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Auto Dealer Valuation Insights

Regular updates on issues important to the Auto Dealer industry

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Auto Dealer Valuation Insights

Special Topics

Infrastructure Investment for EVs, Data Privacy, and Dealership Buy-Back Programs

2023 NADC Conference Update

The recent NADC conference unveiled many developments that are shaking up the auto dealer industry. Unpacking the evolving shift towards electric vehicles (EVs), we heard about infrastructure investments and the legal labyrinth posed by new EV-specific brands. As technology in vehicles leaps forward, we also learned the challenges of data privacy and consumer data protection laws. And for those dealers hesitant about the EV transition, dealership buyback programs may be on the table. These issues, among others, are steering the future course of the auto industry, demanding a watchful eye. Discover how these evolving landscapes could impact you.

SAAR

April 2023 SAAR

The April 2023 SAAR reveals a significant upswing in vehicle sales, with an 11.4% increase from April 2022. This marks the ninth consecutive month of year-over-year growth, emphasizing the improvement in vehicle availability. As we compare the inventory to sales ratio over the past three years, it’s clear that the industry has recovered from the pandemic’s impact on demand and supply chain shortages. Transaction prices are currently experiencing a slight normalization, while incentive spending is on the rise. With supply chain conditions gradually improving, the outlook for May 2023 remains optimistic. Read the full analysis to discover what this might mean for the automotive industry and potential buyers.

Electric Vehicles Special Topics

EV Potpourri

Discussing Levels of Charging to OEM Requirements of Dealers

There are exciting developments in the electric vehicle (EV) market, where sales momentum continues to build as EVs make up an increasing share of new light-duty vehicle sales. Learn about the different charging levels, the various requirements automakers have for their dealers, and the expanding presence of charging stations at various retailers and restaurants. As major auto manufacturers are investing in and adapting to the EV revolution, sustainable transportation appears to be the way forward in this rapidly growing industry.

SAAR

March 2023 SAAR

Is North American Auto Production Lagging Behind?

The March SAAR was 14.8 million units, down 1.2% from last month but up 9.3% compared to March 2022. Year-over-year improvements in the SAAR continue to persist as inventory is more available compared to this time last year. In fact, this month marks the eighth month in a row of year-over-year improvements in the SAAR and signals consistency in auto production and auto demand trends.

Blue Sky 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.

Special Topics Valuation Issues

Plan for the Unexpected

Succession Planning for Auto Dealers

The 2023 NCAA College Basketball Tournament began last week. Many of us have been checking our brackets obsessively.  There’s a reason it’s called March Madness.  Who would have predicted that Fairleigh Dickinson would upset Purdue or that Princeton would upset Arizona and advance to the Sweet 16? The tournament and its bracket challenges are full of possibilities but are also a source of frustration, given the unexpected twists and turns. In certain ways, succession planning for auto dealers mirrors the journey through the tournament. Just as the thought of a #16 seed beating a #1 seed wasn’t on our radars before 2018 (when #16 University of Maryland-Baltimore County beat #1 Virginia 74-54 on March 16, 2018), thoughts of a global pandemic or an inventory crisis caused by a microchip shortage weren’t expected either. The lesson to be learned: Plan for the unexpected.

In this post, we discuss some of the key factors to be considered in the succession planning process and why they are critical. 

Public Auto Dealers SAAR Supply Chain Used Vehicles

Q4 2022 Earnings Calls

Executives Anticipate a Return to Normal

In 2022, fewer than 14 million light vehicles were sold, which was the lowest level since 2011. Supply constraints hampered productions from automakers, which led to higher profits for auto dealers on each vehicle they were able to acquire and sell, both new and used. Vehicle production improved gradually throughout the year, which is anticipated to continue through 2023.

This week we review the Q4 2022 earnings calls from the executives of six publicly traded auto dealers and discuss some of the major themes.

SAAR

February 2023 SAAR

The February SAAR was 14.9 million units, down 6.3% from last month but up 8.6% from February 2022. Year-over-year increases in the SAAR have been a theme throughout the last several months. In fact, February 2023 marks the seventh month in a row that the SAAR improved from the year prior. Looking ahead, we believe that it is likely that year-over-year improvements will continue for several more months as nationwide inventory balances continue to recover.

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.

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Key Contacts

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Nicholas J. Heinz, ASA

(901) 322-9788

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David W. R. Harkins, CFA, ABV

(615) 345-0272

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Harrison Holt, ABV

(615) 345-6881

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Kate Mabry

(615) 288-0031

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