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GM dealerships’ buy-sell activity jumps

Buyers are unbothered by recalls; stores' blue-sky values hold steady

When California dealer Leo Bunnin learned early this year that a Chevrolet-Cadillac store in Santa Barbara was for sale, he jumped on the deal -- even though General Motors' recalls were quickly reaching a crisis point.

"I really didn't have much fear," said Bunnin, who already owned a Chevy store in Culver City. "It didn't play a role."

For Richard Graham, owner of that Santa Barbara store for 25 years, there were no second thoughts about the timing of his decision to sell the store and retire. The recalls didn't seem to lessen buyers' interest in the store nor hurt its sale price, he said. The deal was finalized in July.

The Santa Barbara store became one of at least 26 private transactions involving GM-brand dealerships during the first seven months of 2014, making GM stores by far the most sold and acquired in the dealership buy-sell market this year, said Alan Haig, president of Haig Partners, a dealership buy-sell advisory firm in Fort Lauderdale, Fla.

"It shows, contrary to what you might think -- that the recalls would have chilled buyers' appetites toward GM -- they seem to be proceeding faster into buying GM stores," Haig told Automotive News. "It's a sign that their profits are strong, and buyers are seeing momentum in the GM brands that didn't exist in prior years."

The transaction pace is double that of Ford, the next most acquired brand with 13 sales through July. And it far surpasses the 10 sales recorded for GM dealerships during the same period in 2013, Haig said in his midyear report about the dealership acquisition market released at the end of August. He cited dealership transaction data from The Banks Report, an online news service that tracks dealership buy-sells.

Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif., noted the same pattern in her own buy-sell report last week. Her numbers, citing The Banks Report and her own research, counted 25 transactions involving GM franchises during the first half of 2014, up from seven during the same period a year ago and already more than the 22 she recorded for all of 2013.

"The lesson is: The way they've handled the recall has resulted in minimal effect," Kerrigan said. It "has impressed the buyer community so that they're interested in continuing to buy General Motors' franchises."

Many dealers say GM has been easy to work with during the recalls. They say their sales have held up, and they are not worried the recalls will damage the brand or negatively impact their stores' blue-sky value. Blue sky is the intangible value of a dealership above and beyond its hard assets.

GM's sales were up 3 percent through August, vs. a 5 percent gain for the industry, according to the Automotive News Data Center. In August, GM's sales slipped 1 percent from a strong year-earlier level, as industrywide sales rose 6 percent.

Interest in GM dealerships is coming from both big and small groups. In July, Group 1 Automotive Inc., the third largest dealership group in the country, acquired Houston dealership Munday Chevrolet, which it identified as the sixth largest Chevy store in the country.

Consumers seem to blame the old GM and the old GM culture for the recalls and see that the new GM is taking responsible steps to handle the situation, Mike Jackson, CEO of AutoNation Inc., the nation's largest dealership group, said in July. Business at AutoNation's GM stores is good.

"We have not seen or been presented with any GM store in a distressed sale circumstance, and I don't expect that circumstance to develop," Jackson said.

GM spokeswoman Ryndee Carney told Automotive News that the automaker has seen no depreciation in the value of GM dealerships.

"It appears that GM dealerships continue to be in demand and their values are appreciating in line with the rest of the industry," Carney said in an email. "In fact, average GM dealership profitability is the strongest it has been in years."

Conant Auto Retail Group of Newport Beach, Calif., which includes the nation's largest Honda dealership, last month bought Southern California's three-store Fladeboe Automotive Group. The purchase involved Honda, Volkswagen and Buick-GMC stores.

CAR Group's owner, Dave Conant, said he paid the least blue sky on the Buick-GMC store, but that is primarily because domestic brands don't command as much in California as they might in other states, he said.

But the various GM recalls did not give him pause about doing the deal.

"I don't think it had any play in our deal," Conant said. "We were buying a package of three stores, and the seller wouldn't break them up even if we had wanted to. We didn't make any adjustment in the value placed on that business because of the recall."

Conant said he does not view a recall as a "bad thing" for a brand's value.

"Manufacturers have learned to deal with these things, and everyone has recalls these days," Conant said. "It's an opportunity to get back in touch with customers again."

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