Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

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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?

Electric Vehicles SAAR Used Vehicles

Auto Industry Trends to Monitor in 2023

An Automotive Potpourri

January is a month to review statistics from the prior year and to make predictions for the new year. The automobile industry is no different. In this poset, we tackle a potpourri of trends to monitor in 2023, including new and used vehicle prices, electric vehicles, connected cars, and SAAR predictions for 2023.      

‘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.

The Top 2022 Blog Posts from Auto Dealer Valuation Insights

Despite existing operational headwinds and new economic headwinds in 2022, auto dealers continued to produce record profits.  As we wind down the year and look towards next year, we look back to see what was popular with you—our loyal readers. Here are some of your favorite posts from 2022.

Luxury

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.

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.

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.  

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. 

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.

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.

COVID-19 Coverage

Rideshare: Friend or Foe to Auto Dealers and Manufacturers?

In this post, we focus on the impact of Uber and Lyft on the auto industry as a whole, particularly as compared to initial concerns. We address the questions: “How has the rise of rideshare giants affected the auto industry?”, “How did the COVID-19 pandemic affect ridesharing?” and “What can we expect from the rideshare industry going forward?”

Blue Sky 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.

SAAR Valuation Issues

2022: How Is the Auto Industry Doing and What Does the Future Hold?

Status Quo or Winds of Change?

The first half of 2022 is behind us, and with school about to start, report cards will be here before we know it. In that same light, the auto industry has published its statistics for the first six months. This post reviews predictions by industry analysts (and us) made at the beginning of the year by analyzing several key metrics. Additionally, we discuss threats that arose during the first half of 2022 and their impact on the auto industry for the remainder of the year and perhaps longer. Finally, we offer a few predictions for the second half of 2022.

Meet The Team

David W. R. Harkins, CFA, ABV

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

Electric Vehicles Valuation Issues

State of the Industry From the Tennessee Automotive Association Convention

Musings From Mercer Capital’s Music City Office

Last week we attended the Annual Tri-State Convention for the Automotive Associations of Tennessee, Mississippi, and Alabama.  The event provided a great opportunity to discuss trends in the automotive industry with industry participants and dealers from different manufacturers and geographic areas.  In this blog, we discuss some of the trends discussed last week, including a variety of topics that we have covered before in this space. We also incorporate highlights of a presentation from noted industry analyst Glenn Mercer (no affiliation with Mercer Capital) regarding the “Dealership of Tomorrow.”

Litigation Valuation Issues

Case Review: Observations From a Recent Auto Dealer Litigation

The valuation of auto dealerships can be very challenging and complex. This week we discuss a recent Appellate Court decision, released from a case (Thomas A. Buckley v. Grover C. Carlock, Jr. et.al.) that we were directly involved in back in 2019. The case centered around a shareholder oppression issue involving a minority owner of an “ultra-high-line” auto dealership. Mercer Capital was hired by the Defendant to serve as the expert witness.

Meet The Team

Scott Womack, ASA, MAFF

In each “Meet the Team” segment, we highlight a different professional on our Auto Dealer industry team. This week we highlight Scott Womack, Senior Vice President of Mercer Capital and the leader of the Auto Dealer industry team. The experience and expertise of our professionals allow us to bring a full suite of valuation, transaction advisory, and litigation support services to our clients. We hope you enjoy getting to know us a bit better.

Valuation Issues

Succession Planning for Auto Dealers

Sorting Through the Madness

What is succession planning? Succession planning is the transfer of value or leadership in a company or organization. For auto dealers, the dealership can represent a lifetime of efforts and relationships with key employees and customers.

This post discusses some of the key factors involved in the succession planning process and why they are so critical.

Valuation Issues

Price vs. Value

How Can the Conclusion of Value for the Same Auto Dealership Be Different?

“Price” and “value” are terms that are often used interchangeably but their meaning may not be synonymous in the context of a private business, or in this case an auto dealership. In this post, we examine the differences between “price” and “value.”

Valuation Issues

Don’t Turn a Blind Eye to Fixed Operations

A Look at the Importance and Stability of Fixed Operations

While fixed operations may not be grabbing any of the current headlines, auto dealers should remain focused on their importance and stability to the overall success and profitability of a dealership.  In this blog post, we analyze the recent historical contribution of fixed operations to overall dealership metrics, analyze several key indicators of future performance, and explore several myths and the changing landscape of the service department and customer relationship.

COVID-19 Coverage Electric Vehicles Valuation Issues

The Future of Auto Dealerships

How Inventory Shortages and Electric Vehicles May Shape the Future of Automotive Retail

Just as December is a good time to look back and reflect, January is a good time to look forward, to 2022 and beyond. When we value auto dealerships, we look back at performance in prior years because this helps to inform reasonable expectations for future performance. Prior to the pandemic, the directly preceding twelve months of performance may have been a reasonable proxy for ongoing expectations. However, throughout 2020 and 2021, discussions about when things will return to “normal” or whether we’re in the “new normal” have taken center stage.

In order to look forward, we must also consider the past, or as Shakespeare’s Antonio would say, “What is past is prologue.” In this post, we look at two key trends in 2021 (inventory shortages and electric vehicles/direct selling) and how they may inform how automotive retailing will look in the future.

SAAR

Auto Industry Trends to Monitor in 2022

Less Is More?

What trends can we expect to see in 2022 for the auto industry? What trends will we see “less” of? What trends will we see “more” of? In this post, we examine some of these trends and offer some predictions for industry conditions in 2022.

Auto Dealerships

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