Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

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Auto Dealer Valuation Insights


Special Topics Used Vehicles Valuation Issues

2022 Auto Dealer Industry Metrics Review

Has Profitability Peaked?

As we turn the calendar to March, 2022 is in the rearview mirror, and year-end statistics for the auto industry have been released. How did the industry perform, and what do the metrics tell us about the direction of the industry in 2023? In this post, we discuss the key metrics we track for the industry: new vehicle profitability, the supply of new vehicles, average trade-in equity values of used vehicles, the used-to-new vehicle retail unit sales ratio, fleet sales, and vehicle miles traveled. 

Valuation Issues

LOV(E): Why Getting the Level of Value Right Is So Important to Auto Dealers

Part II

In this two-part series, we continue our exploration of the “Levels of Value.” The Levels of Value refer to the idea that while “price” and “value” may be synonymous, they don’t quite mean the same thing. A nonmarketable minority interest level of value is very different from a strategic control interest level of value. Last week we described each Level of Value and why the concept is so important to auto dealers.

This week, we discuss four potential transactions in which selecting the appropriate level of value is critical and explain why: 1) estate planning, 2) corporate development, 3) divestitures, and 4) shareholder redemptions.

Valuation Issues

LOV(E): What Are the “Levels of Value” and Why Does It Matter to Auto Dealers?

Part I

In the spirit of Valentine’s Day, we cover a topic that may seem too theoretical; however, the shareholders in your business must understand it – LOV – or the “Levels of Value.” The Levels of Value refers to the idea that while “price” and “value” may be synonymous, they don’t quite mean the same thing. A nonmarketable minority interest level of value is very different from a strategic control interest level of value. In this week’s post, we explain what each level means and how each specifically relates to auto dealers. This will be the first part of a two-part blog series.

SAAR

January 2023 SAAR

The January 2022 SAAR was 15.7 million units, which is 18% higher than December 2022 and 4% higher than this time last year. This month’s data release revealed the fifth straight month of year-over-year improvements in the SAAR, supporting that inventory levels are actually recovering from the throws of persistent supply chain disruptions.

Supply Chain

Floorplan Interest Income Fading

Part 2: Floorplan Relevant Factors

In part 2 of our series on floorplan interest, we take a closer look at floorplan relevant factors and macroeconomic forces to keep an eye on throughout the coming year and beyond as dealers plan their floorplan expenditures and budgeting.

Special Topics Supply Chain

Floorplan Interest Income Fading

Part 1: Rising Interest Rates and Increasing Inventories Are Anticipated to Remove the Unlikely Profit Center

Compared to last year, interest rates have significantly increased since the Federal Reserve began raising rates in March 2022. Inventories have also improved as the industry works through its supply chain issues. These shifts in economic trends are expected to have an impact on many aspects of auto dealer operations. In this week’s post, we talk about floorplan interest income and pose some important questions: What is floorplan interest expense, and what are floorplan credits? How have floorplan credits turned into an unlikely profit center for dealers? Can we expect this trend to continue amid changing conditions?

Blue Sky 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.

SAAR

December 2022 SAAR

The December SAAR was 13.3 million units, down 5.3% from last month but up 4.7% from this time last year. This month’s SAAR data is a bit concerning for the auto industry, as supply chain improvements do not seem to be translating to improvements in the sales pace of vehicles as quickly as the last couple months have indicated. Over the past month, it has seemed more and more likely that plummeting trade-in equity, persistently high interest rates and growing fears of an economic recession are keeping the sale of automobiles low, which could spell trouble for auto dealers that have thrived in a high price environment over the past eighteen months.

Special Topics

‘Twas the Blog Before Christmas…

2022 Mercer Capital Auto Dealer Holiday Poem

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 2023.

SAAR

November 2022 SAAR

The November 2022 SAAR was 14.1 million units, down 6.5% from last month but up 7.9% from November 2021. Compared to this time last year, vehicle availability has significantly improved, and there seems to be hope around the industry that the auto inventory crunch is in its final act. If true, this would be good news for auto dealers and consumers alike, as more units on dealer lots seem to be the first step in a “return to normal” for the industry. While it’s clear that a year-over-year improvement is present, a dip from last month’s SAAR figure may raise red flags for some of our readers. However, an additional selling weekend in October and a marginal uptick in sales due to natural disasters in the Gulf of Mexico were both tailwinds that supported a surprising improvement in the SAAR last month. Given this perspective, November 2022’s SAAR seems to return to the larger trend of improving conditions.

Luxury Special Topics

Auto Brands and the 2022 World Cup

Who Are the Top Ranked Countries?

This week we compare the FIFA rankings of the world’s largest vehicle producing countries. Spoiler alert: there is no correlation. But in our research, we found plenty of interesting nuggets and talking points. We also discuss top vehicle producing nations that did not qualify for the World Cup, nations that did qualify but do not have a large presence in auto production. We also get into brand presence and Blue Sky multiples of these nations’ vehicle brands.

Special Topics

Meet the Team

Harrison Holt

In each “Meet the Team” segment, we highlight a different professional on our Auto Dealer Industry team. This week we highlight Harrison Holt, Financial Analyst. We hope you enjoy getting to know us a bit better.

SAAR

October 2022 SAAR

The October 2022 SAAR was 14.9 million units, up 12.7% from October 2021 and up 9.8% from last month. This month’s SAAR comes as a bit of a surprise, as the last three months’ sales pace settled at around 13.4 million units and seemed to have stabilized at a short-term equilibrium. However, meaningful improvements in inventory balances and other tailwinds like natural disaster-related demand contributed to the second-highest monthly SAAR total this year. For perspective, from 2014-2019, there were zero months where SAAR was below this recent high in the inventory-constrained 2022.

Special Topics Valuation Issues

Market Insights on Auto Dealer M&A Activity

A few weeks ago, I sat down with Kevin Nill of Haig Partners to discuss the current state of the M&A market and other timely trends in the auto dealer industry.  Specifically, we discussed some of the movements in Blue Sky multiples for various franchises and interpret the range of multiples that Haig Partners recently published with the release of their Second Quarter 2022 Haig Report.  

Special Topics

Regulatory Update: Amendments to FTC Safeguards Rule

Impacts to Auto Dealerships

NADA estimates that auto dealerships could face up-front costs of up to $294,000 per rooftop to comply with the FTC’s Safeguards Rule. If you are not familiar with the Safeguards Rule, this post discusses it and the amendments that must be complied with by early December 2022. 

SAAR

September 2022 SAAR

The September SAAR was 13.5 million units, up 2.3% from last month and up 9.6% from September 2021 when the industry had less than one million vehicles available for sale. While this month’s SAAR highlights a year-over-year improvement and gives us context around how low inventory managed to fall in 2021, this month’s data release does not indicate a “return to normal” by any means.

Special Topics

Book Review:  The Future of Automotive Retail (Part 2)

Discussions and Predictions of Changes to Auto Dealers in the Next 30 Years

In this week’s blog, we continue our review of the book The Future of Automotive Retail by Steve Greenfield.   It covers the changing trends of consumer behavior and technology that will likely continue to shape the automotive retailing experience for decades to come.  In part one of the series, we discussed the “convenience economy,” including predictions of changes to power sources and vehicle production.

In Part two of this series we discuss vehicle ownership, autonomous vehicles, connected cars, service and repairs, and the proposed future of the auto dealership.

Special Topics

Book Review: The Future of Automotive Retail (Part 1)

Discussions and Predictions of Changes to Auto Dealers in the Next 30 Years

Over the next two blogs, we will review the book The Future of Automotive Retail by Steve Greenfield.  This book discusses changes in trends of consumer behavior and technology that will likely continue to shape the auto dealer retailing experience for decades to come. In part one of this Blog series, we review the discussions and predictions caused by the “convenience economy,” including changes to power sources and vehicle production.

Blue Sky 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.

SAAR

August 2022 SAAR

The August SAAR was 13.2 million units, down 1.1% from last month but up 0.7% from August 2021. This month’s data release, marks the third month in a row that the SAAR has been in the low 13 million-unit range, with the metric seemingly having stabilized in the short term. To illustrate this trend, over the last four months the average SAAR has been 13.1 million units.

Now that the August data has been released, we have much more visibility to what the full year SAAR might look like.

Auto Dealerships

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