Part 2 of our reinsurance series examines how captives figure into valuation and planning for auto dealer groups. We contrast the risk and return profiles of dealership operations, real estate, and reinsurance entities, and outline how disciplined analysis—of underwriting performance, capital needs, and recapture economics—can unlock estate planning advantages and creative transaction structures.
Auto dealerships are complex businesses with revenue streams ranging from new and used vehicle sales to service, parts, and F&I (finance and insurance). Within F&I, one of the most under appreciated opportunities for wealth creation is reinsurance. While some dealers have operated reinsurance companies for years, others rely solely on commissions from third-party product providers. In the first blog of this series, we introduce the basics of reinsurance in the context of auto dealerships and explore both the pros and cons of establishing a reinsurance company.
After the initial uncertainty brought on by the COVID-19 pandemic, auto dealerships have experienced record performance. However, profits have receded towards more normalized levels just as a significant cliff for estate tax planning looms at the end of 2025. It’s time for auto dealers to revisit their estate planning.
The United States automotive industry has been navigating an increasingly uncertain landscape since the 2024 presidential election. Since taking office, the current administration announced a series of tariffs that introduced uncertainty for both manufacturers and dealers. If the newly imposed tariffs remain in effect, dealerships across the United States could face near- and long-term headwinds. In this week’s post, we cover how these changes may affect sales volumes, profitability, and auto dealer valuations.
On December 23, 2024, Honda Motor Co. and Nissan Motor Co. shook up the automotive world by announcing a memorandum of understanding (“MOU”) to explore a potential merger alongside Nissan’s partner Mitsubishi. However, the road to consolidation proved bumpier than expected, as negotiations unraveled due to disagreements over the merger structure. While the formal merger talks have been publicly shelved, the question remains: Does Nissan still need a strategic partner to secure its future? And what does this uncertainty mean for Nissan dealers navigating the industry’s shifting tides? In this week’s post, we explore the rationale of a Nissan merger and what this might mean for Nissan dealers if a merger agreement happens sometime in the next year or two.
Each quarter, Experian releases an Automotive Market Trends report. This report includes vehicle registration data from each state’s Department of Motor Vehicles, vehicle manufacturers, and captive finance companies. This week, we summarize the data from the Q3 2024 report and add insights for our dealership audience.
An auto dealership’s inventory management is a crucial part of its operations and significantly impacts the strength of the balance sheet, margin health, and profitability. While dealers cannot control their allocation from OEMs, they can and should respond with the most appropriate sales strategy for the inventory they receive. There are two main approaches available to dealers: maximize price or volume. The key is balancing these strategies to optimize both sales and profitability. We discuss the pros and cons in this week’s post.
Mercer Capital attended the National Association of Dealer Counsel (“NADC”) fall conference in Nashville, Tennessee, this past week. Based on our time there, we provide a few takeaways from sessions we attended at this year’s conference. We believe the topics we cover are especially important for auto dealer counsel and their clients during the remainder of the year and beyond.
After a few strong years, automotive retail continues to return toward more “normal” levels. Since the onset of the pandemic, annual light vehicle volumes (“SAAR”) in the U.S. have barely crested the 17 million figure that prevailed consistently throughout 2015-2019. Alongside reduced sales volumes, the pandemic and ensuing chip shortage significantly reduced key expenses (headcount, advertising, and interest expense) while significantly raising margins on the vehicles that dealers were able to acquire and sell. For years, it’s been a question of when, not if, things would normalize. The more difficult follow-up question now is, “Where will earnings and margins normalize?” To answer that question, we look at volumes, days’ supply, and dealership profitability.
This post discusses important concepts of personal goodwill in divorce litigation engagements. The discussion relates directly to several divorce litigation cases involving owners of automobile dealerships. These real-life examples display the depth of analysis that is critical to identifying the presence of personal goodwill and then estimating or allocating the associated value with the personal goodwill. The issues discussed here pertain specifically to considerations utilized in auto dealer valuations, but the overall concepts can be applied to most service-based industries.
In an increasingly digital world, we’ve noted an increase in service providers catering to cybersecurity in a variety of ways. While no dealer gets excited about spending thousands of dollars to mitigate risks rather than grow profits, the CDK Global cyberattack may be a watershed moment for the industry.
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 development and changes in 2024 and potential future.
We’ve all been on an airline flight nearing the destination when the captain comes on the intercom and informs us that we are about to start our final descent, finish our beverages, and return our tray tables to the upright and locked position. Instinctively, we know this announcement signals that we have been cleared for landing and will be landing soon. As I reviewed the key automotive statistics this week in preparation for writing this blog, I couldn’t help but think, has the auto industry been cleared for landing after a three-year flight filled with periods of turbulence and smooth air? In this post, we discuss several key metrics we have tracked over the last several years: new vehicle profitability, the supply of new vehicles, average trade-in equity values of used vehicles, fleet sales, and vehicle miles traveled.
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.
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.
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.
The year-end 2023 issue of “Value Focus: Auto Dealer Industry Newsletter” is now available. For year-end industry metrics and other helpful industry insights, download the newsletter.
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” 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.
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.
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.
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.
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.
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.
