Dealership valuations remain strong but forecasts starting to weaken

Written by:
Colin Velez
November 6, 2023

Dealership valuations remain optimistic but a growing number of retailers are starting to feel less confident toward the coming months

Most auto retailers have remained confident in their dealership valuations throughout the 2023 buy-sell market, but a growing number are starting to feel less certain due to demand and profit-margin pressures.

According to the Kerrigan Dealer Survey, hosted by buy-sell firm Kerrigan Advisors, 52% of dealers believe their businesses’ value will hold steady over the next 12 months, while 21% expect to see an increase. However, the number of retailers expecting dealership valuations to decline in 2024 reached 27%, the highest percentage in the survey’s four-year history.

Kerrigan Advisors associates this dip in sentiment with a coinciding decline in profitability forecasts among retailers. Of the survey’s 650 respondents, 38% expected their earnings to fall, and only 15% foresaw higher profits. Given that dealership valuations heavily depend on a storefront’s financial history, revenue pressures are also likely to impact value projections.

Although dealers are certainly making more money than in 2019 and continue demonstrating high levels of optimism, these subtle shifts in attitude make sense in the broader context of the automotive industry. While profit margins soared in the years following the COVID-19 outbreak due to vehicle scarcity, inventories have recovered substantially throughout 2023, weakening prices. Buyers are also struggling to justify car purchases due to low affordability, high inflation, and rising interest rates, trends that could further hurt demand in the coming months. While nothing is set in stone, it does seem that the market is starting to move toward (comparatively) consumer-friendly conditions, meaning retailers will need to identify new strategies if they hope to keep revenues, and thus dealership valuations, up over the next year.

Projected dealership valuations varied heavily between franchises. Out of all brands, retailers expect to see the values of Kia, Hyundai, Lexus, Toyota, and Porsche storefronts increase the most in the next 12 months. On the other hand, the values of Lincoln, Infiniti, Chrysler-Dodge-Jeep-Ram, Ford, Buick GMC, and Nissan storefronts are anticipated to decline in 2024. The brands with the highest and lowest levels of optimism, respectively, were Kia and Lincoln.

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.

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