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Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

Auto Dealer Valuation Insights

September 14, 2020 Litigation Special Topics

Does Personal Goodwill Apply to Auto Dealerships?

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.

August 31, 2020 Special Topics

Is the Hype Sustainable?

How EV Start-Ups Are Taking Advantage of SPACs to Enter the Public Market

As we mentioned in a previous blog post, the electric vehicle (EV) market has been all the rage lately, driven primarily by Tesla’s success in creating main stream electric vehicles. We’ve discussed the “Tesla Story” extensively in previous posts, and their stock has continued to rise. It was sitting around $2,200 last Friday, up from $216 last year, or an astounding 918%. Tesla split its stock 5-1 Monday and was hovering around $450 at the time of writing this post.

As expected, other companies want to capitalize on the hype that Tesla has created in the industry, with EV start-ups trying to capture a slice of the pie. This summer has been a huge one for the industry, with electric vehicle startups Nikola, Fisker, Hyiilon, Lordstown, and Canoo all either going public or announcing plans to go public. Notably, however, they are not relying on the typical, lengthy IPO route to achieve this. Instead, they are using special purpose acquisition companies (or SPACs) to hit public markets quicker. In this post, we will walk through the companies going public, the deals, pros and cons of the SPAC, and what this could mean for your dealership.

August 24, 2020 COVID-19 Coverage Public Auto Dealers

Q2 2020 Earnings Calls

Constrained Inventories and Improved SG&A Margins Expected to Normalize While the Future of Omnichannel Initiatives Stays Top of Mind

As expected, the COVID-19 pandemic has thrust many dealerships into relying on their digital and omnichannel offerings due to complications arising from stay-at-home orders. Further government restrictions have curbed new vehicle supply as manufacturers have struggled to ramp up supply. Many dealers noted inventory shortages. However, with sales volumes significantly below the 17 million seen over the last several years, both the numerator and denominator of the days of supply statistic are declining. Lower sales mean lower inventory isn’t a deal breaker; in the short term, limited supply has led to some gross margin improvement. However, total gross profit is still significantly down due to the lower sales (combination of lower inventory and lower demand). While sales have improved sequentially as restrictions have eased, parts and service (particularly collision) have trailed in their recovery as fewer miles driven has translated into reduced demand. Analysts inquired about the potential for stay-at-home orders to be ramped back up, particularly in large states such as Texas, California, and New York, though executives largely downplayed the likelihood and the impact it would have on their businesses.

August 17, 2020 SAAR

July 2020 SAAR

SAAR Increased to 14.5 Million in July, and Declines in Public Transportation and Ride-Sharing Usage Could be Creating Opportunities for Dealerships

SAAR continues to trail pre-COVID numbers with July 2020 14% below last year. Still, the continuing increase is encouraging. With demand picking up as customers can return to brick-and-mortar locations, dealerships aren’t feeling the need to offer as strong of incentives as they did at the start of the pandemic.

August 10, 2020 Valuation Issues

Whitepaper Release: Understand the Value of Your Auto Dealership

In this whitepaper, we break down the value drivers of a dealership, discuss when you might need a formal valuation, introduce the valuation methodologies used by professional business appraisers, and go into some depth about topics such as dealer financial statements and normalizing adjustments to the balance sheet and income statement.

August 3, 2020 Special Topics

Electric-Vehicle Industry Is Heating Up

Policy and Oil Price Implications for EV Sales

The current focus for new auto technologies is less focused on speed, and more on sustainability, as there appears to be a shift in focus away from developing the century-old gasoline-powered vehicle to electric. The electric-vehicle (EV) industry has shown to be an attractive long-term alternative for manufacturers. In this post, we’ll survey the landscape including the beginnings of EVs, major players in the industry, and the future outlook.

July 27, 2020 COVID-19 Coverage Mergers, Acquisitions, & Divestitures

Fiat Chrysler & Peugeot (PSA) Merge into “Stellantis”

Analyzing the Timeline and Twists and Turns of a Transatlantic Merger During a Pandemic

Last week, we analyzed Asbury Automotive Group’s acquisition of Park Place, a deal scuttled by COVID-19 that came back to life under revised terms. This week, we are moving upstream to look at the merger between Fiat Chrysler (FCA) and Group PSA (manufacturer of Peugeot and Citroen) and observe the new name of the entity, the merits and hurdles of the ongoing deal, and some potential impacts on auto dealers.

July 20, 2020 Luxury Mergers, Acquisitions, & Divestitures Public Auto Dealers Special Topics

Asbury-Park Place Acquisition as Seen Through a Monday Night Football Commercial

You Make the Call!

In this week’s post, we review a timeline of the Asbury-Park Place transaction, along with an analysis of Asbury’s stock price against the rest of its public competitors and also examine the operational strategy of Asbury over the years to explain aspects of the Park Place acquisition. As with any merger or acquisition, the true success or failure of the deal may not be known for years. Investors and industry professionals can try and play armchair quarterback and try to predict the outcome. This blog post aims to provide ample information so that you can “make the call” on the transaction.

July 15, 2020 COVID-19 Coverage SAAR

June 2020 SAAR

A Lackluster Month, But a Move in the Right Direction

After SAAR rebounded in May, June’s results seem to pale in comparison. However, with SAAR coming in at just over 13 million, this is still an increase from May’s SAAR of 12.3 million. Sales have continued to remain below the previous year’s numbers, with June 2020 declining 20% from the same period 2019.

June 29, 2020 COVID-19 Coverage Public Auto Dealers

Vroom, Zoom, and Stock Market Boom

As we teased last month, Vroom filed an S-1 with the SEC in May enabling its initial public offering (IPO) on June 9th. The online automotive retailer priced the 21,250,000 shares at $22/share. By the end of the trading day, Vroom’s stock had increased 118% to $47.90. For perspective, the NASDAQ as a whole rose only 0.3% that day. The company positions itself as “an innovative, end-to-end platform designed to offer a better way to buy and a better way to sell used vehicles.” A press release also touted its “contact-free” nature, apparently seeking to distinguish Vroom from traditional, franchised, brick-and-mortar dealers as COVID-proof. In this post, we’ll consider Vroom’s business model compared to other online dealers, the company’s investment thesis that may have driven their spike, and see what the filing could tell us about the broader industry and the IPO market more generally.

June 22, 2020 Mergers, Acquisitions, & Divestitures Special Topics Valuation Issues

Valuation and M&A Trends in the Auto Dealer Industry

Shifting Out of Neutral

For this week’s blog post, we sat down with Kevin Nill of Haig Partners to discuss trends in the auto dealer industry and the recent release of their First Quarter 2020 Haig Report. Haig Partners is a leading investment banking firm that focuses on buy/sell transactions in the auto dealer industry, along with other transportation segments. As readers in this space are familiar, Haig Partners also publishes Blue Sky multiples for each of the auto manufacturers based on their observations and data from participating in transactions in this industry.

June 15, 2020 Valuation Issues

How Proper Normalization Adjustments Contribute to a Better Finished Product

Trusting the Process

In previous posts, we discussed the valuation methodologies and the value drivers of an auto dealership valuation. The next step in the process is to normalize the financial statements.

Normalization adjustments take private company financials and adjust the balance sheet and income statement in order to view the company from the lens of a “public equivalent.” Adjustments are often interrelated; a change to the balance sheet frequently will affect the income statement.

In this week’s post, we highlight many of the typical normalization adjustments that must be considered in the valuation of an auto dealership.

June 8, 2020 COVID-19 Coverage SAAR

May 2020 SAAR

May Vehicle Sales Supported Optimistic Predictions, But a Slow Manufacturing Rebound is Threatening to Hinder This Growth

After a devastating April SAAR, predictions for a rebound in May proved to be correct. Vehicle sales in the month jumped with SAAR increasing 38.6% to 12.2 million. However, while dealerships have been able to remain open in some capacity through online sales, manufacturing plants have not had such options. Looking forward, inventory shortages and supply chain disruptions may pose some challenges for dealerships.

June 2, 2020 Valuation Issues

Driving Value: Key Components of an Auto Dealership Valuation

Auto dealers, like most business owners, are likely always curious about what their dealership might be worth. While there are many times they may want to know, there are various life events that make them need to know the value such as a transaction (including buy-sell), litigation, divorce, wealth-transfer, etc. While valuations tend to be performed infrequently around these events, dealers can evaluate their business and improve its value by understanding and focusing on the value drivers of their auto dealership and addressing them on a consistent basis. So, what are some of the value drivers of an auto dealership?

May 26, 2020 COVID-19 Coverage Mergers, Acquisitions, & Divestitures Public Auto Dealers

Q1 2020 Earnings Calls

COVID-19 Causes Declines in Q1, but Executives Maintain Optimism Going Forward

Auto dealers stock prices declined in the first quarter of 2020 following the broader market trend. Though many dealers saw year-over-year gains in sales and earnings in the first two months of the year, earnings calls focused on the coronavirus pandemic. Volumes have fallen across the country, though executives pointed to recent positive trends. Downturns have muddied the M&A market, and some companies don’t plan to rehire everyone that has been let go. Many praised the support of OEMs including significant incentives such as 0% financing. With dealership doors shuttered, many executives touted their online presence, though there was not a consensus on digital’s long-term place in the market.

May 18, 2020 COVID-19 Coverage SAAR

April 2020 SAAR

April Showers Bring May Flowers? High Optimism Following a Historically Low April SAAR

Proliferation of stay-at-home orders and adjusting to digital sales amid the COVID-19 pandemic contributed to April SAAR declining to the lowest seasonally adjusted national sales volumes in decades. Despite the decline, there are reasons to be optimistic about dealership sales going forward.

May 11, 2020 COVID-19 Coverage Divorce Litigation Valuation Issues

Complex Valuation Issues in Auto Dealer Litigation

Solving the Puzzle

Litigation engagements are generally very complex, consisting of many moving parts. The analogy that comes to mind is the nostalgic game of Tetris. Like the game, many clients involved in auto dealer valuation disputes also experience anxiety and stress as problems begin to pile up.

We hope you never find yourself a party to a legal dispute; however, in this post, we offer words of wisdom based upon our experience working in these valuation-related disputes. We begin with seven topics, posed as questions, that have been points of contention or common issues that have arisen in recent litigation engagements. We’ve also added two questions to consider additional issues raised during the COVID-19 crisis.

May 4, 2020 COVID-19 Coverage Special Topics Valuation Issues

Revolution or Evolution: COVID-19 Pushing Auto Dealers into the 21st Century

Are we witnessing a revolution in the auto industry similar to that of Blockbuster and online streaming, or simply an evolution into more tech-savvy dealerships? The current COVID-19 pandemic has auto dealers scrambling to find ways to maintain sales as stay at home orders are keeping customers from the dealership. To move vehicles off the lot, dealerships have been pushed into a new era of online car sales. While many auto dealers have only somewhat dipped their toe into the digital space, they have now been pushed off the deep end.

April 27, 2020 COVID-19 Coverage Special Topics

A Deeper Dive into the Impact of COVID-19 on Auto Dealerships

Auto dealers are in a unique situation. While technically categorized as consumer “discretionary” items, many people rely on their cars to navigate their busy daily lives. With activity grinding to a halt amidst stay-at-home orders, cars are tipping more towards discretionary items (despite many dealerships being deemed essential businesses).

While more practical than other expensive purchases, like a designer handbag, automobiles become less of a priority when budgets are trimmed, particularly when people are staying at home. All told, this will likely lead consumers to delay their purchases of cars, particularly those who want to peruse their options by walking a lot and test driving various makes and models.

While other retail industries have fallen prey to the “Amazon effect,” auto dealers have avoided this fate because many consumers are not yet comfortable making such a significant investment without first getting behind the wheel. However, this means sales activity is even more adversely impacted by the current environment. Consumers with disposable income are more likely to spend it on other high-end items that require less personal inspection for style and feel before buying. As we’ll discuss, this is just one of the impacts the coronavirus is having on the auto industry.

April 20, 2020 COVID-19 Coverage SAAR

March 2020 SAAR

When Might Things Return to Normal?

The term “24-hour news cycle” doesn’t do justice to the rate at which new information becomes available and is consumed by people trying to understand the significant impact COVID-19 is having on all of us. Stay-at-home orders have created a huge demand shock, which is particularly harmful to a largely service-based economy. In this post, we contextualize some of the fallout that has been experienced and try to answer the question “when will things return to normal?”.

April 13, 2020 COVID-19 Coverage Special Topics Valuation Issues

Looking Back to Look Forward

Lessons for the Auto Dealer Industry

Auto dealers are a resilient, adaptable group by nature. It’s one of the reasons many have been able to survive economic hardships or sluggish industry conditions in the past. While we haven’t witnessed the unique totality of the conditions that are present today, auto dealers can adopt some of the principles from the Great Recession to try and mitigate the challenges during the survival mode portion that we currently face.

March 23, 2020 Valuation Issues