Auto Dealer Valuation Insights

October 5, 2021 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.

September 30, 2021 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.

September 20, 2021 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.

September 13, 2021 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.

August 30, 2021 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.

August 23, 2021 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.

August 16, 2021 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.

August 9, 2021 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.

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.