The Kerrigan Dealer Survey

The data for The 2021 Kerrigan Dealer Survey is based on 825 responses from franchised auto dealers in Kerrigan Advisors’ proprietary dealer database. Survey responses were collected from June 2021 to October 2021. Please contact us if you have any questions about The Kerrigan Dealer Survey.

2021 Kerrigan Dealer Survey Results

Kerrigan Advisors’ third annual Dealer Survey was designed to gauge dealer sentiment about the future value of their businesses, as well as their perspective on franchise valuations and acquisitions. The results of the survey found that dealers’ optimism increased significantly regarding valuation as compared to 2020. Of the 825 responses, an impressive 61% of dealers expect the value of their business to increase over the next 12 months, nearly double last year’s results, while only 6% of dealers expect a decline.

Kerrigan Advisors’ 2021 Dealer Survey results are consistent with our firm’s assessment of the buy/sell market. In our Second Quarter 2021 Blue Sky Report, we noted that blue sky values rose 42% in 2021 compared to pre-pandemic levels. Dealers’ valuation expectations reflect the strength of the US auto retail business model in the face of a global crisis and the expectation for continued sales and profit growth as inventories remain limited and consumer demand remains strong.

Surveyed dealers also reported positive expectations regarding specific franchise valuations over the next 12 months. The vast majority of dealers surveyed believe individual franchises will either increase in value or remain the same in value, with few expecting declines.

Highest Expected Valuation Gains: Toyota, Hyundai, Kia, Subaru, Honda, Lexus, Porsche

Over 40% of surveyed dealers expect an increase in these franchise values in the next 12 months, while less than 8% expect a decline.
Notably, none of these franchises achieved greater than a 40% increase in valuation expectation in the 2020 Kerrigan Dealer Survey.

Least Likely to Decline in Value: Toyota, Mercedes, Porsche

Over 94% of surveyed dealers expect these franchise values to either increase or remain the same over the next 12 months.
Notably, no franchise achieved this level of expectation in 2020.

Highest Expected Valuation Declines: Infiniti, Acura, Nissan, Lincoln

30% or more of surveyed dealers expect these franchises to decline in value in the next 12 months.
Last year, an average of 55% of respondents expected these same franchises to decline in value.

Most Improved Valuation Expectations since 2020: Hyundai, Kia

These two franchises saw the highest percentage point increases from last year in the number of dealers expecting their values to rise, while also seeing a 16-percentage point reduction in those who expect the franchise values to decline.

Of note in this year’s survey is the dramatic change in the top 5 franchises by valuation expectations, as compared to prior years. Specifically, an average of 48% of dealers surveyed expect the top 5 franchises to increase in value, a 17-percentage point increase compared to 2020 when just 31% expected the top 5 franchises to increase in value. Likewise, the top 5 franchises projected to decrease in value saw an 18-percentage point decline from last year’s survey. We attribute this improved outlook to the industry’s explosive profitability and positive earnings expectations for 2022.

For the first time since Kerrigan Advisors began surveying dealers, luxury franchises were not represented in the top 5 franchises expected to increase in value. Kerrigan Advisors believes this may be due to increased competition from Tesla, coupled with unknown changes to the future business model and required capital expenditures to accommodate electrification, including high speed charging and battery storage.

Notable Results for Specific Franchises in The 2021 Kerrigan Dealer Survey:

Toyota & Lexus – This year’s survey results highlighted the value of the Toyota franchise with the majority of respondents expecting the franchise to increase in value (55%), the highest of any franchise. This is consistent with Kerrigan Advisors’ Blue Sky Report where Toyota has the highest blue sky multiple in the non-luxury segment. As the industry enters a period of evolution over the next decade, dealers are confident in Toyota’s future franchise value due to its continued emphasis on a supportive partnership with its dealer network. Lexus was also ranked highest amongst the luxury franchises with 43% of surveyed dealers projecting an increase in value, just below the top 5 franchises at #6.

Hyundai & Kia – Perhaps the most notable change in this year’s survey was the impressive improvement of Hyundai and Kia, which saw over a 23-percentage point increase in the number of dealers who project the franchises will increase in value, as well as a 16-percentage point decrease in the number of dealers who expect the franchises to decline in value. With these improvements, Hyundai and Kia become the second and third highest ranked franchises by dealers in terms of expectations for increased valuation, leapfrogging Subaru, Porsche, Honda, Mercedes-Benz and Lexus. These results are consistent with Kerrigan Advisors’ positive outlook for these franchises’ blue sky multiples in our Blue Sky Report.

Ford – Ford improved 17-percentage points in the number of dealers who expect the franchise to increase in value. Kerrigan Advisors believes the leadership of Jim Farley coupled with the improved profit outlook for the company relative to its domestic competitors is a contributing factor to the rise. That said, 15% of dealers surveyed still expect the franchise to decline in value over the next 12 months. These dealers could be the higher volume Ford dealers who are negatively impacted by Ford’s online order system which appears to disproportionately benefit smaller dealers.

In this year’s survey, Kerrigan Advisors also asked dealers about their profit expectations for the next 12 months. 79% expect their profits to rise, while only 6% expect them to decline, and just 15% expect them to stay the same. These are impressive results when considering the strength of the industry’s profits over the last 12 months, up over 150% and running at record levels. This data is a clear indication dealers believe auto retail’s higher margin business model will sustain well into 2022, particularly if inventories remain limited and consumer demand remains robust.

Kerrigan Advisors also asked dealers about their growth plans for their business over the next 12 months. An incredible 77% of dealers are seeking to acquire 1 or more dealerships, while just 3% plan to sell 1 or more dealerships. Only 20% of dealers surveyed expect to remain the same in size over the next 12 months. The industry’s focus on expansion is endemic of the scale required to succeed in the dynamic and ever-evolving auto retail marketplace. These results are consistent with the industry’s current high level of buy/sell activity. As more dealers seek to grow than exit, Kerrigan Advisors expects 2021’s seller’s market to persist well into 2022, driving valuations even higher next year.

The results of the 2021 Kerrigan Dealer Survey demonstrate the positive momentum in auto retail today. The vast majority of dealers project higher profits and seek to invest those profits back into dealership acquisitions. Based on these results, Kerrigan Advisors believes 2022’s buy/sell market will surpass 2021’s record pace and valuations will rise further for most franchises over the next 12 months.

Methodology

The data for The Kerrigan Dealer Survey was gathered from Kerrigan Advisors’ annual survey of auto dealers in conjunction with the issuance of The Blue Sky Report^®. The Kerrigan Dealer Survey is based on over 825 responses from franchised auto dealers in Kerrigan Advisors’ proprietary dealer database. Survey responses were collected from June 2021 to October 2021.