Auto Dealer Valuation Insights

August 2, 2021 Special Topics Valuation Issues

First Half 2021 Review of the Auto Dealer Industry

What Are Key Statistics Saying?

As we enter into the second half of 2021, first half statistics are being released and second quarter earnings calls are on the horizon for the public auto companies.  We’ve all read the headlines of the auto dealer industry in 2021:  heightened profitability, historic gross profits per unit and soaring retail sales prices for new and used vehicles, and inventory shortages and challenges caused by plant shutdowns and the microchip shortage. What are some of the key industry statistics saying about the current and future health of the auto dealer industry? Have they peaked, are they continuing to increase or beginning to decline, and/or how long will the current conditions hold? In this post we attempt to answer these questions.

July 26, 2021 Blue Sky Litigation Valuation Issues

Formula Clauses for Auto Dealerships

Pros and Cons of Using Formula Clauses in Buy-Sell Agreements

A formula clause explains how a business will be valued, usually as part of a buy-sell agreement, employment agreement, transfer of interests under certain circumstances, or other agreement entered between owners of a company. In this post, we explain formula clauses, when they are used, why they are used, and why we ultimately recommend they not be used.

July 19, 2021 SAAR Special Topics

June 2021 SAAR

The June 2021 SAAR totaled 15.4 million units, which is up 12.4% compared to June 2020 (the lowest June figure in recent memory due to the COVID-19 pandemic) but down 9.9% from May 2021.  In this post, we discuss the June SAAR number, the ongoing microchip shortage, the hot market for used cars, and what all this means to dealers.

July 12, 2021 Luxury Special Topics

The Electric Vehicle Race

Tesla vs. Everyone

When you think “electric vehicles”, there has been one brand that has established itself as a clear leader: Tesla. In this post, we take a look at Tesla and recent competitors that are challenging Tesla in the EV space.

June 29, 2021 Special Topics

Industry Trends From the Road

Key Takeaways from State Automotive Annual Conventions

We recently attended the annual conventions of two state automotive groups – Kentucky and the Tri-State Convention consisting of Tennessee, Alabama, and Mississippi. In this post, we summarize certain sessions that our readers should find interesting including cybersecurity issues, how to protect your dealership from fraud, future trends and their possible impact, coming regulation and what that means for your dealership, and the importance of succession planning.

June 23, 2021 Valuation Issues

Whitepaper: Understand the Value of Your Auto Dealership

In this whitepaper, we break down the value drivers of a dealership, discuss when you might need a formal valuation, introduce the valuation methodologies used by professional business appraisers, and go into some depth about topics such as dealer financial statements and normalizing adjustments to the balance sheet and income statement.

June 14, 2021 SAAR Special Topics

May 2021 SAAR

After three straight months of impressive gains, the SAAR fell 9.6% in May from 18.8 million units to 17.0 million units.  The summer is typically a strong season for auto sales, but several supply-side factors have limited the availability of vehicles over the last month.

June 7, 2021 Special Topics

Tax Planning for Auto Dealerships

Why Auto Dealers Might Not Pay “Market” Rent

In business valuation, appraisers seek to normalize historical earnings to establish the level of earnings an investor might reasonably expect from an investment in the subject company. These adjustments may increase or decrease earnings, and they can be for a variety of reasons. Normalization adjustments include surveying various expense categories and determining whether the amount historically paid is considered “market rate.”

Rent paid to a related party is frequently judged to be above or below market, which can be for a variety of reasons. Dealers’ priorities lie more with sales and operating efficiency than tracking what the market says they should pay in rent. The rent paid also may be artificially high or low for tax purposes. In this post, we examine what exactly this means, and why auto dealers may hold real estate in a separate but related entity from the one that owns the dealership operations.

May 24, 2021 Mergers, Acquisitions, & Divestitures Special Topics Valuation Issues

Valuation and M&A Trends in the Auto Dealer Industry

Full Speed Ahead or Partly Cloudy?

A few weeks ago, I sat down with Kevin Nill of Haig Partners to discuss trends in the auto dealer industry and the release of their Fourth Quarter 2020 Haig Report. Specifically, I wanted to focus on the unique conditions impacting the industry, and also the changing methodology that buyers are utilizing to assess dealership values. Haig Partners is a leading investment banking firm that focuses on buy/sell transactions in the auto dealer industry, along with other transportation segments. As readers in this space are familiar, Haig Partners also publishes Blue Sky multiples for various auto manufacturers based on their observations and data from participating in transactions in this industry.

May 17, 2021 Public Auto Dealers Valuation Issues

Q1 2021 Earnings Calls

Improved Profitability, Online Tools and Market Share, and High Valuations

Stimulus supported demand for vehicles and significant chip-related supply disruptions have improved profitability while public auto dealers also see fixed operations improving.