The complex and symbiotic relationship between dealers and manufacturers is a unique element of the U.S. auto retail industry. Now 100 years strong, this relationship has resulted in one of the largest and most dynamic retail industries in the world, providing American consumers an incredible array of choices and immediate delivery of vehicles.

It does, however, have its challenges. As dealers are running increasingly large, complicated businesses, and making ever larger (often personal) capital commitments to these businesses, manufacturers can — at times — prove unpredictable, if not detrimental, to dealers’ businesses. Decisions and programs initiated by manufacturers can impact dealership performance, and by extension, the market value of these businesses.

For example, new image programs that are considered particularly aggressive or costly, and which are not expected to meaningfully increase sales, are considered a direct, unmitigated cost that pulls down the value of dealerships.

Similarly, operational decisions such as aggressive month-end and year-end pushes, often with incentives to “punch” cars, and other, sometimes opaque sales strategies, generally lower new-car pricing, undermine margins and can significantly reduce the value of a franchise.

And perhaps most important are network decisions. Aggressive introductions of new points severely erode volume per franchise, and dealers’ ability to hold front-end gross.

These issues, and other manufacturer-driven decisions, can impact the value of a dealership and influence dealers’ willingness to invest in a given franchise.

While these potential problems lurk, there are many examples of positive manufacturer-dealer relations resulting in strong manufacturer representation and high dealership valuation. Toyota and Lexus are worth singling out, as they have been particularly respectful of geography, allowing dealers to invest confidently in large, modern, image-compliant facilities, given the manufacturer’s willingness to let dealers operate high-volume facilities without risk of new points being added.

This manufacturer is also notably consistent with its brand identity, limiting the requirement to radically update or continually refresh dealership facilities. Toyota and Lexus are also good examples of minimizing value-destroying sales pushes that undermine the value of their vehicles, and create uncertainty around the dealership financial performance.

Given this strong relationship with its dealers, it is not surprising that dealership blue sky valuations of Lexus and Toyota are among the top relative to their peers of luxury and mainline dealerships, respectively.

Finding a balance that serves the needs of the manufacturer and the dealer is critical to any sustainable relationship. Seeking a win/win partnership benefits the dealer and the manufacturer. Manufacturers’ prerogatives directly impact dealerships, and certainly can impact dealership valuations in positive and negative ways. The success of the Toyota/Lexus model clearly shows the mutual benefit of a partnership strategy.