Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

COVID-19 Coverage SAAR

Used Cars are Stealing the Spotlight

Consumers Seek Budget Friendly Options as Economic Struggles Continue

With a shaky economy on many people’s minds, a winner in the auto dealer industry is emerging: the used car market. With new car advertisements flooding airwaves, used cars have often been overlooked in favor of “what’s new.” We are also at fault for this, with several of our recent blog posts being centered around electric vehicles and new vehicle inventory constraints. However, used cars are stealing the spotlight.

Litigation Special Topics

Does Personal Goodwill Apply to Auto Dealerships?

Observations from Recent Litigation Engagements

A common topic from several recent auto dealer litigation cases is personal goodwill.  Not only is its presence hotly debated, but practitioners further attempt to discern just how much of a business’ value is directly related to personal goodwill.  There’s no textbook that discusses where it exists and where it doesn’t, and it’s more prevalent in certain types of businesses or industries than others.  Before any attempts to measure and quantify it, I think the most important question to ask is “does it exist?”  Often with ambiguous concepts like personal goodwill, the adage “you know it when you see it” is most appropriate. 

Special Topics

Is the Hype Sustainable?

How EV Start-Ups Are Taking Advantage of SPACs to Enter the Public Market

As we mentioned in a previous blog post, the electric vehicle (EV) market has been all the rage lately, driven primarily by Tesla’s success in creating main stream electric vehicles. We’ve discussed the “Tesla Story” extensively in previous posts, and their stock has continued to rise. It was sitting around $2,200 last Friday, up from $216 last year, or an astounding 918%. Tesla split its stock 5-1 Monday and was hovering around $450 at the time of writing this post.

As expected, other companies want to capitalize on the hype that Tesla has created in the industry, with EV start-ups trying to capture a slice of the pie.  This summer has been a huge one for the industry, with electric vehicle startups Nikola, Fisker, Hyiilon, Lordstown, and Canoo all either going public or announcing plans to go public. Notably, however, they are not relying on the typical, lengthy IPO route to achieve this. Instead, they are using special purpose acquisition companies (or SPACs) to hit public markets quicker. In this post, we will walk through the companies going public, the deals, pros and cons of the SPAC, and what this could mean for your dealership.

COVID-19 Coverage Public Auto Dealers

Q2 2020 Earnings Calls

Constrained Inventories and Improved SG&A Margins Expected to Normalize While the Future of Omnichannel Initiatives Stays Top of Mind

As expected, the COVID-19 pandemic has thrust many dealerships into relying on their digital and omnichannel offerings due to complications arising from stay-at-home orders. Further government restrictions have curbed new vehicle supply as manufacturers have struggled to ramp up supply. Many dealers noted inventory shortages. However, with sales volumes significantly below the 17 million seen over the last several years, both the numerator and denominator of the days of supply statistic are declining.  Lower sales mean lower inventory isn’t a deal breaker; in the short term, limited supply has led to some gross margin improvement.  However, total gross profit is still significantly down due to the lower sales (combination of lower inventory and lower demand). While sales have improved sequentially as restrictions have eased, parts and service (particularly collision) have trailed in their recovery as fewer miles driven has translated into reduced demand. Analysts inquired about the potential for stay-at-home orders to be ramped back up, particularly in large states such as Texas, California, and New York, though executives largely downplayed the likelihood and the impact it would have on their businesses.

SAAR

July 2020 SAAR

SAAR Increased to 14.5 Million in July, and Declines in Public Transportation and Ride-Sharing Usage Could be Creating Opportunities for Dealerships

SAAR continues to trail pre-COVID numbers with July 2020 14% below last year. Still, the continuing increase is encouraging. With demand picking up as customers can return to brick-and-mortar locations, dealerships aren’t feeling the need to offer as strong of incentives as they did at the start of the pandemic.

Valuation Issues

Whitepaper Release: 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.

Special Topics

Electric-Vehicle Industry Is Heating Up

Policy and Oil Price Implications for EV Sales

The current focus for new auto technologies is less focused on speed, and more on sustainability, as there appears to be a shift in focus away from developing the century-old gasoline-powered vehicle to electric. The electric-vehicle (EV) industry has shown to be an attractive long-term alternative for manufacturers. In this post, we’ll survey the landscape including the beginnings of EVs, major players in the industry, and the future outlook.

COVID-19 Coverage Mergers, Acquisitions, & Divestitures

Fiat Chrysler & Peugeot (PSA) Merge into “Stellantis”

Analyzing the Timeline and Twists and Turns of a Transatlantic Merger During a Pandemic 

Last week, we analyzed Asbury Automotive Group’s acquisition of Park Place, a deal scuttled by COVID-19 that came back to life under revised terms. This week, we are moving upstream to look at the merger between Fiat Chrysler (FCA) and Group PSA (manufacturer of Peugeot and Citroen) and observe the new name of the entity, the merits and hurdles of the ongoing deal, and some potential impacts on auto dealers.

Luxury Mergers, Acquisitions, & Divestitures Public Auto Dealers Special Topics

Asbury-Park Place Acquisition as Seen Through a Monday Night Football Commercial

You Make the Call!

In this week’s post, we review a timeline of the Asbury-Park Place transaction, along with an analysis of Asbury’s stock price against the rest of its public competitors and also examine the operational strategy of Asbury over the years to explain aspects of the Park Place acquisition. As with any merger or acquisition, the true success or failure of the deal may not be known for years. Investors and industry professionals can try and play armchair quarterback and try to predict the outcome. This blog post aims to provide ample information so that you can “make the call” on the transaction.

COVID-19 Coverage SAAR

June 2020 SAAR

A Lackluster Month, But a Move in the Right Direction

After SAAR rebounded in May, June’s results seem to pale in comparison. However, with SAAR coming in at just over 13 million, this is still an increase from May’s SAAR of 12.3 million. Sales have continued to remain below the previous year’s numbers, with June 2020 declining 20% from the same period 2019.

Auto Dealerships

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