How to Take Advantage of Lower-Valued Dealerships for Strategic Estate Planning

The current market has created some unique planning opportunities for dealers. A number of OEMs are navigating slowing sales, EV uncertainty, and inconsistent inventory pipelines, which have pushed demand down in certain segments. This is causing overall anticipated cash flows to decrease and valuations of blue sky are starting to reflect this across several franchises. That being said, the anticipated cash flows have stabilized following the volatility of the Covid period and are now aligning more closely with the typical pre-Covid levels. While this can be frustrating from an operational standpoint, it opens the door for owners to consider making smart estate planning moves..

When dealership values dip, owners get a rare chance to transfer more equity while using less of their lifetime exemption. Because gift and estate taxes are based on fair market value at the time of transfer, lower valuations make your gifting dollars go further. If you’re planning to transition the business to the next generation, this can meaningfully reduce long-term tax exposure. At the same time, if you’re considering growth opportunities, depressed valuations can make certain acquisitions more approachable. It’s one of the few times when both gifting and expansion can work in your favor.

These benefits become even more pronounced when gifting  non-controlling interests. These transfers could qualify for valuation discounts, including for lack of control and lack of marketability, which further reduce the taxable value of the gift. Layer those discounts on top of already-lowered blue sky value, and the effective value of the transfer can drop significantly. This means more equity can move out of the estate today at a lower tax cost while keeping the business stable and positioned for future acquisitions if the right opportunity arises.

Several factors are driving today’s lower valuations. Some OEMs are dealing with slower EV rollouts, ongoing inventory inconsistencies, and tighter margins, especially on certain gasoline models. These issues make specific franchises less attractive in the short term. Supply chain bottlenecks, tariffs, and international uncertainty are also playing a role in suppressing valuations for certain manufacturers. Even if these challenges are temporary, valuation firms consider the current market reality in their appraisals.

Broader economic conditions are also playing a major role. Higher interest rates impact dealers from both sides—the cost of floorplan lines is up, and consumers are facing higher financing costs, which slows the demand. OEM incentive changes are also affecting store profitability and buyer appetite. Taken together, these factors explain this valuation window is so unusual.

Now could be an ideal time to act. Gifting minority interests to children or trusts at today’s reduced values allows more ownership to transfer under the same tax thresholds. Tools like Intentionally Defective Grantor Trusts (IDGTs) remain particularly effective, as all future appreciation grows outside the taxable estate. And again, as mentioned previously, the annual gift tax exclusion becomes more effective when values are lower, allowing you to transfer more units of ownership each year without using up your lifetime exemption.

For estate and gift tax purposes, valuations should be prepared by a credentialed valuation expert, and supported by a qualified appraisal that meets IRS expectations for defensibility. For gift tax purposes, the statute of limitations generally begins only when a properly filed Form 709 includes adequate disclosure under Treasury regulations. Adequate disclosure requires sufficient information for the IRS to review the transfer and valuation methodology used. If these requirements are not met, the statute of limitations may not begin, leaving the valuation open to IRS review indefinitely.

For this reason, both the valuation and supporting appraisal documentation must be prepared by appropriately credentialed professionals to ensure compliance and establish a clear audit starting point.

And don’t forget – the current federal lifetime gift and estate tax exemption is $15 million per individual ($30 million for married couples). Current exemptions are the highest since federal estate taxes have been introduced, and represent a stellar opportunity to avoid unnecessary transfer taxes. The exemption is a hotly-debated topic among legislators in Washington – making it a top target for change if/when new tax law is later passed. And with a top tax rate of 40% upon transfer, acting late could cost owners significant portions of their estate if planning is delayed.

For dealers ready to move, the first step is engaging a valuation specialist who understands the industry. From there, coordination between your CPA and estate attorney is key to aligning tax efficiency with long-term succession objectives. Owners should also evaluate which entities make the most sense to gift—operating company, real estate, management company, or holding company—and stress-test cash flow to ensure equity tied to guarantees or floorplan won’t create issues. Don’t forget: OEM approval is often required once any time ownership changes, so getting ahead of those conversations can prevent delays. Ultimately, the appropriate structure and sequence of planning steps will vary depending on each owner’s individual circumstances, balance sheet composition, and long-term goals. Therefore, making a tailored, case-by-case approach is crucial.

In today’s environment, lower dealership valuations aren’t just a challenge—they’re an opportunity. Using this window to transfer ownership at reduced values, leveraging tools like IDGTs, and preparing for upcoming estate tax changes can create long-term savings and strengthen succession plans. Acting now allows families to take advantage of historically favorable conditions and position the next generation for future growth. Temporary market pressures can absolutely translate into lasting benefits when planning early and proactively.

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