Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

Special Topics Valuation Issues

An Estate Planning Primer

Why Auto Dealers Need to Start Thinking About Estate Planning Again

As the auto industry navigates the aftermath of record performance and faces a looming estate tax exemption cliff at the end of 2025, auto dealers are encouraged to revisit their estate planning strategies. The Tax Cuts and Jobs Act significantly raised the estate tax exemption limit, but with some of its provisions set to expire, many dealers who previously didn’t need to worry about estate planning may now be affected. Given the current political climate and the uncertainty surrounding future legislation, it’s advisable for auto dealers to act sooner rather than later to avoid missed opportunities and ensure the legacy of their family-owned dealerships.

Special Topics

No Soup for You

Lessons from Seinfeld on Customer Lifetime Value and Brand Loyalty in the Auto Industry

Drawing inspiration from classic “Seinfeld” episodes, we explore the nuanced challenges of customer loyalty and retention faced by auto dealers and OEMs, using the memorable characters of the Soup Nazi and Joe’s fruit stand as metaphors for the high stakes of customer service in the automotive industry. We explain the technicalities of calculating customer lifetime value (CLV) and the cost of customer acquisition (CAC), offering practical strategies for auto dealerships to enhance customer retention and maximize net CLV. Emphasizing the importance of personalized and unified shopping experiences, quality customer service, and the critical role of maintaining customer loyalty throughout the lifecycle of vehicle ownership, we underscore the potential pitfalls and rewards in the pursuit of brand loyalty.

Mergers, Acquisitions, & Divestitures Special Topics

How a Quality of Earnings Analysis Benefits Auto Dealership Buyers

The auto dealer transaction space has seen significant activity in recent years, with the prospect of Fed rate cuts in 2024 potentially attracting even more buyers. Obtaining a quality of earnings (QofE) analysis is crucial for buyers who don’t want to overpay for an acquisition. In this week’s post, we describe four key elements of a QofE analysis and how this analysis informs the buyer.

SAAR

January 2024 SAAR

In January 2024, the automotive industry witnessed a slight decline in the SAAR of vehicle sales, falling 6.9% from the previous month and remaining nearly stable year-over-year, marking the end of a 17-month streak of improvements. The report also highlights an increase in inventory levels and a decrease in transaction prices, suggesting the potential for a more balanced market that could offer opportunities for consumers and dealers alike in the coming months.

Valuation Issues

Understanding the Asset Approach

What Is It and How Is It Used for Auto Dealer Valuations?

In an insightful exploration of the asset approach to business valuation, particularly within the auto dealership sector, the post delves into the nuanced process of adjusting dealership financial statements to reflect true market value. It emphasizes the importance of properly evaluating tangible and intangible assets, from inventory and real estate to non-operating assets like goodwill, to arrive at a dealership’s tangible net asset value. This comprehensive guide not only outlines the methodology for making these critical adjustments but also discusses the implications of the Blue Sky valuation method, offering auto dealers a clear pathway to understanding their business’s market value.

COVID-19 Coverage Public Auto Dealers Used Vehicles

Vroom in the Tomb and Used Vehicle Gloom

What Does the Collapse of Vroom Say for Auto Dealers?

In this insightful post, we delve into the tumultuous journey of Vroom, a once-promising online automotive retailer. The post, aptly titled “Vroom in the Tomb and Used Vehicle Gloom”, offers a comprehensive analysis of Vroom’s history, from its IPO in 2020 to its recent announcement of ceasing e-commerce operations. This story is not just about a single company, but a reflection of broader industry trends and lessons for auto dealers. By understanding Vroom’s journey and the factors that led to its downfall, readers gain insights into the possible future of automotive retail, the impact of economic changes on the industry, and the evolving role of e-commerce.

SAAR Special Topics

2024 Automotive Trends

A Look Back to Look Forward

In 2024, the automotive industry is expected to experience changes in vehicle supply, incentives, transaction prices, and overall profits. The new vehicle market is adjusting to higher inventory levels and manufacturer incentives, but this increase in supply is not predicted to result in higher profit margins for dealers, mainly due to factors like increased interest rates, investments in electric vehicle infrastructure, and wage increases following the UAW strike. Additionally, trends in the car-buying process indicate a shift towards online and omnichannel purchasing methods, with a significant generational difference in vehicle ownership preferences between Millennials and Gen Z.

SAAR

December 2023 SAAR

In December 2023, the SAAR for vehicle sales reached 15.8 million units, a notable increase of 3.2% from the previous month and 16.8% from the same period last year, marking a return to double-digit year-over-year growth. Unadjusted total vehicle sales for December were the highest since 2020, with 1.43 million units sold, contributing to a total of 15.5 million units for the year, exceeding sales from the previous two years. Looking ahead, 2024 is expected to see continued growth in vehicle sales due to improved inventory, potential interest rate cuts, and increased affordability.

Special Topics

What Is the Car Parc Makeup?

The Automotive Market Trends report for Q3 2023 reveals key insights into the automotive industry. The report indicates that the light vehicle segment experienced a slight increase and the average age of vehicles on the road is rising, now at 12.5 years, reflecting longer vehicle retention by drivers. The report also highlights the popularity of SUVs and pickup trucks in the U.S., despite their higher costs and less favorable gas mileage compared to sedans.

Special Topics

‘Twas the Blog Before Christmas…

2023 Mercer Capital Auto Dealer Holiday Poem

It has become a tradition for the Auto Dealer team at Mercer Capital to end the blog year with a “unique” summary of industry events, riffing off Clement Clark Moore’s classic “A Visit from St. Nicholas.” We hope all of you enjoy the holiday season. We look forward to hearing from you in 2024.

Auto Dealerships

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