Oct. Kerrigan Report: car dealership valuations take surprising turn

November 13, 2020

The latest Kerrigan Advisors Market Update revealed that the Kerrigan Index performed very well during October, finishing the month at 675.71. Erin Kerrigan, Founder and Managing Director for Kerrigan Advisors, joined the show to provide more insight on the latest market update.

Year to date for the index is up 9.52%, well above the S&P 500 Index which is currently up 1.21%. According to Kerrigan, the biggest surprise was how much the index has increased since the beginning of the COVID-19 pandemic. Since its lowest mark for the year, the Kerrigan Index has shot up 127% to where it stands today. This has a lot to do with the industry outperforming other industries during the pandemic. Kerrigan says the rise in valuations can be credited to industry earnings hitting all-time records in the third quarter. The industry has also been aided by low-interest rates.

Looking ahead to Q4, Kerrigan says they are predicting sales to rise beyond what was achieved last year. As OEMs return to full capacity, gross profit per new vehicle will probably drop, however, the rise in sales will support the industry.

Kerrigan then discusses the increase in average dealership pre-tax profit. According to NADA, dealership pre-tax profit was up 134%, making a significant jump from $128,282 in 2019 to $300,548 in 2020. Additionally, year to date earnings are up 13% for dealers.

“Our industry is proving out its ability to cut expenses quickly, and also in the face of limited inventory to increase their gross profit margin,” said Kerrigan. “Even with the service business coming back more slowly.”

With valuations up, new investors are exploring their options in retail automotive. This is happening both in public companies as well as private dealerships. Kerrigan says the new investors and creative financial structures are here to stay.  

Kerrigan concludes the conversation by discussing Kerrigan Advisors recent transaction as Kerrigan represented Continental Motors Group in its selling of three stores in Illinois. Kerrigan said the deal was aided by a strong car market in the Naperville, IL market. The transaction included Audi, Acura, and Mazda. Kerrigan said they expect this to be the beginning of many transactions for their firm in fourth quarter.

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