Big banks see an opportunity to grow their business with car dealers, as auto inventories are rebounding in the wake of the pandemic, and two competitors are pulling out of the market.
Capital One Financial and Fifth Third Bancorp both said recently that they’re leaving the floorplan lending business, which provides financing to auto dealers.
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The two banks’ exit from floorplan lending means larger lenders will continue adding to their share of dealer business, said Erin Kerrigan, the founder of the auto advisory firm Kerrigan Advisors.
In some ways, that trend mirrors what’s happening in the auto dealer market: consolidation.
Some dealers, including publicly traded ones, are looking to get bigger by buying competitors or expanding into new regions. Others are eager to sell, partly because the value of their business is high following the pandemic boom in the auto sector.
“The largest dealers are getting larger, and similarly, the banking industry serving auto retailers is consolidating,” said Kerrigan, whose firm provides transaction advice to dealers.
Sales of auto dealers jumped to 103 in the first quarter of the year, up sharply from 72 a year earlier and 66 in the first quarter of 2021, according to a report by Kerrigan Advisors.
The uptick in M&A has boosted acquisition lending among the banks that have stuck with the sector.
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Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. 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. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting 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 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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