Auto Dealer Valuation Insights

November 8, 2024 SAAR

October 2024 SAAR

The October 2024 SAAR came in at 16.0 million units, 1.7% higher than last month and 3.7% higher than October 2023. A strong October 2024 SAAR was accompanied by increased inventories and incentive spending levels industry wide, which put pressure on transaction prices and dealership profits. In the last two months of 2024, we expect the average transaction price to continue to moderate and to see an increase in vehicle purchasing throughout the holidays and into the new year as consumers react to recent rate cuts.

October 23, 2024 Special Topics Valuation Issues

2024 NADC Fall Conference Update

Key Takeaways for Auto Dealers

Mercer Capital attended the National Association of Dealer Counsel (“NADC”) fall conference in Nashville, Tennessee, this past week. Based on our time there, we provide a few takeaways from sessions we attended at this year’s conference. We believe the topics we cover are especially important for auto dealer counsel and their clients during the remainder of the year and beyond.

October 10, 2024 SAAR

September 2024 SAAR

The September 2024 SAAR came in at 15.8 million units, 3.3% higher than last month and in line with September 2023. At their September meeting, the Federal Reserve cut benchmark interest rates by 50 basis points and highlighted a slight rise in unemployment. This won’t directly or dramatically impact the industry, but we do expect to see the effects of this rate cut (and likely forthcoming cuts) within the industry over the next couple of months and into 2025.

September 20, 2024 SAAR Special Topics Valuation Issues

Where Is the Auto Dealer Industry in the Cycle?

After a few strong years, automotive retail continues to return toward more “normal” levels. Since the onset of the pandemic, annual light vehicle volumes (“SAAR”) in the U.S. have barely crested the 17 million figure that prevailed consistently throughout 2015-2019. Alongside reduced sales volumes, the pandemic and ensuing chip shortage significantly reduced key expenses (headcount, advertising, and interest expense) while significantly raising margins on the vehicles that dealers were able to acquire and sell. For years, it’s been a question of when, not if, things would normalize. The more difficult follow-up question now is, “Where will earnings and margins normalize?” To answer that question, we look at volumes, days’ supply, and dealership profitability.

September 6, 2024 SAAR

August 2024 SAAR

The August 2024 SAAR recorded 15.1 million units, marking a 4.5% decline from the previous month. This figure is even below June’s SAAR, which was adversely affected by the CDK cybersecurity attack. It appears that consumers may now be feeling the effects of a softening labor market. Job openings have decreased, and the unemployment rate rose to its highest level since October 2021. These economic indicators point to a moderating labor market, which could also be impacting auto sales. Given these conditions, it seems highly likely that the Federal Reserve will cut rates at their next meeting.

August 23, 2024 Public Auto Dealers

Q2 2024 Earnings Calls

Auto retailer executives had a lot to say during the Q2 2024 earnings calls. The four main topics discussed on the calls include the effects of the CDK cyberattack, inventory management, consumer affordability, and the consumer shift to hybrid vehicles. We unpack these trends in this week’s post.

August 9, 2024 SAAR

July 2024 SAAR

The July 2024 SAAR came in at 15.8 million units, a 4.2% increase from last month and roughly flat with July 2023 (-0.8%). While the month-over-month increase was expected based on the CDK cyber-attack that hit the auto dealer industry in late June, we find it notable that results were still below last year. Mercer Capital expects the August 2024 SAAR to land within the 15.5 to 16 million range as a portion of the Labor Day holiday weekend falls in August this year. Throughout the remainder of 2024, we expect to see pressure on the average transaction price and per-unit dealer profit as expanding inventory levels drive incentive spending higher.

July 26, 2024 Divorce Special Topics Valuation Issues

Personal Goodwill in the Auto Industry

This post discusses important concepts of personal goodwill in divorce litigation engagements. The discussion relates directly to several divorce litigation cases involving owners of automobile dealerships. These real-life examples display the depth of analysis that is critical to identifying the presence of personal goodwill and then estimating or allocating the associated value with the personal goodwill. The issues discussed here pertain specifically to considerations utilized in auto dealer valuations, but the overall concepts can be applied to most service-based industries.

July 12, 2024 SAAR

June 2024 SAAR

The June 2024 SAAR came in at 15.3 million, a 4.0% drop from last month and a 4.8% drop from June 2023. According to Wards Intelligence, the CDK cyberattack caused a 50,000-unit deficit during June 2024; however, second-quarter sales were still relatively flat (-0.4%) from the second quarter of 2023 as only 11 of 91 days were impacted in the quarter. We believe it is reasonable to expect many of the lost sales from June 2024 will be pushed into July 2024, especially with the long 4th of July weekend coinciding with when many dealers came back online; the outage stretching into this long weekend may have had significantly greater impacts. As we move into the second half of 2024, we expect to see pressure on average transaction price and per-unit dealer profit as expanding inventory levels drive incentive spending higher.

June 28, 2024 Special Topics

The Latest on CDK Global Cybersecurity

Risks Come into Focus after Lurking in the Shadows

In an increasingly digital world, we’ve noted an increase in service providers catering to cybersecurity in a variety of ways. While no dealer gets excited about spending thousands of dollars to mitigate risks rather than grow profits, the CDK Global cyberattack may be a watershed moment for the industry.