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August 2, 2021 Valuation Issues

First Half 2021 Review of the Auto Dealer Industry

What Are Key Statistics Saying?

As we enter into the second half of 2021, first half statistics are being released and second quarter earnings calls are on the horizon for the public auto companies.  We’ve all read the headlines of the auto dealer industry in 2021:  heightened profitability, historic gross profits per unit and soaring retail sales prices for new and used vehicles, and inventory shortages and challenges caused by plant shutdowns and the microchip shortage. What are some of the key industry statistics saying about the current and future health of the auto dealer industry? Have they peaked, are they continuing to increase or beginning to decline, and/or how long will the current conditions hold? In this post we attempt to answer these questions.

July 19, 2021 SAAR

June 2021 SAAR

The June 2021 SAAR totaled 15.4 million units, which is up 12.4% compared to June 2020 (the lowest June figure in recent memory due to the COVID-19 pandemic) but down 9.9% from May 2021.  In this post, we discuss the June SAAR number, the ongoing microchip shortage, the hot market for used cars, and what all this means to dealers.

July 12, 2021 Luxury

The Electric Vehicle Race

Tesla vs. Everyone

When you think “electric vehicles”, there has been one brand that has established itself as a clear leader: Tesla. In this post, we take a look at Tesla and recent competitors that are challenging Tesla in the EV space.

June 29, 2021

Industry Trends From the Road

Key Takeaways from State Automotive Annual Conventions

We recently attended the annual conventions of two state automotive groups – Kentucky and the Tri-State Convention consisting of Tennessee, Alabama, and Mississippi. In this post, we summarize certain sessions that our readers should find interesting including cybersecurity issues, how to protect your dealership from fraud, future trends and their possible impact, coming regulation and what that means for your dealership, and the importance of succession planning.

June 14, 2021 SAAR

May 2021 SAAR

After three straight months of impressive gains, the SAAR fell 9.6% in May from 18.8 million units to 17.0 million units.  The summer is typically a strong season for auto sales, but several supply-side factors have limited the availability of vehicles over the last month.

June 7, 2021

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.

May 24, 2021 Mergers, Acquisitions, & Divestitures Valuation Issues

Valuation and M&A Trends in the Auto Dealer Industry

Full Speed Ahead or Partly Cloudy?

A few weeks ago, I sat down with Kevin Nill of Haig Partners to discuss trends in the auto dealer industry and the release of their Fourth Quarter 2020 Haig Report. Specifically, I wanted to focus on the unique conditions impacting the industry, and also the changing methodology that buyers are utilizing to assess dealership values. 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 various auto manufacturers based on their observations and data from participating in transactions in this industry.

May 3, 2021

Year-End 2020 Auto Dealer Industry Newsletter Release

We are pleased to release our latest edition of VALUE FOCUS:  AUTO DEALER INDUSTRY NEWSLETTER. The newsletter features a commentary on industry data from year-end 2020.  Additionally, this edition includes two timely articles: “The Seven Factors of a Highly Effective Buy-Sell Agreement for Auto Dealerships” and “The Chip Shortage Is Making It Feel Like 2020 Again.” Download this latest issue.

April 23, 2021 Valuation Issues

Dealership Working Capital

A Cautionary Tale Against Rigid Comparisons

Most transactions involving auto dealerships are structured as asset sales, so dealer principals may take this mindset when considering a business valuation. Generally, the assets acquired by a buyer include new vehicles, used vehicles, parts, fixed assets, and the blue sky or intangible value of the franchise. However, the inventory (predominantly new and used vehicles) is typically financed 100% through short-term lines of credit referred to as floor plan. If the largest portion of current assets are offset with corresponding short-term debt and other working capital items such as cash are not involved in a dealership transaction, a dealer might wonder why does working capital matter?

April 19, 2021 Blue Sky Valuation Issues

Valuation Implications of a 28% Corporate Tax Rate on Blue Sky Multiples

Will Dealerships Become Less Valuable if Tax Rates Rise?

In the early stages of the Biden administration, much of the tax-related discussion surrounding the auto industry has been related to credits for electric vehicle manufacturing and investment in EV infrastructure. In this post, we discuss the valuation implications for auto dealers of the proposed increase in the federal corporate tax rate from 21% to 28%.

April 13, 2021 COVID-19 Coverage SAAR

March 2021 SAAR

After a tumultuous February due to weather conditions, March SAAR has bounced back with a vengeance.  March SAAR of 17.75 million units is the second-highest of all time for the month, just shy of March 2000.  There are two main factors driving this increase.  While the winter storms had a negative impact on February SAAR, it likely caused pent-up demand that helped drive sales in March. Beyond simple delays, flooding forced some to replace damaged vehicles. Secondly, the Biden administration passed a Covid-19 stimulus bill at the beginning of March, and $1,400 paychecks hit many Americans’ wallets. This influx of cash may have also spurred a massive increase in vehicle sales.

February 22, 2021 Valuation Issues

Seven Factors of a Highly Effective Buy-Sell Agreement for Auto Dealerships

A Roadmap to the Valuation Process

In this post, we will cover seven factors of a highly effective buy-sell agreement for auto dealerships and also touch on several other considerations.

February 8, 2021

The Chip Shortage Is Making It Feel Like 2020 All Over Again

In this blog post, we will discuss the necessity of chips in the auto making process, how the chip shortage came into fruition, how it is affecting the industry, and what all this might mean for auto dealers going forward.

February 1, 2021

Changing Advertising Trends for Sunday’s Big Game

How the Auto Industry Is Spending Advertising Dollars

So it’s the week of the big game. What are you most looking forward to?  The game?  The food – appetizers and snacks?  The halftime show? Or maybe the commercials?  Inevitably, all of us probably have this same list of things in some particular order.  The festivities will probably look entirely different this year with smaller gatherings and pandemic protocols affecting travel and public viewing at restaurants and sports bars.  But what will this year’s commercial line up look like and will the auto industry participate? Will this year serve to be an aberration or is it a reflection of advertising changes impacting the auto industry and auto dealerships?

January 25, 2021

Headwinds and Tailwinds for Auto Dealers

Your Flight Itinerary for 2021

If you’ve ever been on a flight, you know that the pilot and plane itself can only do so much in determining how quickly you get to your destination. A key factor is which way the wind is blowing. If the pilot announces that there are headwinds, you can expect your flight time to be on the longer side. The opposite is true with tailwinds, and you can expect to arrive at your destination more quickly under these circumstances.

Similarly for auto dealers, sometimes it doesn’t matter what the dealership’s management is like or how good the dealership itself is, as certain headwinds and tailwinds can make it harder or easier to achieve its goals. In this post, we have considered some headwinds and tailwinds heading into 2021.

January 4, 2021

2021 New Year’s Resolutions for Auto Dealers

At the start of a new year, many people, including myself, try to establish resolutions to get the year started off on the right foot.  This is especially prevalent this year with most people welcoming 2021 with open arms after the disaster of a year that was 2020.  When considering the auto industry in 2020 and predictions for 2021, making some “resolutions” for your dealership to prepare for the year ahead could prove to be helpful. With that being said, here are a few common “New Year’s Resolutions” that can be applied to your auto dealership.

November 2, 2020 Mergers, Acquisitions, & Divestitures Valuation Issues

GM and Nikola Partnership: What Went Wrong and Where Does it Stand?

A new trend has emerged as auto manufacturers are seeking out start-ups for their technology in a mutually beneficial relationship, perhaps best exemplified by GM and Nikola’s plan for a partnership. In this post, we look at the original deal, ensuing issues, and current plans. We will also look at what this trend could mean for dealerships going forward, and the importance of the valuation date.

October 19, 2020

How Each Presidential Candidate’s Policies Would Impact the Auto Industry

Tale of the Tape

With the election just two weeks away, we think it’s timely to discuss the candidates’ platforms and determine the impact of their differing policies.  Each candidate’s platform contains positions on many issues – some that would directly impact the automotive industry, and others that would indirectly impact the industry.  A vote for one doesn’t necessarily signal a vote for the automotive industry or vice versa.  While we don’t intend for this blog post to be political, we will examine each candidate’s position on four issues and discuss their impact on the automotive industry: trade policy, taxes, energy, and the environment.

October 5, 2020 COVID-19 Coverage Valuation Issues

Take Advantage of Current Estate Planning Opportunities While You Can

While economic recovery is still uncertain as the pandemic continues on and new relief bills are on the ropes, there are other ways outside of the box for auto dealers to show resiliency during this time and plan for economic success going forward. This includes opportunities that exist in estate planning this fall for owners of assets in the auto dealer, and all, industries. Three converging factors have this fall shaping up to be the busiest estate planning season since 2012:  potentially depressed valuation of assets and businesses, historically low interest rates, and uncertainty regarding the political administration going forward. 

September 14, 2020 Litigation

Does Personal Goodwill Apply to Auto Dealerships?

Observations from Recent Litigation Engagements

A common topic from several recent auto dealer litigation cases is personal goodwill.  Not only is its presence hotly debated, but practitioners further attempt to discern just how much of a business’ value is directly related to personal goodwill.  There’s no textbook that discusses where it exists and where it doesn’t, and it’s more prevalent in certain types of businesses or industries than others.  Before any attempts to measure and quantify it, I think the most important question to ask is “does it exist?”  Often with ambiguous concepts like personal goodwill, the adage “you know it when you see it” is most appropriate. 

August 31, 2020

Is the Hype Sustainable?

How EV Start-Ups Are Taking Advantage of SPACs to Enter the Public Market

As we mentioned in a previous blog post, the electric vehicle (EV) market has been all the rage lately, driven primarily by Tesla’s success in creating main stream electric vehicles. We’ve discussed the “Tesla Story” extensively in previous posts, and their stock has continued to rise. It was sitting around $2,200 last Friday, up from $216 last year, or an astounding 918%. Tesla split its stock 5-1 Monday and was hovering around $450 at the time of writing this post.

As expected, other companies want to capitalize on the hype that Tesla has created in the industry, with EV start-ups trying to capture a slice of the pie.  This summer has been a huge one for the industry, with electric vehicle startups Nikola, Fisker, Hyiilon, Lordstown, and Canoo all either going public or announcing plans to go public. Notably, however, they are not relying on the typical, lengthy IPO route to achieve this. Instead, they are using special purpose acquisition companies (or SPACs) to hit public markets quicker. In this post, we will walk through the companies going public, the deals, pros and cons of the SPAC, and what this could mean for your dealership.

August 3, 2020

Electric-Vehicle Industry Is Heating Up

Policy and Oil Price Implications for EV Sales

The current focus for new auto technologies is less focused on speed, and more on sustainability, as there appears to be a shift in focus away from developing the century-old gasoline-powered vehicle to electric. The electric-vehicle (EV) industry has shown to be an attractive long-term alternative for manufacturers. In this post, we’ll survey the landscape including the beginnings of EVs, major players in the industry, and the future outlook.

July 20, 2020 Luxury Mergers, Acquisitions, & Divestitures Public Auto Dealers

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.

June 22, 2020 Mergers, Acquisitions, & Divestitures Valuation Issues

Valuation and M&A Trends in the Auto Dealer Industry

Shifting Out of Neutral

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.