Boulder County area not excluded from auto-dealership sales acceleration to record pace

Written by:
Rich Sheehan
Daily Camera
January 9, 2022

Seven dealerships in region sold in 2021

Auto dealerships across Colorado are being purchased at an unprecedented rate, reflecting a national trend toward consolidation in automobile retailing that impacted seven local dealerships in 2021.

About 25% of Colorado’s 260 dealership locations either sold in 2022 or are under contract to sell, the highest percentage in history, according to Tim Jackson, president and CEO of the Colorado Automobile Dealers Association.

Less than 5% of dealerships change ownership in a normal year, Jackson said.

“The industry overall has seen consolidation on a growing scale, but this year it’s kind of off the charts,” he said.

The Boulder dealerships sold this year are:

  • Gebhardt Volkswagen, sold to Fred Emich IV; the name was changed to Emich VW Boulder.
  • Boulder Hyundai sold to Foundation Automotive; the name was changed to Foundation Hyundai of Boulder.
  • Larry H. Miller Toyota Boulder sold to Asbury Automotive Group; the name was not changed.
  • Pollard Jeep sold to Fowler Auto Group; the name was changed to Fowler Jeep of Boulder.

The Longmont-area dealerships with new owners are:

  • Ehrlich I-25 Kia sold to Fowler Auto Group; the name was changed to Fowler I-25 Kia.
  • Courtesy Mazda sold to McDonald Automotive; the name was not changed.
  • Stevinson Hyundai sold to Asbury Automotive Group; the name was not changed.

Colorado’s sales growth is part of a national jump in dealership sales, said Erin Kerrigan, founder and managing director of Kerrigan Advisors, a consulting firm that advises auto dealership groups on operating, growing and selling their businesses.

“Through the first nine months of the year, (dealership) transaction activity is up 20%,” Kerrigan said, noting 2021 will be a record year for such transactions. “Keep in mind that’s after 2020, which was up about 20% as well. Since the pandemic, the consolidation of auto retail has gone into super drive.”

Sales transactions have been completed for 57 Colorado dealerships, with another eight under contract to sell. While Texas and Florida have the highest growth in dealership transactions, Colorado is in the top quartile thanks to the state’s ongoing population growth.

“Colorado is one of the highest-demand states in the country for auto dealerships, largely due to the growth in population in the state,” Kerrigan said. “What our firm finds is that buyer demand is highly correlated with (population) growth, and so markets with this amount of growth see much more transaction activity.”

An attractive investment

Automobile dealerships are an attractive investment opportunity for several reasons.

Kerrigan said car dealerships have a “uniquely diversified” business model, with multiple revenue streams from selling new and used cars, selling parts, providing maintenance services and financing purchases. That business model has resulted in an ability “to really weather every storm, including the pandemic, very successfully.”

While margins for new car sales are relatively thin, 2% to 3% per each sale, Jackson said, this year’s high volume of sales should bring record profits for Colorado dealerships.

According to Kerrigan’s national data, dealership earnings are projected to be 168% higher this year than 2019 profits.

The many disruptions that COVID-19 has brought to normal life have helped fuel demand for vehicles at a time when cars are in relatively short supply.

“Demand is driven by consumer savings and a renewed desire for personal mobility over public transportation,” Kerrigan said. “Consumers’ renewed love affair with the freedom associated with your own vehicle to go on vacation and to live further away from your office because you can work from home has created an environment where the consumer has a very strong desire for vehicles and has the access to capital both from savings and from very low interest rates.”

Like other retail operations, auto dealerships have experienced supply-chain problems, specifically a lack of inventory. New-car manufacturing has been hobbled by problems with getting the computer chips so integral to modern vehicles, so fewer new cars are being shipped to dealerships.

Jackson said stores that normally would have 1,000 to 1,200 autos sitting on their lots may now have only 40 to 60 vehicles on their property. He recalled a dealer sharing an experience with a customer in the showroom shopping for a specific model of Toyota. Because the dealer didn’t have any of that model on the lot, the salesman sat in the showroom showing the customer website images of the car.

“Then a funny thing happened,” Jackson said. “About that time, a truck rolled by the big plate glass windows bringing in the next seven cars for inventory and the lady who was in looking for the car turned around and sees the truck coming onto the lot, sees the car she wants to buy, and says, ‘There’s one now. Can I buy that one?’ and she literally bought the car off the truck.”

Many reasons to sell

Many if not most auto dealerships began as a local family business. Some have maintained family control and ownership over multiple generations.

“We have dealerships in Colorado that are in their fourth generation in the same family and they’ve never changed owners, and it doesn’t look right now like they’re intending to,” Jackson said.

According to statistics from AARP, some 10,000 baby boomers reach age 65 every day, a demographic trend that is reshaping many aspects of American society, including family businesses.

“(Some) current owners, by which I mean dealer principals and partners, are getting up there in years, and they’re just looking at, is it better, from a transitional standpoint, is it better to pass this on to family members,” Jackson said. “And sometimes the dealership family doesn’t have anybody that wants to take it on for the next generation. If that’s the case, there’s more incentive to go ahead and sell it, and I think we’re seeing that in a few of these instances.”

Approaching such a dealership about selling can solve the family’s need for a succession plan while meeting a potential buyer’s desire to grow in the Denver metro market, said David Hult, president and CEO of Asbury Automotive Group, a Georgia-based, publicly traded dealership group.

Given the growing valuations of auto dealerships, selling a dealership could provide such a family with substantial resources for investment in new opportunities.

“Dealers are making a tremendous amount of money, and the valuations have risen tremendously,” Kerrigan said. “So certain dealers are deciding the time is right to sell in part because they see a landscape in the future for auto retail that may be quite different than the past. There is a view that digital retailing will become a much more prominent and dominant part of the retailing experience. For a traditional family-owned business, they may not be interested in the investment required or the restructuring required for their business to operate in a much more digital sales process.”

Kerrigan said trying to stay small and local is “not a very good strategy” in this evolving situation, especially for dealerships in major metropolitan areas.

“Many dealers feel they either need to commit to tremendous growth and be part of the consolidation or they should consider a plan for an exit,” she said. “If you want to grow, you have to spend a lot of money. You have to decide you’re ready to double down on this industry.”

Impacts of ownership changes
Dealership groups across the country are pursuing a strategy to get very big very fast. A prime example is Asbury, which has purchased 40% of the 57 Colorado dealerships sold so far this year. That deal included all 12 Larry H. Miller dealerships in Colorado.

According to the Colorado Automobile Dealers Association, the state’s 260 dealerships provide jobs to more than 43,000 people throughout the state, representing $2.5 billion in total compensation to Colorado residents in 2019. It’s likely that those employment statistics will not be affected much by the spate of dealership sales.

While ownership changes in other retail segments often result in cost-cutting measures aimed at reducing duplicated services, that usually doesn’t happen with auto dealerships. Employees at all levels usually retain their positions. That’s because the primary asset of a dealership is its team of employees, Hult said.

“We believe people are your most important asset,” he said. “There’s a lot of tenured people in these dealerships that are used to doing business a certain way and to go in there and be disruptive and change things would be a big mistake and wouldn’t be something we have done.”

The Boulder Chamber counts 12 auto dealerships as members, and chamber President and CEO John Tayer confirmed that new owners are retaining the seasoned employees that operate local dealerships.

“The folks that are buying these local dealerships are maintaining the existing management, and that makes a lot of sense when you think about the connections and relationships that their teams have to customers and to suppliers,” Tayer said. “It just makes sense that they wouldn’t want to lose those assets.”

Tayer doesn’t expect increased ownership of local auto retailers by larger companies to impact his organization.

According to Tayer, the chamber’s membership is “a diverse mix from local to national and international companies” that all recognize “engagement with a chamber organization is an effective way to develop your community relationships and build your business.”

About Kerrigan Advisors

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.

Share this post
In The News

We look forward to connecting with you.

Contact us to learn more about Kerrigan Advisors’ sell-side services.
All of our conversations are 100% confidential.