Dealers Signal Optimism for Future Franchise Values and Buy/Sell Activity
Newly-released Kerrigan Dealer Survey shows that 33% expect an increase in their dealership valuation; 47% anticipate increase in buy/sell activity; Subaru and Toyota top valuation expectations
INCLINE VILLAGE, Nev.–(BUSINESS WIRE)–Automobile dealers are more optimistic about the valuation of their dealerships this year than last year, according to the newly-released, second annual Kerrigan Dealer Survey. The survey was fielded by Kerrigan Advisors, a leading sell-side advisory firm to auto dealers in the U.S.
The 2020 survey, which queried 680 dealers, found that 33% expect an increase in the value of their dealership – a 27% boost compared to 2019 findings, when only 26% of dealers expected their dealership value to go up. All told, more than 80% of dealers expect the valuation of their dealership to remain the same or increase. Just 14% expect a decrease in valuation.
“Despite the uncertainty and disruption caused by the COVID-19 pandemic, this survey finds dealers to be optimistic heading into the future,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “We aren’t surprised. Our Q2 2020 Blue Sky Report® showed blue sky values rising in the first half of the year, despite earnings volatility due to the economic shutdown. These bullish dealer valuation expectations are being driven by the rebound in auto sales, record industry earnings, the ongoing strength of the auto retail business model, and expectations for sales and profit growth into 2021.”
The survey also provided a glimpse into dealer attitudes about how COVID-19 is impacting their acquisition plans: 64%, a clear majority, do not anticipate adjusting their acquisition plans, while 17% expect to be more acquisitive; 19% plan to be less so. Interestingly, close to a majority (47%) of dealers surveyed also believe buy/sell activity will increase in the next 12 months.
“We attribute these contrasting responses – more expect the buy/sell market to increase than expect to be acquisitive – to a rise in dealers who are considering a sale,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Overall, the results of the survey are consistent with Kerrigan Advisors’ expectations that a growing pool of dealerships will be for sale over the next 12 months. Dealer optimism on future valuations is a reflection of that.”
Franchise Valuation Expectations: Subaru and Toyota Highest, Jaguar Land Rover Comes Back
Dealers also shared their opinions about the direction of specific franchise values over the next 12 months, pointing out potential winners, as well as franchises they felt would remain consistently valued – or suffer a decline. For the second consecutive year, Subaru and Toyota enjoyed the highest percentage of dealers anticipating an increase in value at 38% and 37%, respectively.
“These results highlight Toyota’s tremendous franchise value,” said Erin Kerrigan. “Year-over-year dealer expectations of Toyota’s improved value grew 7.4 percentage points, more than any other franchise, which is impressive given that Toyota is the highest valued franchise in the non-luxury market.”
Also logging valuation expectation gains were Porsche (28%), Honda (27%), Mercedes-Benz (26%) and Lexus (26%). Stability was also on the mind of dealers, with over 60% expecting values for BMW (63%), Audi (62%), Honda (61%), Jaguar Land Rover (60%), and Mercedes-Benz (60%) to remain the same over the next 12 months. The majority of dealers selected Nissan (69%) and Infiniti (65%) as the two brands most likely to decline in value.
Another note of optimism was in a turnaround of last year’s negative expectations of Jaguar Land Rover. The 2020 Kerrigan Dealer Survey found that 73% of dealers expect the franchise will either increase or remain the same in value. That’s a notable shift from last year: from 40% anticipating a decline in 2019 to just 27% this year.
“Jaguar Land Rover’s rebound reflects the strength of the luxury SUV market in 2020, and the benefit of low interest rates,” said Erin Kerrigan. “The value of domestic franchises like Buick GMC, Chevrolet, and Ford have also benefitted from low interest rates and the corresponding consumer shift to trucks – not to mention low gas prices and economic stimulus.”
The top five franchises expected to increase/remain the same/decrease in value over the next 12 months are as follows:
The Kerrigan Survey found an overall improvement in valuation and buy/sell activity expectations by surveyed dealers, which is consistent with Kerrigan Advisors’ market observations. Kerrigan Advisors also saw a high correlation between the 2020 results and franchise demand in its proprietary Buyer Database. Franchises most expected to increase in value have the strongest buyer demand, while franchises most expected to decline in value have the lowest buyer demand.
Data for the annual Kerrigan Dealer Survey was gathered through a survey of auto dealers in conjunction with the issuance of The Blue Sky Report®. The Kerrigan Dealer Survey is based on 680 responses from franchised auto dealers in Kerrigan Advisors’ proprietary database. Survey responses were collected from June 2020 to October 2020.
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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