October lightweight vehicle sales had their second month in a row above 16 million, coming in at an annualized rate of 16.2 million for the month. Though this is down 0.6% from September SAAR of 16.3 units, it is still a positive sign for the industry that sales have shown notable improvement since the start of the pandemic.
Low Supply and SG&A Reductions Lead to Record Earnings
As we do every quarter, we take a look at some of the earnings commentary from major players in the industry. These trends give insight into the market that may exist for a private dealership.
A new trend has emerged as auto manufacturers are seeking out start-ups for their technology in a mutually beneficial relationship, perhaps best exemplified by GM and Nikola’s plan for a partnership. In this post, we look at the original deal, ensuing issues, and current plans. We will also look at what this trend could mean for dealerships going forward, and the importance of the valuation date.
In our quarterly newsletters, we use various data sources to keep tabs on the auto dealer industry. This includes items like SAAR to gauge the health and activity of the industry in terms of volumes. In this post, we discuss other metrics that help us analyze the dealerships we’re engaged to value.
With the election just two weeks away, we think it’s timely to discuss the candidates’ platforms and determine the impact of their differing policies. Each candidate’s platform contains positions on many issues – some that would directly impact the automotive industry, and others that would indirectly impact the industry. A vote for one doesn’t necessarily signal a vote for the automotive industry or vice versa. While we don’t intend for this blog post to be political, we will examine each candidate’s position on four issues and discuss their impact on the automotive industry: trade policy, taxes, energy, and the environment.
SAAR Is Reaching a Post-Pandemic High, and Pent-Up Demand Is Leading to an Expected Bounce Back of M&A Activity
In September, lightweight vehicles marked a notable accomplishment during a tumultuous year, increasing to a seasonally adjusted 16.3 million. This is a 10% pickup from August, and the fifth consecutive monthly increase as the industry is recovering from lows at the beginning of the year. M&A activity for dealerships in the first half of the year has been delayed or cancelled as uncertainty has widened the bid-ask spread. However, there is evidence of pent-up demand which could lead the second half of the year to reach record levels.
While economic recovery is still uncertain as the pandemic continues on and new relief bills are on the ropes, there are other ways outside of the box for auto dealers to show resiliency during this time and plan for economic success going forward. This includes opportunities that exist in estate planning this fall for owners of assets in the auto dealer, and all, industries. Three converging factors have this fall shaping up to be the busiest estate planning season since 2012: potentially depressed valuation of assets and businesses, historically low interest rates, and uncertainty regarding the political administration going forward.
In this post, we review Haig’s Q2 report on trends in auto retail and their impact on dealership values. We’ll also look at how Blue Sky multiples have rebounded after declines in Q1. While most brands saw a partial recovery, a return to pre-COVID multiples was largely reserved for brands with the highest multiples in their category (luxury, mid-line import, and domestic).
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.
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.