More auto dealers are taking a dim view on profits and the value of their franchises, and more are therefore mulling a sale.
Sell-side firm Kerrigan Advisors found those and other trends in its sixth annual survey of more than 600 dealers conducted between June and November.
Though it found most dealers believe their profits and franchise valuations will either stay steady or increase, more are taking a pessimistic view of those metrics.
Nearly a third of polled dealers, or 32%, indicated they think their franchise valuations will fall this year, the third straight year of growth in the percentage taking that view and up five times over the lowest point for pessimism in 2021. Meanwhile, the percentage of dealers expecting a valuation increase fell to a record low of 17%.
The rising negative outlook coincides with lowering expectations on profits. A significant 43% of polled dealers indicated they expect their profitability to fall this year, the highest percentage with that sentiment in four years, Kerrigan said.
The firm said it believes the negativity reflects “the earnings volatility of weaker franchises, particularly those whose days’ supply ballooned in 2024 resulting in dramatic declines in franchise profits when compared to the pandemic years.”
Many dealers see electric vehicles in particular as a drag on profits, according to survey results. Sixty-eight percent of respondents said they expect EVs to drain profits this year.
The low expectations among many retailers lead Kerrigan to see 2025 as another year of strong buy-sell activity. More dealers indicated they may sell one or more stores this year, up a percentage point to 7% of those polled, five percentage points over 2022, and a 250% increase in three years’ time.
From a new survey question, Kerrigan learned that Toyota and its luxury line, Lexus, rose to the top of brands dealers are looking to add to their business this year.
Kerrigan Advisors is the leading exclusive 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 auto 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. Kerrigan Advisors 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, consulting, accounting, finance and real estate, we not take listings nor do we employ a brokerage model; rather we 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 automobile dealership 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®, the industry authority on dealership buy/sell market trends and valuations and 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 The Kerrigan Index™ comprised 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 2024 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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