Auto Dealer Valuation Insights

Regular updates on issues important to the Auto Dealer industry


Blue Sky

Valuation Issues

What Is the Market Approach and How Is It Utilized for Auto Dealer Valuations?

A thoughtful business valuation of an auto dealership will likely rely on multiple approaches to derive an indication of value. While each approach should be considered, the approach(es) ultimately relied upon will depend on the unique facts and circumstances of the dealership and its operating conditions. We recently focused on the asset approach and the income approach for valuing auto dealerships. This post presents a broad overview of the market approach, the last of the three approaches considered in all business valuations.

Special Topics Valuation Issues

One Dealer Is Not Like the Other

Independent Dealers Industry Segment Highlight

In August 2022, we wrote a blog about the Powersports dealer segment of the auto industry, comparing and contrasting it to the franchised dealers that we spend most of our time writing about.  This week, we highlight another segment of the auto dealer market: independent dealers. Read more about how independent dealers have specific nuances and factors that cause a greater impact to their success and profitability.

Mergers, Acquisitions, & Divestitures Public Auto Dealers

Public Auto Dealer Profiles: Group 1 Automotive

The automotive dealership industry remains highly fragmented, with publicly traded auto dealers owning only a small fraction of the total number of dealerships in the U.S. The business models of privately held and publicly traded auto dealers differ significantly, with the latter benefiting from greater scale, diversification, and access to capital. Group 1 Automotive, a key player in this sector, has demonstrated resilience in its operations and financial performance, while also pursuing strategic initiatives such as the development of its online platform, AcceleRide, and a careful approach to acquisitions and capital allocation.

Special Topics

The Winding Road to Blue Sky Value

Important Considerations in Auto Dealer Valuations and Pitfalls to Avoid

In the upcoming month, Scott Womack and David Harkins will present at three different forums, shedding light on the pivotal aspects and considerations of auto dealer valuations, including special considerations in litigation/buy-sell matters. They will delve into why traditional market approaches are generally not applicable for the valuation of auto dealerships, especially single rooftop operations, and explore the limitations of existing database evaluations. Beyond this, they will also explore the changing dynamics of value drivers like real estate and employee management, highlighting the shifting landscape as the industry moves towards digital and online platforms, and offer insights and suggestions for navigating buy/sell litigation and ensuring fair and consistent transactions.

Mergers, Acquisitions, & Divestitures Valuation Issues

What Is the Value of My Auto Dealership?

It Depends on Who's Buying

Wondering what your auto dealership is worth? This post gives practical illustrations of how buyers might determine the premiums or discounts they are willing to pay for your dealership. Discover the unique facets that shape the value of your auto dealership through the lens of three distinct buyer types: strategic, financial, and minority interest. Understand the dynamics influencing your dealership’s value and arm yourself with knowledge for future negotiations.

Mergers, Acquisitions, & Divestitures Public Auto Dealers

Public Auto Dealer Profiles: Asbury Automotive Group

As discussed in previous installments of this blog series, six primary publicly traded auto dealers own over 1,300 new vehicle franchised dealerships as of year-end 2022. In other words, that’s less than 10% of the total number of dealerships in the U.S. (approx. 16,750 as of NADA’s mid-year 2022 report). The proportion of total U.S. dealerships that these publics own has increased, though it still demonstrates how fragmented the industry continues to be.

Our goal in highlighting Public Profiles is to 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 from benchmarking to public players. Smaller or single-point franchises may find better peers in the average information formerly reported by NADA or more regional 20 Group reports but might still find value in staying plugged into public auto dealers’ performance.

This week’s post covers Asbury Automotive Group, the second smallest of the six publicly traded automotive retailers in the United States.

Valuation Issues

Six Things to Consider When Working with a Business Appraiser

We’ve turned the page on 2022, another year defined by challenges, record profitability and elevated valuations for auto dealers.  As we enter 2023, there will likely be unique challenges and opportunities for auto dealers regarding business valuations. We will dedicate future posts to the discussion of these opportunities from the perspective of succession planning in an environment with sunsetting tax exemptions and depressed asset values, especially if interest rates continue to rise and profitability subsides in 2023.

We previously discussed six events that could trigger the need for a business valuation. In this week’s post, we discuss six things that attorneys and auto dealers should consider when selecting or working with a business appraiser.

Mergers, Acquisitions, & Divestitures

Blue Sky Multiples Remain Flat as Earnings Plateau

Dealers Continue to Perform through Negative Economic Indicators

Interest rates are up, gas prices are volatile, inflation is rampant and vehicle affordability, GDP, and the stock market are down. How have auto dealers belied all of these negative headwinds to produce strong earnings? The simple answer is that dealers have been able to pass on price increases to consumers and have benefitted from more lean cost structures in the wake of the pandemic when they had to cut all costs possible to the bone. In this week’s blog, we consider these trends and analyze Blue Sky values and multiples over the past few years thanks to info provided by Haig Partners.

Special Topics Valuation Issues

Powersports: Alternative Growth Opportunity for Auto Dealers

Auto dealers have experienced heightened profitability over the last two years. For dealers with excess cash from continued profits or remaining PPP funds, have you thought about the powersports industry? As one auto dealer client recently recounted to us, “if you have the skills and experience in selling high volumes of automobiles to consumers, then you have the necessary skills to also succeed in the powersports industry.” In this post, we explain what the powersports industry is and how big it is, as well as highlight similarities and differences to the traditional auto dealer industry for those interested in possibly entering this industry.

Public Auto Dealers Valuation Issues

Q2 2022 Earnings Calls

Persistent New Vehicle Inventory Shortages Keep Days’ Supply Low and Pre-sales High - Consumers May Be on Shakier Ground, But Demand is Still Strong

Supply issues continue to dominate the industry with no end in sight. This week we discuss supply issues along with three other themes that were discussed during the Q2 earnings calls.

Mergers, Acquisitions, & Divestitures

Values Up, Valuations Flat?

As the Inventory Shortage Persists, Dealers Are Getting More Credit for Their Outperformance

If you only look at the Blue Sky multiples, you’re missing the bigger picture because valuations (multiples) may be flat, but values are up. In this week’s post, we look at an illustrative example and check in on the valuation multiples for luxury, mid-line, and domestic brands.

Mergers, Acquisitions, & Divestitures Public Auto Dealers

Public Auto Dealer Profiles: AutoNation

There are six primary publicly traded auto dealers that own approximately 923 new vehicle franchised dealerships as of year-end, or approximately 5.5% of the total number of dealerships in the U.S. In this blog, we focus on the largest automotive retailer in the United States, AutoNation.

Our goal with the Public Profiles blog series is to 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.

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.

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.

Special Topics Valuation Issues

Valuation Implications of a 28% Corporate Tax Rate on Blue Sky Multiples

Will Dealerships Become Less Valuable if Tax Rates Rise?

In the early stages of the Biden administration, much of the tax-related discussion surrounding the auto industry has been related to credits for electric vehicle manufacturing and investment in EV infrastructure. In this post, we discuss the valuation implications for auto dealers of the proposed increase in the federal corporate tax rate from 21% to 28%.

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.

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

Valuation Considerations for Auto Dealership Entities with Multiple Franchises

The valuation of an auto dealership can be a challenging and complicated process.  The structure of most auto dealerships consists of an entity holding the actual dealership operations and a separate entity owning the real estate and building.  Often the latter is a related party entity that charges the dealership rent for use of the land and building.  Occasionally, the real estate and the dealership operations are contained in the same entity.

We are all used to the local dealership in our town: Bill Jones Honda, Steve Smith Chevrolet.  But what about the larger auto groups that have multiple franchises organized in the same entity?  How are they valued and what special valuation considerations apply to them?

COVID-19 Coverage Mergers, Acquisitions, & Divestitures

Weather Report for Auto Dealers

Q3 Climate for Blue Sky Multiples, Transaction Activity, and Other Trends

In the last few weeks, Haig Partners and Kerrigan Advisors have released their Third Quarter Blue Sky Reports and J.D. Power just released its U.S. Sales Satisfaction Index.  We find these reports to be timely and informative of not only where the auto dealer industry is today, but where it is headed.  Through observing all of these different sources, we can achieve a well-rounded understanding of the climate surrounding the auto dealership industry. In this post, we look at a few of the trends and key takeaways discussed in these reports.

COVID-19 Coverage Mergers, Acquisitions, & Divestitures

Blue Sky Multiples Rebound from Q1 Declines but Full Recoveries Reserved for Top Brands

Blue Skies Ahead?

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).

Auto Dealerships

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