June numbers are officially in and the strength of used vehicles is leading to record returns on inventory. These dynamics are also affecting car dealership valuations. Joining us on today’s show, is Ryan Kerrigan, Managing Director of Kerrigan Advisors, to discuss the current state of the buy-sell market, and the takeaways from June earnings.
Kerrigan begins the conversation by discussing the underlying causes for the strength of used car sales. If you look at the Kerrigan Index for June, it was flat aside from CarMax which had a strong performance in June and was up 13% for the month. Kerrigan adds that the used car market is on fire. When you have incentives, low-interest rates, and pent-up demand, you’re making used cars more attractive.
OEM incentives for new cars are down more than 40%. The average OEM rebates were between $4,000 to $5,000 but now they are down to $2,400, says Kerrigan. The automotive retail keeps setting record after record. Kerrigan says if you look at well-placed franchises and good markets, they are seeing profitability up to two or three times over what they have been historically doing. Kerrigan believes that the normal going forward could look very different than we’ve seen in past cycles.
For the balance of the year, Kerrigan says he knows we’re going to have inventory shortages for a while, but will see strong profitability and M&A activity. Kerrigan does believe it’s a seller’s market, and he’s seeing historic highs. Buyers are seeing good franchises coming to market, strong cash flow, and good financing. Deals can only get done when buyers and dealers have some kind of overlap.
Kerrigan ends the conversation by sharing tips for success. He encourages dealers to not get sloppy and stop taking their customers for granted. The fundamentals of the business don’t go away, even if it feels easy right now.
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 275 dealerships representing nearly $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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