Regular updates on issues important to the Auto Dealer industry
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.
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.
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.
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.
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.
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.
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.
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.
As we put a bow on 2023, we’re looking back at our top posts from the year. Our weekly posts follow the auto industry closely to keep up with market trends and gain insight into the private dealership market. We hope you have enjoyed our content in 2023, and we look forward to connecting further in 2024!
In November 2023, the SAAR for the auto industry showed year-over-year growth, maintaining a 16-month trend of improvements. Despite a general slowdown in growth, the industry’s unadjusted sales reached their highest level for November since 2019, with expectations of a further increase in December. A rise in vehicle inventory and Days’ Supply suggests a recovering market with potential challenges and opportunities ahead.
