Dealership profits are slowing from the astronomical pandemic-era levels, but the buy-sell market remains active, according to analyses by advisory firms in the space.
The Presidio-NCM Average Dealership Performance Benchmark shows that an average franchised dealership had a 32.4% year-over-year slide in net pretax profit during the first quarter, following a 20.5% year-over-year decline in Q1 2023.
Still, The Presidio Group said in its latest “Presidio Perspectives: A Quarterly Outlook on Auto Retail and M&A Trends” report that the average franchised dealer was still pulling in net pretax profits in Q1 that were approximately 1.8 times what they were making in 2018.
“It’s important to view those results through the lens of normalization,” Presidio Group president George Karolis said in a news release. “The declines aren’t extreme. It’s the profits at the height of the pandemic that were extreme. They’re just normalizing now.”
They’re also varying by make.
The Q1 Haig Report released by Haig Partners found the average store owned by a public dealer group had a 26% year-over-year decline in pre-tax income during the first quarter. And the average public dealership generated $5 million in pre-tax income over the last 12 months, Haig said, which is down 6.2% from year-end 2023 and down 25.7% from year-end 2022.
“Haig Partners believes that profits will continue to decline throughout the remainder of 2024. However, these averages can obscure trends occurring at the franchise level, where we are noticing a growing level of variation in dealership performance across different franchises,” Haig said in a news release.
“Profits at Lexus, Toyota and Honda have remained high, thanks in part to tight days’ supply,” the firm added. “On the other end of the scale, many Stellantis, Nissan and Infiniti dealers have seen their profits drop by more than 50% since last year.”
And while blue sky value for public dealerships in Q1 fell 5% from the end of 2023, 18% from the end of 2022 and are likely to continue declining 1-2% per month this year, Haig said, “the implied blue sky values at dealerships owned by public retailers remained closer to peak levels than those of 2019. The demand for dealerships, and therefore the prices buyers are willing to pay for dealerships, remains elevated.”
Haig’s report found that 151 dealerships were bought or sold in Q1, which was the most active first-quarter ever. Private dealers bought 131 of those stores, with publics acquiring 20.
This followed the most active year ever for dealership buy-sell, according to Kerrigan Advisors, which reported that there were 397 completed dealership acquisitions in 2023, a 6% year-over-year hike.
The firm said in its 2023 Blue Sky Report released last month that close to half of the dealers they surveyed in November plan on buying at least one store in the next 12 months.
“Despite negative headwinds of higher interest rates and declining profit margins, dealers continued to seek acquisitions, powered by their belief that scale is not only critical to future success, but essential to sustaining their businesses in the face of an evolving industry,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors, in a news release.
“We expect the consolidation trend, ignited by the pandemic-induced surge in industry earnings, to continue in 2024 as the industry has amassed nearly a quarter of a trillion dollars of pre-tax earnings since the pandemic.”
The hub of activity among dealer groups isn’t limited to buy-sell or even the dealership space, itself. Dealers and dealer groups are becoming investors in the automotive technology space, as well.
For instance, the recent $19.7 million Series A financing round from artificial intelligence technology provider STELLA Automotive AI included several new investors from the auto retail section, said Presidio, which was STELLA’s exclusive financial advisor for the round.
That included software giant Reynolds and Reynolds but also nine new strategic dealer investors: Qvale Auto Group, OREMOR Automotive Group, Mills Automotive Group, Bowers Automotive Group, MileOne Autogroup, Flow Automotive, MBB Auto Group, Ford Family Investments and West Herr Auto Group.
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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