Auto Dealer Valuation Insights

A weekly update on issues important to the Auto Dealer industry

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Special Topics


Electric Vehicles

Hybrid Vehicles and the Goldilocks Principle

EVs Get the Headlines While Consumers Are Getting Hybrids

For the past few years, electric vehicles (EVs) have been a huge talking point. While there has been plenty of consumer interest in EVs, there has been even more skepticism centered largely around range anxiety and upfront cost. If internal combustion engine (ICE) vehicles are porridge that is too cold, and EVs are perhaps too hot, hybrids, at least for now, appear to be “just right.” This post touches on recent developments with electric vehicles and how they are leading to a surge in demand for hybrids.

Blue Sky Valuation Issues

One Dealer Is Not Like the Other

Independent Dealers Industry Segment Highlight

In August 2022, we wrote a blog about the Powersports dealer segment of the auto industry, comparing and contrasting it to the franchised dealers that we spend most of our time writing about.  This week, we highlight another segment of the auto dealer market: independent dealers. Read more about how independent dealers have specific nuances and factors that cause a greater impact to their success and profitability.

Electric Vehicles Litigation Valuation Issues

2024 NADC Conference Key Takeaways

We’re back from the National Association of Dealer Counsel (“NADC”) annual member conference in Napa, California. The conference took place from Sunday, April 14th, to Tuesday, April 16th, and conference attendees included attorneys, auto dealer principals, in-house counsel, and vendors/service providers like us. It was great to see familiar faces, meet new people, and hear how several auto groups are faring in the current environment.

In this post, we provide a brief list of key takeaways from a few of the sessions we attended. We believe the topics covered are especially important for auto dealer counsel and their clients to watch throughout the remainder of the year and beyond.

Supply Chain

News Update: How the Collapse of the Baltimore Bridge Might Impact the Auto Supply Chain

The recent collision of the cargo ship Dali with the Francis Scott Key Bridge in the Port of Baltimore has far-reaching implications for the global supply chain, particularly for the automotive industry, as the port is a major hub for automotive shipments. Automobile imports account for nearly 75% of all automobiles passing through the Port of Baltimore. The incident may cause delays in vehicle deliveries with notable effects on foreign manufacturers like Mazda and Mercedes-Benz. Although it’s too early to quantify the full economic impact, the event underscores the importance of adaptability in the auto industry, reminiscent of the resilience demonstrated during the COVID-19 pandemic.

It’s Not About the Mangos: Focus on People

What We've Been Reading

“It’s Not About the Mangos” by Kent Coleman offers valuable insights for business owners in the auto dealership industry, emphasizing the importance of focusing on people and relationships for organizational success. The book highlights the significance of building a positive culture, recognizing and valuing employees, and understanding that every organization is essentially a sales organization. Implementing the principles shared in this book can lead to a more successful, sales-driven dealership, as happy and motivated employees can become the most effective advocates for your business. For more insights, check out this week’s post.

Valuation Issues

An Estate Planning Primer

Why Auto Dealers Need to Start Thinking About Estate Planning Again

As the auto industry navigates the aftermath of record performance and faces a looming estate tax exemption cliff at the end of 2025, auto dealers are encouraged to revisit their estate planning strategies. The Tax Cuts and Jobs Act significantly raised the estate tax exemption limit, but with some of its provisions set to expire, many dealers who previously didn’t need to worry about estate planning may now be affected. Given the current political climate and the uncertainty surrounding future legislation, it’s advisable for auto dealers to act sooner rather than later to avoid missed opportunities and ensure the legacy of their family-owned dealerships.

No Soup for You

Lessons from Seinfeld on Customer Lifetime Value and Brand Loyalty in the Auto Industry

Drawing inspiration from classic “Seinfeld” episodes, we explore the nuanced challenges of customer loyalty and retention faced by auto dealers and OEMs, using the memorable characters of the Soup Nazi and Joe’s fruit stand as metaphors for the high stakes of customer service in the automotive industry. We explain the technicalities of calculating customer lifetime value (CLV) and the cost of customer acquisition (CAC), offering practical strategies for auto dealerships to enhance customer retention and maximize net CLV. Emphasizing the importance of personalized and unified shopping experiences, quality customer service, and the critical role of maintaining customer loyalty throughout the lifecycle of vehicle ownership, we underscore the potential pitfalls and rewards in the pursuit of brand loyalty.

Mergers, Acquisitions, & Divestitures

How a Quality of Earnings Analysis Benefits Auto Dealership Buyers

The auto dealer transaction space has seen significant activity in recent years, with the prospect of Fed rate cuts in 2024 potentially attracting even more buyers. Obtaining a quality of earnings (QofE) analysis is crucial for buyers who don’t want to overpay for an acquisition. In this week’s post, we describe four key elements of a QofE analysis and how this analysis informs the buyer.

SAAR

2024 Automotive Trends

A Look Back to Look Forward

In 2024, the automotive industry is expected to experience changes in vehicle supply, incentives, transaction prices, and overall profits. The new vehicle market is adjusting to higher inventory levels and manufacturer incentives, but this increase in supply is not predicted to result in higher profit margins for dealers, mainly due to factors like increased interest rates, investments in electric vehicle infrastructure, and wage increases following the UAW strike. Additionally, trends in the car-buying process indicate a shift towards online and omnichannel purchasing methods, with a significant generational difference in vehicle ownership preferences between Millennials and Gen Z.

What Is the Car Parc Makeup?

The Automotive Market Trends report for Q3 2023 reveals key insights into the automotive industry. The report indicates that the light vehicle segment experienced a slight increase and the average age of vehicles on the road is rising, now at 12.5 years, reflecting longer vehicle retention by drivers. The report also highlights the popularity of SUVs and pickup trucks in the U.S., despite their higher costs and less favorable gas mileage compared to sedans.

‘Twas the Blog Before Christmas…

2023 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 2024.

Auto Dealer Insights: Best of 2023

As we put a bow on 2023, we’re looking back at our top posts from the year. Our weekly posts follow the auto industry closely to keep up with market trends and gain insight into the private dealership market.  We hope you have enjoyed our content in 2023, and we look forward to connecting further in 2024! 

Return to Status Quo or a New Normal?

Auto Leasing Trend Update

In the evolving landscape of vehicle transactions, consumers have veered away from leasing due to factors like inventory shortages, higher interest rates, and less attractive leasing incentives. Despite this shift, leasing remains a cheaper option than buying, with dealers and manufacturers closely monitoring the market’s changing dynamics. As leasing shows signs of recovery in 2023, its future in the auto industry hinges on factors like market trends, consumer behavior, and effective dealership strategies.

Blue Sky

The Winding Road to Blue Sky Value

Important Considerations in Auto Dealer Valuations and Pitfalls to Avoid

In the upcoming month, Scott Womack and David Harkins will present at three different forums, shedding light on the pivotal aspects and considerations of auto dealer valuations, including special considerations in litigation/buy-sell matters. They will delve into why traditional market approaches are generally not applicable for the valuation of auto dealerships, especially single rooftop operations, and explore the limitations of existing database evaluations. Beyond this, they will also explore the changing dynamics of value drivers like real estate and employee management, highlighting the shifting landscape as the industry moves towards digital and online platforms, and offer insights and suggestions for navigating buy/sell litigation and ensuring fair and consistent transactions.

Electric Vehicles

Toyota’s Steady State Battery

Breakthrough or Yet Another Long-Dated Production Target?

In early July, Financial Times reported Toyota’s solid-state battery breakthrough. According to Keiji Kaita, president of Toyota’s research and development center for carbon neutrality, the goal is to cut the size, weight, and cost of both liquid and solid-state batteries in half. In this post, we get into the details of this report, what auto dealers should know about solid-state batteries, and provide some context for realistic expectations.

Mid-Year 2023 Review of the Auto Dealer Industry by Metrics

Cooling Statistics, But Perspective Is Key

The first half of 2023 has been successful for auto dealers despite a decline in some metrics from previous record highs, according to recent industry reports. Although new vehicle profitability has experienced a reduction compared to the end of 2021, it’s still notably higher than pre-pandemic levels. In this blog, we provide a deep dive into key indicators such as new vehicle supply, average trade-in equity values of used vehicles, and vehicle miles traveled to give a comprehensive view of the current auto industry trends.

Valuation Issues

Tax Planning for Auto Dealerships

Why Auto Dealers Might Not Pay “Market” Rent

In business valuation, appraisers seek to normalize historical earnings to establish the level of earnings an investor might reasonably expect from an investment in the subject company. These adjustments may increase or decrease earnings, and they can be for a variety of reasons. Normalization adjustments include surveying various expense categories and determining whether the amount historically paid is considered “market rate.”

Rent paid to a related party is frequently judged to be above or below market, which can be for a variety of reasons. Dealers’ priorities lie more with sales and operating efficiency than tracking what the market says they should pay in rent. The rent paid also may be artificially high or low for tax purposes. In this post, we examine what exactly this means, and why auto dealers may hold real estate in a separate but related entity from the one that owns the dealership operations.

Overview of Auto Finance 2023

Origination, Delinquency, and Portfolio Trends

Explore the shifting landscape of auto finance as we compare the roles of captive finance companies and third-party lenders, track current market trends, and analyze credit quality and interest rates. From assessing the changing face of dealership profitability to exploring the increasing importance of finance and insurance departments, we offer our perspective on the industry’s present and potential future.

Demise of the Sedan

Does Recent Data Suggest the Sedan Will Follow the Station Wagon and Minivan?

Do you remember the infamous car from National Lampoon’s Vacation? As the inspiration for this week’s blog, we explore how cars have evolved from the ‘family truckster’ station wagons of the 70s and 80s to the rise of SUVs and crossovers today. Leveraging recent data and vehicle trends, we look at whether the once-popular sedan is being phased out or if it could potentially make a comeback. We also consider the influence of historical legislation on vehicle trends and potential future shifts that may once again place the sedan in the limelight.

Auto Dealerships

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