Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

Special Topics

Interpreting Inflation and Interest Rates for Auto Dealers

Can Retail Vehicle Prices Continue to Soar?

Inflation and interest rates are on more people’s minds lately due to supply chain disruptions across all industries. People understand how inflation and interest rates affect their daily lives when noticing the rising cost of goods/services and the cost to borrow money to buy a house, but many don’t realize that inflation and interest rates are interconnected. Inflation and interest rates are frequently linked when discussing macroeconomics and they tend to have an inverse relationship. When interest rates go up, in theory, inflation goes down. However, there are many more factors other than inflation and interest rates impacting the economy in the real world.

In this post, we discuss how we got to our current reality, what auto dealers might expect regarding inflation and interest rates, and how it all might impact the dealership.

SAAR

September 2021 SAAR

September 2021 SAAR was 12.2 million, dropping for the fifth consecutive month amidst an ongoing inventory shortage. The September SAAR was the lowest since May 2020’s 12.1 million units but has not fallen near the COVID-19 pandemic low of 8.6 million units in April of 2020. Tight inventories limited both fleet and retail sales in September, which has been the same case over the last four months. Fleet sales continue to fall as a percent of total sales, making up just 12% over the last month as higher profit retail sales continue to be prioritized.

Mergers, Acquisitions, & Divestitures Public Auto Dealers Special Topics

September Acquisitions by Sonic, Asbury, and Group 1 and What They Mean for Privately Held Auto Dealerships

Smallest Public Players Getting Larger

In three consecutive weeks, 117 auto dealerships were bought across 3 transactions, each scooping up more dealerships than the last. The three smaller pure-play public auto dealership companies (Group 1 Automotive, Sonic Automotive and Asbury Auto Group) all made sizable acquisitions in a red hot M&A market coming after Lithia purchased a large private auto group back in April.

In this week’s post we discuss how these transactions highlight a couple of key themes in the marketplace for auto dealers.

Special Topics Valuation Issues

Tax/Estate Planning Cheat Sheet for Auto Dealers

Winds of Change?

Benjamin Franklin famously said that the only things certain in this life are death and taxes. While both may be certain, taxes are always subject to change.

In this post, we focus on four particular proposals from the Build Back Better Act that impact estate planning and business valuations for auto dealers: 1) Estate Tax / Lifetime Exclusion; 2) Corporate Income Tax Rates; 3) Capital Gains Rates; and 4) Valuation Discounts for Passive Assets.

Blue Sky Mergers, Acquisitions, & Divestitures Public Auto Dealers

Public Auto Dealer Profiles: Sonic Automotive

There are six primary publicly traded companies that own approximately 923 new vehicle franchised dealerships as of Q2 2021, or 5.6% of the total number of dealerships in the U.S. (16,623 at year-end 2020 per NADA). In this second installment of our series profiling the six publicly traded companies, we focus on Sonic Automotive.

Our goal with this series is to provide information and insight that can serve as a reference point for private dealers who may be less familiar with the public players, particularly if they don’t operate in the same market. Larger dealers may benefit in benchmarking to public auto dealers.

SAAR

August 2021 SAAR

August 2021 SAAR was 13.1 million units, significantly lower than August of 2020 at 15.2 million units and lower than last month’s figure of 14.6 million units. This level of sales is the lowest recorded since June 2020’s 13.0 million during the earlier stages of the COVID-19 pandemic. August’s sales rates reduced the year-to-date SAAR to 16.1 million units from last month’s end total of 16.5 million units.

Mergers, Acquisitions, & Divestitures Special Topics

M&A, Reinvesting in Core Operations, or Paying Dividends

How Public and Private Dealerships Should Think About Allocating Capital Amidst Excess Liquidity

Over the past year or so, many auto dealers “outperformed” particularly as inventory shortages have raised margins on new and used vehicles in 2021. Additionally, cost cutting initiatives have dealerships running more efficiently, leading to record profitability. The question now comes for public and private auto dealerships alike: what do I do with this excess liquidity?

In this post, we consider what options are available to both public and private dealers. We look at what decisions the publics are making, and what that could mean for private dealers.

Mergers, Acquisitions, & Divestitures Public Auto Dealers Valuation Issues

Q2 2021 Earnings Calls

Public Auto Dealers Weigh Record Profits, Days’ Supply, and Capital Allocation

Second quarter earnings calls across the group of public auto dealers began with similar themes: record profits and earnings, record Gross Profits Per Unit (GPU) on new and used vehicles, and tightening inventory conditions. This week we take a deeper dive into some of those themes including remarks from management, related to expectations moving forward.

COVID-19 Coverage Public Auto Dealers Special Topics

Used Vehicle Margins in 2021

How Large Used-Only Auto Retailers Are Measuring Up

As our dealer clients know, automotive retailing competition has intensified with large, well-capitalized online-only retailers getting plenty of attention. Due to imbalances between supply and demand, gross margins on both new and used vehicles have increased in 2021.

In this post, we survey gross margins for the publicly traded dealerships, in light of the current operating environment and reconsider the investment thesis put forth by the new entrants.

SAAR Special Topics

July 2021 SAAR

The July 2021 SAAR was 14.8 million units, roughly flat compared to July 2020, but down 12% from July 2019.  SAAR was expected to fall for the third straight month, but this figure is lower than many experts predicted in June. In this week’s post, we dig into the numbers.

Auto Dealerships

Mercer Capital provides business valuation and financial advisory services to companies throughout the nation in the auto dealer industry.