Which franchise would you buy?
That’s the question we posed to buy-sell adviser Erin Kerrigan last week when she visited Automotive News’ offices in Detroit.
Kerrigan, managing director of buy-sell advisory firm Kerrigan Advisors in Irvine, Calif., paused in contemplation of the question.
On the screen behind her, a PowerPoint slide listed most of the big brands with her “buyer demand” rating next to each.
She studied it. We all stared at it. Some are obvious: Buyer demand for Toyota and Honda is “high,” buyer demand for Nissan is “average,” buyer demand is “declining” for Chrysler, Dodge, Jeep and Ram, and it is “low” for Volkswagen.
No surprise, and then…
So Kerrigan’s initial answer was no surprise.
She picked Porsche, citing the average dealership’s profitability -- consistently high -- and the 6.2 percent rise in its sales in the first half.
But it was her second answer that was truly intriguing: Volvo.
“Volvo could be your highest risk,” said Kerrigan. “But it could also be your highest return on investment.”
Kerrigan rates buyer demand for Volvo as “improving,” largely due to the XC90 crossover’s success, she said.
Volvo launched the XC90 in 2014. Through August, U.S. sales of the XC90 are up more than five-fold over the same period last year.
Volvo’s total U.S. vehicle sales through August are up about 30 percent, according to the Automotive News Data Center, pushing its market share up to 0.5 percent from 0.4 percent a year earlier.
And it’s a bargain for buyers. Kerrigan has Volvo’s blue-sky value at the bottom of the luxury franchises.
Kerrigan calls blue sky the value a dealership confers by offering “the opportunity to sell cars.” More formally, blue sky is the intangible value of a dealership, expressed as a multiple of adjusted pretax profit. The blue-sky value for Volvo dealerships, on average, ranges from 3 to 3.5 times.
In contrast, Kerrigan’s latest quarterly estimate puts the blue-sky value of top luxury brands Lexus and Mercedes-Benz at 7 to 8.75 times.
But Volvo has its risks. Average new-vehicle sales per Volvo franchise are just 247 units. The only major brands with lower per store sales are Cadillac at 158 and Jaguar at 136.
Still, said Kerrigan, she’d buy a Volvo store. Why? “If it works, you could end up looking very smart.”