Date published: May 3, 2017
The US auto market has always been a highly dynamic, competitive marketplace, with OEMs’ product lines, inventory availability, corporate strategies and technology in constant motion. These elements can, and often do, impact blue sky multiples for their respective franchises. Each quarter, we make adjustments to blue sky franchise multiples, positively and negatively, based upon our analysis and recent transaction valuations.
Kerrigan Advisors Blue Sky Multiple Adjustments:
The Blue Sky Report® 2016 Full-Year Report
Toyota is the most sought after non-luxury franchise in the US. The franchise continues to perform on all levels, benefiting from a full line-up of both cars and trucks, though supply did not always meet demand in 2016. Production capacity is expected to increase in 2017, improving the availability of trucks and SUVs. Toyota also has a strong pipeline of products coming in 2017 and 2018, including a new Camry, the debut of the C-HR, an updated Yaris, Avalon, and Prius C. Toyota’s dealer body remains one of the most profitable in the industry, and its dealer relations one of the very best. Most importantly, Toyota Financial Services continues to support the Toyota retail network with attractive dealer and consumer financing, further distinguishing the franchise relative to competitors in the industry. This financing has proven to increase Toyota’s blue sky values, allowing buyers to reach to higher prices with the support of acquisition financing from TFS. Kerrigan Advisors is increasing Toyota’s top blue sky multiple from 6.50 to 6.75 in large part due to the strength of its captive, which will become even more valuable in a rising interest rate environment.
Kerrigan Advisors Blue Sky Multiple: 5.0 – 6.75 Multiple Outlook: Steady
Porsche continued to execute on all levels in 2016, achieving the highest vehicle quality and brand reputation of any luxury manufacturer, per JD Power. Porsche grew sales by 4.9%, in a luxury market that declined 0.2 percent. Unscathed by “Diesel-gate”, Porsche dealers continue to be the most profitable in the industry. Porsche dealers expect the redesigned Panamera sedan and a 10% increase in 911 allocations to drive sales to a new record in 2017. Porsche’s ability to grow sales at such a highly profitable level drives buyer demand for the brand, resulting in an increase in Porsche’s high end blue sky multiple for 2017 from 8.5 to 8.75.
Kerrigan Advisors Blue Sky Multiple: 7.0 – 8.75 Multiple Outlook: Positive
Audi’s six-year streak of consecutive year-over-year monthly sales gains came with some cost to margins and dealer profitability in 2016, resulting in slightly lower buyer demand last year. From a product perspective, Audi is in a very strong position going into 2017, launching the largest number of products ever by the brand, specifically 12 new or updated models. Audi’s high percentage of SUVs and crossover vehicles (48% of sales) bodes well for future sales. Buyer demand is expected to increase in 2017 as the brand increases market share and the manufacturer focuses on improving dealer profits. Kerrigan Advisors has revised upward Audi’s lower end multiple from 6.0 to 7.0.
Kerrigan Advisors Blue Sky Multiple: 7.0 – 8.0 Multiple Outlook: Steady
Jaguar/Land Rover is in the midst of an aggressive plan to dual all of their Jaguar/Land Rover stores. This strategy combined with an expensive new image program and the addition of new points is causing some challenges for the brands’ valuation. In addition, Land Rover’s record new car gross margins are starting to decline as vehicle availability increases, reducing dealership profitability. While Jaguar is expected to continue to post strong sales growth, the volume of Jaguar sales is not significant enough to offset the expected decline in future Land Rover sales. Furthermore, increased competition in the high luxury SUV market from Bentley and Rolls Royce could reduce total sales in 2017. Note: The lower-end multiple reflects a stand-alone Jaguar dealership, whereas the higher-end multiple represents a stand-alone Land Rover dealership. Kerrigan Advisors has reduced the lower end multiple for Jaguar from 5.0 to 4.5, primarily due to the facilities requirements being placed on the franchises and the addition of new points in the network.
Kerrigan Advisors Blue Sky Multiple: 4.5 – 7.0 Multiple Outlook: Negative
Infiniti continues to grow sales, even in a more challenging luxury sales environment. With four product enhancements planned in 2017, including the popular QX50 crossover, the brand expects sales growth to continue in 2017. SUVs and crossovers are projected to represent 60 percent of its sales. Buyer demand for Infiniti, while low, is increasing given the rise in sales per franchise. As a result, Kerrigan Advisors has increased Infiniti’s high end multiple to 4.0 from 3.5.
Kerrigan Advisors Blue Sky Multiple: 3.0 – 4.0 Multiple Outlook: Steady
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