More than three-quarters surveyed by Kerrigan Advisors expect to buy at least one dealership in the next 12 months.
More than three-quarters of dealers said they plan to buy one or more dealerships in the next year — a sign that the hot buy-sell market is likely to continue into 2022, with next year's transaction totals likely to exceed 2021's record pace, according to a survey by Kerrigan Advisors.
The third annual Kerrigan Dealer Survey of more than 825 dealers from June to October also found that just 3 percent of dealers plan to sell one or more stores in the next 12 months and 20 percent expect to remain the same size.
Despite concerns about electric vehicles and Tesla's growing market share, dealership profits and cash flow are high, boosting confidence in the future of retailing, Erin Kerrigan, managing director of Kerrigan Advisors, a sell-side firm in Irvine, Calif., told Automotive News.
"The dealers are making more money than they have — frankly many have shared with us [it's more] than they ever imagined they would in a single year," Kerrigan said. "And the vast majority plan to invest those dollars in more acquisitions, not taking this moment to say, 'OK, I'm going to sell because I'm at peak profits,' but rather I'm going to pour these profits back into this industry."
Kerrigan Advisors, in another report, said the average blue-sky value — or the intangible value of a dealership, including goodwill — hit a record $9.1 million in the second quarter. That topped the previous high of $8.5 million reached in the first quarter, Kerrigan Advisors said.
And dealers see those values growing. Sixty-one percent of dealers Kerrigan surveyed predict the value of their dealership or group will rise in the next 12 months — almost double the 33 percent who thought so in the 2020 Kerrigan survey. About one third expect values to remain the same, and few dealers think the price of their stores or group will go down in the next year: just 6 percent compared with 14 percent a year earlier.
Dealers also are bullish on making more money in the next year. For the first time, Kerrigan queried dealers about their profit expectations for the next year: 79 percent predict their dealership profits will increase, 15 percent think they will remain the same and 6 percent expect a decline.
It appears 2021 will be a record year financially for dealers. Through the first nine months of the year, the average dealership recorded net pretax profit of $3 million, according to the National Automobile Dealers Association. In 2020, the average dealership recorded $2.1 million in net pretax profit — which then was an all-time high.
Survey findings also showed dealers were most positive about Toyota, with 55 percent of respondents expecting values for those dealerships to rise, unseating Subaru for the top spot. It fell to fourth in this year's results.
Korean brands Hyundai and Kia also barreled their way into the top five franchises expected to increase in value, aided by rising sales per franchise and "a tremendous product pipeline of very well-styled products that are very appealing to consumers, particularly younger consumers," Kerrigan said.
On the flip side, dealers were most pessimistic about Infiniti, with half of respondents expecting store values for the luxury brand to drop in the next year. Last year, Infiniti was No. 2 on that top five list, with Nissan at the top.
For the first time in the three years of Kerrigan's survey, no luxury brand was represented in the top five franchises dealers expect to grow in value. Kerrigan cited increased competition from Tesla among the reasons for the change in dealer sentiment on luxury-brand dealership values.
"I do think that this may be a reflection of some of the question marks about the future business model of these top luxury franchises, with the dramatic shift to electrification that was proposed in the future and this concept that we're seeing in other countries that have an agency model, where dealers may be just paid a flat fee for a sale and then the OEM has a direct relationship with the consumer," she said.
Kerrigan Advisors is honored to work with auto retailers throughout the US to enhance the value of their enterprise. Learn more about our services below:
Customized and confidential sell-side services for higher value dealerships and dealership groups nationwide, with a proven record of achieving the highest sale price per transaction of any firm in the industry.
Capital raising and partnership structuring for growing dealership groups, supported by the largest investor database in the industry.
If you are a buyer in today’s market, Kerrigan Advisors welcomes the opportunity to learn about your acquisition criteria and include you in Kerrigan Advisors’ proprietary Buyer Database.
We welcome the chance to learn more about your acquisition criteria so that we can contact you in the event a client matches your investment profile.
Contact us to learn more about Kerrigan Advisors’ client services, or to have a conversation about the buy/sell market. All of our conversations are 100% confidential.