Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

Category

Public Auto Dealers


COVID-19 Coverage

Q3 2020 Earnings Calls

Low Supply and SG&A Reductions Lead to Record Earnings

As we do every quarter, we take a look at some of the earnings commentary from major players in the industry. These trends give insight into the market that may exist for a private dealership.

COVID-19 Coverage

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.

Luxury Mergers, Acquisitions, & Divestitures 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.

COVID-19 Coverage

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.

COVID-19 Coverage Mergers, Acquisitions, & Divestitures

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.

Auto Dealerships

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