transaction aggressively or conservatively.

Today’s sophisticated buyers don’t simply apply a multiple based on brand, location, and historical performance. They assess a dealership through a fact-based pro forma analysis benchmarked against comparable operators to determine its true potential. While current performance matters, buyers are ultimately motivated by future opportunity. Understanding not just how a store is performing, but what it can do, is what makes a dealership an attractive acquisition target.

Real estate must also be assessed independently. Replacement cost, appraised value, cap rate changes, OEM image compliance and obligations, and entitlement considerations all influence whether the physical asset enhances or depresses total dealership value. In many markets, alternative land use value has become relevant as real estate in high-density areas appreciates faster than dealership earnings.

Finally, a proper valuation aligns all findings against market-based comparable sales. While transaction volume declined notably between 2024 and 2025, comps still provide essential calibration, and reality. Adjusting for brand, geography, earnings quality, and market conditions ensures that the theoretical value aligns with what buyers are paying.

Why 2026 may be the right time to act

Despite the tightening environment, 2026 remains a favorable year for many dealers to consider a sale, particularly those with strong fixed ops, consistent financials, and compelling market positions. Well-capitalized groups have become more selective and disciplined. They are paying strong multiples for stores with clear earnings visibility and professionalized operations. In a market where uncertainty is growing, certainty is worth a premium.

A valuation offers more than a sale number; it provides a baseline for negotiation, a plan for increasing value prior to a sale, and a framework for succession or recapitalization. It transforms what could be a reactive decision into a deliberate one that can be made resulting from strategic thinking and intentionality.

Clarity is power

Dealers entering 2026 need clarity more than ever. In this environment, data is the anchor, and a valuation is the mechanism that helps provide clarity.

Whether a dealer ultimately decides to sell, hold, transition, or expand, the process begins with knowing, definitively, what their dealership is worth. Without that, decisions drift toward guesswork. With a valuation in hand, knowledge can be applied to formulate the best strategy for your business.

The market is shifting. Complexity is rising. But informed sellers continue to achieve exceptional outcomes. The only question now is simple:

Do you know what your dealership is truly worth going into 2026?

If not, now is a great time to find out.

At Mach10 Automotive, we stand ready to help assess the value of your business. Armed with that intel, we can help you determine the next chapter of your automotive retail business and support you in making the decision if this is the best time to exit.

George Pero is an accomplished leader in the automotive industry. George began his career in the automotive retail sector, where he held various management positions. George’s career achievements include successfully launching, operating, and selling Auctions In Motion (AIM), a regional mobile auction company that brings the auction to the dealer. George has extensive knowledge and expertise in mergers and acquisitions in the automotive sector, having overseen more than $1 billion in transactions. His sales and general management experience coupled with his success in M&A activities led George to establish Mach10 Automotive, a dealer advisory firm offering a suite of services to include dealer performance improvement, succession planning, and M&A.