Auto Dealer Valuation Insights

Regular updates on issues important to the Auto Dealer industry

COVID-19 Coverage SAAR Special Topics

March 2021 SAAR

After a tumultuous February due to weather conditions, March SAAR has bounced back with a vengeance.  March SAAR of 17.75 million units is the second-highest of all time for the month, just shy of March 2000.  There are two main factors driving this increase.  While the winter storms had a negative impact on February SAAR, it likely caused pent-up demand that helped drive sales in March. Beyond simple delays, flooding forced some to replace damaged vehicles. Secondly, the Biden administration passed a Covid-19 stimulus bill at the beginning of March, and $1,400 paychecks hit many Americans’ wallets. This influx of cash may have also spurred a massive increase in vehicle sales.

Blue Sky Mergers, Acquisitions, & Divestitures

Analyzing the Relationship of Rent and Real Estate Values in Dealership Acquisitions

The Opposite, Break-Even or Something In-Between?

The relationship between rent and fair market value of the real estate has an impact on the components of an auto dealer acquisition. While the impacts may be opposite and felt on both sides of the two entities, the impact on the real estate can have a greater effect given lower capitalization rates and/or higher capitalization factors than most implied blue sky multiples. We provide a discussion of the topic with an example in this post.

Blue Sky COVID-19 Coverage Mergers, Acquisitions, & Divestitures

What’s in a Multiple?

Blue Sky Multiples Improved in 2020 After a Rocky Start, and Buyers Weigh Multiple Years of Earnings

In this post, we present recent Blue Sky multiples along with the reporting of profitability moving from the last 12 months to the last 3 years. According to Haig Partners, buyers have historically focused on adjusted profits from the last 12 months, which has been viewed as the best indication of expectations for the next year. Throughout most of 2020, Haig’s reported Blue Sky multiples were applied to 2019 earnings as these were viewed as the best indication of a dealership’s “run rate” prior to any COVID impact. When profitability improved and uncertainty began to decline around June 2020, multiples applied on these 2019 earnings rebounded. Now into 2021, Haig reports that buyers are using a three-year average of adjusted profits from 2018 through 2020 as the best prediction of future profits.

Valuation Issues

Six Events That Trigger the Need for a Valuation

Auto dealers, like most business owners, are focused on many aspects of their business:  daily operations, strategic vision, competition, industry conditions, the state of the economy, etc.  It is less common for auto dealers to be concerned if/when their business might need to be valued.  Often, they are made aware of the need for these services by their trusted advisors including attorneys, financial planners, accountants, etc.

What are common events that trigger the need for a valuation for an auto dealership?

SAAR

February 2021 SAAR

Several Factors Put Pressure on February SAAR, Contributing to a 5.4% Decline from January

As we previewed in our January SAAR blog, February SAAR (a measure of Light-Weight Vehicle Sales: Auto and Light Trucks) declined as expected to 15.7 million from 16.6 million the previous month. This is a decline of 6.6% from the same period last year. In this post, we discuss the factors that contributed to this decline and expectations for March.

COVID-19 Coverage Public Auto Dealers

Q4 2020 Earnings Calls

Sales Return Quicker than SG&A Expenses, But Inventories Continue to Lag Amid Chip Shortages

As we do every quarter, we provide themes from the Q4 earnings calls as discussed by the major players in the auto industry. These trends give insight to the market that may exist for a private dealership which informs our valuation engagements.

SAAR

January 2021 SAAR

SAAR Hit Highest Levels Since the Pandemic Began, but Several Factors Could Hinder February’s Growth Prospects

January 2021 SAAR (a measure of Light-Weight Vehicle Sales: Auto and Light Trucks) increased to 16.6 million from 16.2 million in December. Though this is a decline of 1.4% from the same period last year, this is the highest that SAAR has been since the pandemic began. Light truck sales were behind this growth, as they captured 77.8% of all new vehicles sold in the past month. Despite January’s peak, two significant events could hinder February’s outcome.

Public Auto Dealers

Public Auto Dealer Profiles: Lithia Motors

This post is the first of a series where we profile the six public new vehicle dealerships; our goal is to provide a reference point for private dealers. Dealers may benefit in benchmarking to public players, particularly those that are significantly larger with numerous rooftops. Smaller or single point franchises will find better peers in the average information reported by NADA in their dealership financial profiles. Public auto dealers also provide insight as to how the market prices their earnings. This week, we start with Lithia Motors (LAD).

Auto Dealerships

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