The semiconductor crisis worsened for the U.S. automakers in the third quarter as the waiting period for key chips soared to the highest since the start of the pandemic, as per Kerrigan Advisors, a sell-side advisor for auto dealers.
What Happened: The wait time for chip deliveries soared to over 20 weeks in the third quarter even as dealerships delivered record profits, driven by higher inventory turns, and lower vehicle days supply.
Despite 2021’s record profitability, the vast majority of dealers today expect profit to rise even further over the next 12 months, as inventory remains constrained and demand remains high, as per Kerrigan Advisors’ latest Blue Sky Report.
“Auto dealers in the U.S. are shifting from a more is more mentality to a less is more perspective for both employees and inventories, distancing themselves from the antiquated pre-Covid economic architecture of less productive employees and an oversupply of inventory.” Erin Kerrigan, the founder of Kerrigan Advisors, wrote in the report.
Why It Matters: Low inventory and high profit have become a way of life for U.S. automakers, which are making their most profitable models first. Inventory has slipped to nearly twelve-year low and dealerships struggled to find enough units.
Ford Motor Co F -1.97% CEO Jim Farley had earlier this year said the automaker is relying on tight inventory and plans to “run our inventories historically lower.” Ford recently said the semiconductor shortage could stretch to 2023.
Ford, along with legacy rival General Motors Co GM -2.26%, has had to halt production this year at various U.S. factories due to the chip crisis.
Electric rival Tesla Inc TSLA -3.15% delivered record third-quarter sales but said it was struggling with chip supplies, forcing its CEO Elon Musk to say the electric vehicle maker does not have a demand problem but it faces a production ramp-up issue.
U.S. listed Chinese electric vehicle maker Nio Inc NIO -5.87% too has complained about chip shortages affecting delivery and waiting period.
Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 275 dealerships representing nearly $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. 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. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor 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 Dealer Survey, click here. To read the 2024 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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