automotive news - kerrigan advisorsIt’s a good time to buy dealerships, says Brian Bates, CEO of Holman Consumer Services, the branch of Holman Enterprises that includes Holman Automotive Group Inc. Holman Automotive acquired the 14-rooftop Kuni Automotive in July. The acquisition bumped Holman 35 spots higher on Automotive News’ annual Top 150 Dealership Groups list, which ranks dealership groups based in the U.S. by new-unit retail sales. Holman accelerated to No. 16 from No. 51 on the prior list. “The automotive market is in a great space in the economy,” said Bates. “It’s got a long, viable future, and the foundation is very solid.”

Acquisitions such as Holman’s of Kuni were behind a number of changes in this year’s rankings. And no wonder: Last year had the second most buy-sell activity in history, after 2015, with 223 transactions representing 350 franchises, said Erin Kerrigan, managing director for Kerrigan Advisors.

“What was notable about 2016 was the number of multi-dealership transactions,” which hit a record 57, she said. “Most of these larger acquisitions were completed by private dealership groups.”

Among the groups acquired, besides Kuni, which had been No. 63 on last year’s list, were Carbone Automotive Group, No. 94 last year, which was purchased by Lithia Motors Inc., and Ron Tonkin Family of Dealerships, previously No. 93, 16 stores of which were bought by Gee Automotive, of Spokane, Wash.

Acquiring stores makes sense for groups such as Holman and Lithia that want to grow. But Bates said Kuni’s culture sealed that deal. “The alignment with the Kuni culture was perfect. We are an organization that is focused on employee engagement, as was Kuni,” he said.

Holman, of Mount Laurel, N.J., had 19 stores in New Jersey, Pennsylvania and Florida before the acquisition. With the addition of Kuni’s 14 rooftops, Holman gained business in the West — in Washington, Oregon, California, Colorado and Kansas.

“It was a great time to put it together and expand our retail presence,” Bates said.

Holman Automotive Group’s new-vehicle retail sales were the second most improved over last year. Sanderson Automotive jumped the most rungs on the list. The Glendale, Ariz., group increased 51 spots to No. 94 as its two dealerships’ retail new-unit sales soared 72 percent to 10,322 units.

Morgan Auto Group ranked third in rungs climbed, as its acquisitions brought it to No. 49, up 29 places from last year, on a retail new-unit sales increase of 45 percent. On a same-store basis, the Tampa, Fla., group outpaced the U.S. industry’s 0.3 percent sales increase, rising 2.2 percent, said Chairman Larry Morgan. The dealership group also strengthened its used-vehicle sales, fixed ops business and F&I results in 2016, he said.

Morgan Auto Group acquired Sun Toyota in Holiday, Fla., and Rountree-Moore Toyota, Rountree-Moore Chevrolet-Cadillac, Rountree-Moore Ford-Lincoln, Rountree-Moore Nissan and Rountree-Moore Kia in Lake City, Fla.

“They were right in our own backyard,” Morgan said. “They were good brands. We saw upside that we thought could improve the operations. We had good bench strength to grow our business.”

Prime Motor Group, of Westwood, Mass., fell 25 rungs to No. 66, the biggest drop among dealership groups on this year’s list. Its retail new-unit sales fell 33 percent to 13,853.

Market dominance

The top 150 groups own 3,468 dealerships, or 19 percent of all the rooftops in the U.S., according to the Automotive News Data Center. They retailed 3,585,382 new vehicles or 21.6 percent of the industry’s 2016 U.S. new-vehicle sales, up from 21.2 percent in 2015.

Seventeen of the top 150 groups were new to the list from last year. No. 24 McLarty Automotive, of Little Rock, Ark., and No. 48 Island Auto Group, of Staten Island, N.Y., were the highest-ranking newcomers.

Automotive News’ data comes with two caveats:

First, some large dealership groups that may have qualified for the top 150 declined to respond to our survey, including Berkshire Hathaway Automotive and Gee Automotive.

Second, a few of the groups’ unit sales and revenue include operations outside the U.S. or affiliates beyond franchised new light-vehicle dealerships.

Penske Automotive Group Inc., of suburban Detroit, held its No. 2 spot, trailing only AutoNation Inc., but it gained the most dealerships, 31, in 2016, including 13 franchises it bought in the U.K. and seven franchises it purchased in Italy. Herb Chambers Cos., of Somerville, Mass., No. 17 on the list, followed with 23 dealerships added.

After AutoNation and Penske Automotive, the top 10 spots on the list were almost unchanged from last year’s list, with Group 1 Automotive, Hendrick Automotive Group, Asbury Automotive Group, Ken Garff Automotive Group, Staluppi Auto Group and Larry H. Miller Dealerships all ranked the same.

Lithia, however, saw its new unit sales grow 6 percent as it added 17 stores, slipping past Sonic Automotive Inc., whose new unit sales fell 2.8 percent, to become the fourth largest dealership group by new-unit retail sales.

The top 10 dealership groups retailed 1,462,135 new units, 8.3 percent of the total U.S. light-vehicle market and 41 percent of the new vehicles retailed by the top 150 groups.

2017 sales

Morgan believes the days of record sales growth may be waning. “I think the industry has topped off,” he said. “I think it will be flat” in 2017.

Morgan Auto Group has budgeted for a same-store sales increase this year, he said, but “on the new side, we are not budgeting as aggressively as the last four to five years.”

In contrast, the dealership group continues to budget for growth by acquisition.

So far in 2017, Morgan Auto Group has added two stores: Naples (Fla.) Chrysler-Dodge-Jeep-Ram and Naples Mazda.

The group is expecting to acquire more stores in 2017, Morgan said.