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.
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.
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.
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.
While Tesla has accumulated a cult following of people both for and against, its share price likely has little to do with the value of franchised dealerships in the US.