Auto Dealer Valuation Insights

March 22, 2024 Special Topics

It’s Not About the Mangos: Focus on People

What We've Been Reading

“It’s Not About the Mangos” by Kent Coleman offers valuable insights for business owners in the auto dealership industry, emphasizing the importance of focusing on people and relationships for organizational success. The book highlights the significance of building a positive culture, recognizing and valuing employees, and understanding that every organization is essentially a sales organization. Implementing the principles shared in this book can lead to a more successful, sales-driven dealership, as happy and motivated employees can become the most effective advocates for your business. For more insights, check out this week’s post.

March 13, 2024 Public Auto Dealers

Q4 2023 Earnings Calls

New Vehicle Resilience, Lightly Used Inventory Scarcity, and Disappointing EV Sales

The auto retail industry is experiencing a resilient market for new vehicles, with improved inventory and greater sales volumes, despite declining per-unit profitability. However, the used vehicle and electric vehicle market face challenges. We analyze the trends and potential future challenges from the top 6 public auto dealers’ earnings calls in this week’s post.

March 8, 2024 SAAR

February 2024 SAAR

The automotive industry is showing signs of recovery with a 6.0% increase in SAAR and the highest February sales since 2020, indicating a return to pre-pandemic levels. Inventory levels are rising, leading to increased incentive spending by manufacturers as they compete for buyers, while average transaction prices are declining due to these incentives and increased availability of lower-priced vehicles. Despite these trends, consumers are on track to continue spending on new vehicles over the next several months, highlighting the balance between affordability and preference in the market.

March 1, 2024 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.

February 23, 2024 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.

February 16, 2024 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.

February 9, 2024 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.

February 1, 2024 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.

January 26, 2024 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.

January 19, 2024 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.