3 reasons why 2017 dealership buy/sell transactions topped 200 again

IRVINE, Calif. - 

Kerrigan Advisors identified a trio of reasons why the dealership buy/sell market surpassed 200 transactions for the fourth consecutive year in 2017.

According to the firm’s latest Blue Sky Report released on Monday, the factors driving market activity included dealership consolidation, profitability, and the growing number of sellers coming to market. Kerrigan Advisors determined many dealers reassessed succession plans in light of disruptive projections about the changing nature of auto retail, and the belief that only large groups will be able to successfully navigate the industry’s evolution. Sellers also cited concern over reliance on OEM incentives to support dealership profitability, as well as manufacturer facility requirements.  

“The economic benefits of consolidation continued to bring new buyers to market in 2017, and these new entrants included a growing number of international auto retailers,” said Erin Kerrigan, managing director of Kerrigan Advisors.

“These international buyers are primarily motivated by the tremendous consolidation opportunity in the US auto retail market, considered by many to be the most fragmented in the developed world,” Kerrigan continued. “High net worth individuals and family offices also sought investments in auto retail in 2017. All of these new entrants are highly attracted to the economies of scale available in US auto retail through meaningful consolidation.”

The Blue Sky Report, published by Kerrigan Advisors, includes analysis of all transaction activity in 2017 and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments for the quarter.

Blue Sky Report data and analysis from the 2017 full-year report also includes:

• 202 dealership buy/sell transactions were completed in 2017, according to Kerrigan Advisors’ research and The Banks Report, compared to 221 transactions in 2016.  After hitting a plateau in 2015 at 240 transactions, buy/sell activity declined slightly; Kerrigan Advisors expects an increase of activity in 2018 compared to 2017.

• Multi-dealership transactions declined slightly in 2017. The firm noted 51 multi-dealership transactions closed in 2017, resulting in an 11-percent decrease compared to the record year set in 2016. The size of some dealership groups is a motivating factor in the sale. Many are simply too large and too valuable to pass on to the next generation, particularly given predicted industry disruption.

• For 2017, domestics’ share of the buy/sell market remained steady at 43 percent; import luxury represented 20 percent of the buy/sell market in 2017, a disproportionate number considering that import luxury franchises represent just 9 percent of U.S. franchises.

• Public retailers’ acquisition spending increased 20 percent in 2017 compared to 2016, led by Lithia Motors.

• Private buyers, including new entrants to US auto retail, dominated the 2017 US dealership buy/sell market. Of the 343 franchises sold, 317 were acquired by private buyers.

Over 60 dealership groups now report over $1 billion in sales. That number is expected to grow considerably in the next five years, as the largest groups consolidate the industry.

The report also identified three key trends shaping this year buy/sell market, including:

• Tax reform benefits auto retail and results in increased buy/sell activity

• Dealers’ investment strategies shaped by auto retail’s expected evolution

• Dealership profit variability widens blue sky pricing ranges

“We expect 2018 to be a very active year for buy/sells with more private and public buyers eager to put their capital to work. These buyers believe growth is the answer to a changing auto retail environment and are eager to capitalize on economies of scale and scope,” added Ryan Kerrigan, managing director of Kerrigan Advisors. “We also expect more sellers coming to market in 2018, particularly given the drumbeat of change reverberating throughout the industry.”

Kerrigan Advisors is deeply involved in the buy/sell market having advised on the sale of 60 dealerships, including four of the Top 100 dealership groups (Sam Swope Auto Group, the Carbone Auto Group, the Tonkin Family of Dealerships, and Downtown LA Auto Group) since 2015. Kerrigan Advisors’ extensive experience representing the largest dealership groups in the country provides the firm with a unique perspective on the trends shaping the industry and today’s franchise values.

The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. To download The Blue Sky Report, go to this website.

Kerrigan Advisors also releases a monthly index, The Kerrigan Index, composed of the seven publicly traded auto retail companies with operations focused on the U.S. market.  The Kerrigan Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index, go to this website.

AIADA chair: Tariffs are taxes — and small business killers


At a recent AIADA board meeting, I took over as the AIADA chairman from my friend, Maryland dealer Paul Ritchie. In just a few weeks, I look forward to formally accepting the chairman’s gavel at the NADA convention in Las Vegas during AIADA’s Annual Meeting & Luncheon. As a Volkswagen dealer I am particularly interested in what our keynote speaker, VW chief executive officer Hinrich Woebcken, has to say.

To be completely honest, I had hoped to have a quiet start to my time as chairman. The recently-passed tax cut package was a huge bonus to our industry, and I felt optimistic that we were starting the year on the right foot. Unfortunately, the past few weeks have been eventful — and worrying — for international nameplate dealers.

Earlier this month, President Trump announced his intention to place a 25 percent tariff on all imported steel and a 10 percent tariff on imported aluminum. AIADA responded with a strong statement, urging the president to reconsider his plan and pointing out that the flattening auto retail market is ill-equipped to absorb a significant bump in vehicle costs.

Then the next week, President Trump followed up on his tariff announcement by adding that he was prepared to place new taxes, up to 25 percent, on vehicles imported from Europe, citing a “big trade imbalance.” As a VW/Audi/Porsche dealer, you can bet that got my attention. AIADA again responded in a statement, saying “no one wins a trade war;” and Cody Lusk, AIADA president, went on CNBC to remind viewers of European brand dealerships’ enormous investment here in the United States.

The truth is: Tariffs are taxes. If the president follows through on his plan, which we have every reason to believe he will, American consumers will end up paying an estimated $3.5 billion more per year in new taxes JUST ON VEHICLES. That doesn’t even take into account the potential for retaliatory tariffs from our allies and trading partners, which could further devastate the American economy. The total cost of these tariffs has the potential to wipe out many of the gains made by the 2018 tax cut package.

Those losses will matter to voters, and they will be painfully felt by America’s 17,000 auto dealerships and 1.1 million dealership employees. In reaction to the tariff threat, as of my writing this, the Dow has dipped about 500 points, and the president’s top economic adviser, Gary Cohn, has resigned. Toyota, Ford, Volkswagen, Volvo and others have all issued statements condemning the tariffs and tax threat.

Large manufacturers will surely take a hit from these new tariffs, but small businesses like ours will bear the brunt of any trade war. We’re the ones with the razor thin margins, working tirelessly to meet the demands of increasingly price conscious customers. We’re the ones struggling to avoid layoffs, meet local, state and federal regulations, and pay the tax man on time. We’re the ones driving this economy, but we’re also the ones who will take the force of any collision.

Thankfully, AIADA is on the side of dealers, pushing back against new tariffs and taxes, and working with our brands in Washington, D.C., to develop strategies to protect our industry from the damage of a trade war. To the extent that the president may be using these tariff threats as a lever to move Mexico on Canada in his NAFTA negotiations, I wish him luck. But, I urge the Trump administration, and our legislators, to use caution when starting a trade war where everyone will lose.

Brad Strong is the 2018 chairman of the American International Automobile Dealers Association. This blog post originally appeared on the association’s website here. AIADA discussed this issue in a video available here and through the window at the top of this page.

Lithia to add dealerships, boost used-car sales this year


For the past two consecutive years, Lithia Motors acquired dealerships that generate over $1 billion in annualized revenue, and it is poised for additional growth this year, said its president, Bryan DeBoer.

Speaking during Lithia’s quarterly conference call on Feb. 14, DeBoer also said the group expects to continue making progress toward increasing its used-vehicle per-dealership, per month count.

Lithia opened one dealership and acquired 18 others in 2017, and dealership acquisition activity in 2018 is “off to a robust start,” he added.

In January, Lithia acquired Ray Laks Honda in Orchard Park, N.Y., and Ray Laks Acura in Buffalo, N.Y., which are expected to generate $140 million in annualized revenue.

“The plateauing new-vehicle sales environment seems to be further accelerating the number of acquisitions available, and we believe 2018 activity may exceed 2017 totals,” DeBoer told analysts and reporters on the call.

DeBoer said Lithia expects recent federal tax reform to create positive gains “in both our existing store operations as well as new acquisition opportunities.” The company’s effective tax rate will drop to 27 percent from 38 percent, resulting in an incremental $40 million in annual cash flows, he said.

At the time of the reporting for this story (in February) for the print edition of Auto Remarketing, Lithia owned 171 dealerships representing 30 brands in 18 states.

DeBoer said Lithia retailed an average of 67 used vehicles per month, per store in the quarter that ended Dec. 31, up from 66 used units per store in the year-ago quarter, putting it closer to its goal of 85 used vehicles per store, per month.

Though Lithia’s newly acquired stores typically sell fewer than 40 used cars and trucks per month, its “seasoned” stores exceed 85 per month, and some sell as many as 200 used units per month, DeBoer said.

Lithia stores that sell lower volumes of used vehicles have the location, people and potential to “expand their reach, and there really is no limit to what the upside is,” he said. 

“That’s why that 85 units — our seasoned stores do more than that — we believe that’s realistic.”

(Editor's Note: This story first appears in the March 15 print issue of Auto Remarketing. After this story was written for that issue,  Lithia announced on Feb. 27 that it had acquired Day Automotive Group in Monroeville, Pa., a suburb of Pittsburgh. Then on March 1, Lithia announced that it had acquired six marquee stores from Prestige Family of Fine Cars in Bergen County, N.J., including a BMW, Mini, Mercedes-Benz, Toyota and two Lexus stores.)

CPO down; other used sales up

In the quarter, same-store sales of certified pre-owned vehicles dropped 7 percent, sales of its “core” units increased 8 percent and sales of its “value auto” units increased 3 percent.

In a previous conference call DeBoer said Lithia’s “core” used vehicles are 3 to 8 years old and generate a gross profit margin of about 12 percent; “value auto” vehicles are over 8 years old and yield a gross profit margin of about 18 percent; and its gross profit margin on certified vehicles is 8 percent to 9 percent.

DeBoer said sales of CPO vehicles in the fourth quarter decreased because the supply of lower-cost, core vehicles is growing, and the company typically acquires its value auto vehicles as trade-ins on core vehicles.

“We make a higher margin on those (core) vehicles, which we’re excited about,” he said.

“Lastly, it’s a lot less likely when you sell core and value auto vehicles that you’re going to be cannibalizing new like you do on certified, which can be difficult. So, we always are preferential to core for that single reason.”

Tax law changes help

Lithia’s net income in the quarter benefited from a gain of $32.9 million related to changes in the federal tax law in December. 

Lithia’s net income in the quarter that ended Dec. 31, rose 74.2 percent to $89.4 million; it’s revenue for the quarter grew 17.9 percent to $2.7 billion compared to the previous year.

For all of 2017, Lithia’s net income rose 24.4 percent to $245.2 million; it’s revenue for the year grew 16.2 percent to $10.1 billion.

The company’s new-vehicle retail sales grew 17.3 percent in the quarter to 45,202 units, and for the year were up 14.7 percent to 167,146 units. Its retail used unit sales in the quarter grew 12.3 percent to 32,242, and for the year rose 14.5 percent to 129,913.

On a same store basis in the quarter Lithia’s:

  • total revenues were up 2.6 percent to $2.3 billion, and total gross profits were up 4.3 percent to $346.2 million;
  • new-vehicle units sales were up 0.8 percent to 38,669, and used unit sales were up 2.8 percent to 29,273;
  • gross profit per new vehicle retailed grew 14.2 percent to $2,182; gross profit per used vehicle retailed dropped 9.3 percent to $2,003 and finance and insurance gross profit per unit was up 6.7 percent to $1,342 and
  • service, body shop and parts revenue increased 4 percent. Customer pay work increased 4 percent, warranty work increased 4 percent, wholesale parts increased 1 percent and body shop work increased 6 percent.

Of the vehicles Lithia retailed in the quarter and on a same-store basis, it arranged financing on 71 percent, sold a service contract on 44 percent and sold a lifetime oil product on 25 percent, said John North, the company’s chief financial officer.

PERQ study highlights how much research buyers are doing on dealer websites


Perhaps not every potential buyer who arrives at your dealership — or, more specifically, your store website — knows exactly what vehicle they want along with all of its attributes from the amount of horsepower to placement of cup holders and power outlets.

New data from thousands of consumer profiles studied by PERQ — experts in online consumer engagement and behavior — uncovered further evidence that the majority of visitors to dealership websites are hot new prospects who need to be guided into conversion.

The research also offered key insights into the features consumers value as they make their vehicle purchase decisions.

PERQ highlighted that its new study, Car Buyer Insights Report 2018, defies the conventional wisdom that most dealership website visitors are existing customers. The reality? They are not as 74 percent are brand new and 68 percent are still looking for information to educate them about the purchase, representing prime opportunities for conversion.

But according to the data, while 77 percent are at the beginning or middle of their purchasing process, they want to transact sooner rather than later, so an efficient, engaging website experience that guides them down the purchase funnel is critical.

“We are constantly monitoring consumer website behavior and the data continues to confirm how important it is that dealerships approach their website as fertile ground for new sales, rather than as a static receptacle for returning customers,” said Andy Medley, chief executive officer and co-founder of PERQ.

“The data shows that most website visitors are new to the dealership, not ready-to-buy, and expect to be in control of their shopping experience as they narrow down their choices,” Medley continued.

Here is another example of trends highlighted in the study:

Besides safety, what else is important to you when buying a vehicle?

— Interior space: 36 percent
— Performance: 31 percent
— Fuel economy: 28 percent
— Technology: 6 percent

PERQ’s takeaway: “Your website should be responsive to how a visitor engages with interactive experiences on your website. If they’re looking for more interior space and the assessment gives them a result of mini-vans, they should have the option to immediately go to the mini-van VDP or retake the assessment even if they’re not happy with the results.”

PERQ went on to mention its research also offers key insights on consumer preferences that can help dealership websites better interact with these visitors, such as data on the number of vehicle they want to test drive (nearly a third want to test drive more than one), and what they are looking for in a drivetrain — an astonishing 59 percent said four-wheel or all-wheel drive is a priority.

“It’s critical for dealerships to expect their website to act as one of their best sales team members,” Medley said. “If they don’t, they are missing a massive opportunity, and letting all those dollars spent driving traffic turn into vapor.”

The PERQ research results can be downloaded here.

Edmunds recognizes over 350 dealers for high customer satisfaction ratings


Edmunds announced Monday that its Five Star Dealer Awards have recognized over 350 car dealers nationwide for their outstanding customer satisfaction ratings.

This year, 25 dealers were also selected to receive Edmunds’ Five Star Premier Dealer designation for receiving the highest overall satisfaction ratings.

“Car shopping is a daunting task for many, but finding the right dealer shouldn’t be,” said Avi Steinlauf, chief executive officer of Edmunds. “We raised the bar on what it takes to become an Edmunds Five Star dealer in 2018, making it easier for shoppers to find a local dealer that shares our commitment to superior customer service and support.”

In addition to participating in the Edmunds Dealer Partner program, to qualify for a Five Star Dealer Award, dealers must have earned at least 30 five-star sales reviews on Edmunds over the past two years.

Both Edmunds Five Star and Edmunds Five Star Premier dealers must have held at least a 4.5-star average between Jan. 1, 2016, and Dec. 31, 2017, to qualify.

Additionally, Five Star Premier dealers must have also earned at least 150 five star reviews over the past two years.

“Earning Edmunds Five Star Premier status is a rare feat — less than 1 percent of Edmunds’ dealer partners ever reach that milestone, added Steinlauf.

“The 25 dealers that achieved this pinnacle in 2018 represent the best-of-the-best in their industry and a willingness to go above and beyond for their customers.”

For the full list of 2018 winners, click here.

Clarivoy announces new software that matches marketing source to vehicle sales


Clarivoy announced Monday the launch of new software that uses what it calls “Any-Touch” attribution to ensure that marketing sources accurately receive credit for influencing customers during the car buying process.

When marketing sources have influenced a customer’s vehicle purchase,   the new software uses the Any-Touch attribution to guarantee that proper credit is attributed.

To show vendors’ accurate impact on vehicle sales, Clarivoy works with dealers to obtain sales data and then matches the sales file with leads and vendor website traffic, the company said.

While dealers and third-party auto vendors receive millions of unique web visitors per month — less than five percent identify themselves, according to Clarivoy chief executive officer Steve White.

“Who are the other 95 percent, and did they purchase a vehicle?” said White. “In the eyes of a dealer, the value of a third-party auto vendor, marketing agency or website provider is reduced to one thing: Leads. Since most visitors to a dealer’s website or third-party site are unidentifiable, 95 percent of the value of that vendor or marketing partner is lost.”

The new software gives dealers an understanding of the total number of vehicles each vendor and marketing source is responsible for influencing by delivering monthly attributable sales to dealers’ dashboards.

Clarivoy said the new API technology was created using proprietary technology designed to match a person to multiple devices across multiple channels.

Additionally, according to the company, set up is simple and only requires the installation of Clarivoy’s tracking code on all relevant website properties.

The Appraisal Lane CEO set to lead appraisal process workshop at NADA

AUSTIN, Texas - 

The Appraisal Lane co-founder and chief executive officer Jeff Risner will host a workshop at the upcoming 2018 NADA Show titled "Counting Cars: Stop Gambling with Used Car Appraisals."

The workshop is scheduled to begin at 10:30 a.m. on March 23 and March 24 at the Las Vegas Convention Center.

Along with how to improve the appraisal process for core and noncore inventory, attendees will learn common used-car appraisal pitfalls and new processes that improve inventory management and disposition.

"A sizeable 60 percent of vehicles that dealerships process today consists of noncore makes, models and trims," Risner said in a news release. "With over 2,600 make/model/trim combinations manufactured this year alone, it's a challenge for dealers to accurately appraise every vehicle they process, and understandably so. More than ever, today's dealers need new techniques and resources to improve the appraisal process, increase incremental sales and mitigate exposure to wholesale loss."

The workshop is designed to teach dealers how to improve the overall appraisal process, optimize inventory disposition and increase conquest sales, aged inventory sales and fixed operations profits.

Risner said the informative workshop is fitting for anyone interested in improving their used-car operations, such as used-car managers/pre-owned directors, dealer principals and general managers.

NADA Foundation outlines plans for major workforce initiative

TYSONS, Va. - 

Last fall, a robust research project involving Cox Automotive and Hireology uncovered how much personnel turnover costs dealerships as well as what characteristics stores should seek in new employees.

Now, the National Automobile Dealers Association is strengthening its efforts to help dealerships stabilize and strengthen their human resources.

On Friday, the NADA Foundation’s Board of Trustees has approved plans and funding for a largescale workforce initiative to promote the value of dealership jobs, especially service technicians, in the automotive retail industry.

The initiative — which will include a new NADA Foundation website, videos, digital and social media content, and outreach to opinion leaders — will be developed in 2018 and launched at the 2019 NADA Show in San Francisco. The Foundation will also begin fundraising for the initiative in 2019.

“Local dealerships provide more than a million good-paying jobs in sales, management and service, which benefit communities everywhere,” said NADA Foundation chairman Annette Sykora, who is the dealer principal of Smith South Plains Ford and Lincoln in Levelland, Texas, and a former NADA chairman.

“And the future of our industry is the dealership workforce,” Sykora continued. “Considering the shortages that dealerships now face, especially in recruiting, training and retaining technicians, the time is now for our Foundation to educate America on the value of these jobs to workers and local communities.”

 The NADA Foundation developed the framework for its workforce initiative over the course of 2017, after identifying the great need to harmonize efforts from automakers, training centers, and dealerships — especially on recruiting technicians.

There is currently very little brand-neutral information on training centers, according to Jonathan Collegio, NADA’s senior vice president of public affairs, whose department administers the NADA Foundation.

“What we found are a lot of competing silos that don’t appear to be talking to each other, which makes getting into a technician career unduly burdensome on potential recruits,” Collegio said. “It is incredibly difficult for someone interested in a technician career to find clear information about the benefits of a technician career, and how to gain the training and certifications necessary. We plan to provide compelling information on these good-paying careers at dealerships.”

Collegio cited competing information on training centers as a major hindrance to recruiting, as OEMs often only refer to training centers they are partnered with, while ignoring other programs. For example, on its website, one major automaker references its Baltimore and Chesapeake, Va., T-10 training centers, but ignores a major training center near Washington, D.C., because it is not associated with that automaker.

"A potential recruit in the Washington, D.C., area may therefore not know there is a training center nearby," NADA said.

There is also a lack of targeted messaging and marketing to promote the careers, which Collegio says the NADA Foundation will address in its marketing efforts.

As NADA ramps up its efforts, one of the orchestrators of the research from Cox Automotive is upbeat about dealerships’ potential workforce.

“My hope by conducting this research is we’ll be able to change people’s opinion about what it’s like to work in the automotive industry, in particular, dealerships,” said Isabelle Helms, vice president of research and market intelligence at Cox Automotive, at the time the research initially was released.

“It’s an exciting new world. The world at dealerships is changing significantly. We need the next generation of workers to embrace looking at this industry differently,” Helms added.

KeyBanc dealer survey shows positive used sales start


The newest dealer survey from KeyBanc Capital Market showed the opening month of 2018 was a fruitful one for dealerships’ used-vehicle departments.

According to the results shared Friday, the majority of respondents — 75 percent to be exact — continued to report increasing used-vehicle sales in January.

“We are anticipating a low single-digit used-car volume increase in 2018, driven by positive unemployment trends and continued improvement in off-lease supply,” KeyBanc analysts said.

And closely tied to used vehicles, the survey highlighted that dealerships are enjoying a robust start within their service drives, too.

The survey again showed the majority of respondents — this time 69 percent — continued to report increasing parts and service revenue, maintaining a positive trend in this segment.

“We maintained our low to mid-single-digit P&S revenue growth outlook into 2018, in line with the 2017 trend driven by increasing zero to 7-year-old vehicles, increasing used-vehicle sales that drives reconditioning work into bays and favorable warranty trends,” analysts said.

KeyBanc noted that positive used vehicle and P&S revenue trends should offset a “modest” 0.8 percent year-over-year pullback in new-vehicle sales volume.

“We are maintaining our full-year 2018 outlook of a 2 percent, or 16.8 million vehicles, in line with the midpoint of consensus SAAR range of 16.5 million to 17.0 million units,” analysts said.

No matter whether the stores are turning used vehicles or new models, the KeyBanc report pointed out that overall auto financing and subprime financing availability continued to contract slightly. Analysts added the trend “is not unusual at peak of the cycle, but credit availability remains well aligned with demand.”

And when it comes to gross profit, the KeyBanc survey showed a mix bag of trends.

When it comes to F&I gross profit, 46 percent of survey respondents reported intact gross per unit while another 38 percent reported an increase of about $50 year-over-year.

For gross on used vehicles, about the same number of responding dealers posted a rise of least $50 per unit in January as the ones that sustained a drop of about $50 per unit to open 2018.

CDK introduces new DMS with pricing model for dealers operating 1 or 2 locations


CDK Global announced Thursday the release of its new cloud-based DMS — CDK Drive Flex DMSaaS.

Along with user-friendly features, Drive Flex includes a pricing model that adapts to the unique business needs of dealers operating one or two locations.

“CDK Drive Flex is an innovative web-based DMS perfect for dealers with just one or two locations,” CDK Global chief executive officer Brian MacDonald said in a news release. “The system introduces a groundbreaking commercial model that adapts to the individual dealer’s business activity. We’ve been developing this solution for some time and know it will help smaller dealers who really need this kind of solution for managing their businesses,” MacDonald explained.

Rather than having a fixed monthly amount due regardless of business activity, Drive Flex pricing adjusts with each dealer’s business volumes for enhanced cash flow and margin control.

“Using three common metrics—sales, system users and repair orders—pricing adjusts to volumes with a clear line of sight for business planning and growth,” CDK Global said.

Additionally, Drive Flex customers can access the core insights they need from virtually any browser or internet-connected device.

The DMS provides real-time business insights based on operational management reporting that leverages CDK Executive Eye technology.

In addition to having a simplified, modern user interface, Drive Flex’s 256-bit encryption technology increases data protection and is available on Amazon Web Services.

For a Drive Flex demonstration, dealers can visit booth 2216 at the NADA Show in Las Vegas from March 22 to 25.