Dealerships today are facing unprecedented changes. From the impact of data-driven models on inventory management to the volatility in blue sky values, Erin Kerrigan of Kerrigan Advisors sheds light on how the industry is adapting. On today’s episode of Driving Solutions, Kerrigan discusses the effects of recent disruptions, the shifting market dynamics, and what the future holds for dealers.
Key Takeaways
1. The automotive industry increasingly relies on data-driven approaches rather than traditional human capital. This shift reshapes how dealerships manage inventory, price vehicles, and make strategic decisions. While not catastrophic, the CDK outage highlighted the industry’s growing dependence on data.
2. The volatility in automotive earnings is impacting blue sky values. While sky brands like Toyota are seeing stable values, others like Mercedes and Hyundai are experiencing declines due to their handling of EV strategies and other market factors. The return to pre-pandemic valuation models brings clarity and highlights ongoing challenges.
3. OEMs’ strategies for electric vehicles (EVs) are significantly influencing blue sky values. Brands with well-aligned EV plans, such as Toyota, are performing better, while others, like Mercedes and Hyundai, face challenges due to misaligned strategies and increased control over dealership sales.
4. Regional market dynamics, such as those in Florida and Texas, drive growth despite weaker franchises. The increasing demand for high-growth areas influences dealership success and market stability, with population growth contributing to a more favorable environment for dealers.
5. Recent trends show lenders becoming more cautious with financing weaker franchises, impacting dealership acquisitions and operations. The rising cost of floor plan expenses is squeezing profits, making it crucial for dealers to adapt to these financial pressures.
"Data-driven models are transforming the industry, pushing dealerships to rethink their inventory management and pricing strategies. The shift from human capital to data reliance is one of the most dramatic changes we've seen in the last 50 years." – Erin Kerrigan.
Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 280 dealerships representing $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. The firm advises the industry’s leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors’ signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments. To download a preview of the report, click here. The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index™, click here. To read the 2023 Kerrigan Dealer Survey, click here. To read the 2024 Kerrigan OEM Survey, click here. Kerrigan Advisors also is the co-author of NADA’s Guide to Buying and Selling a Dealership.
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