Dealerships are turning just about as fast as that pristine cherry you just took as a trade that has a potential buyer already returning your text message.

The First Quarter 2026 Blue Sky Report by Kerrigan Advisors highlighted records for the dealership buy/sell market.

A 21% jump in deals year-over-year during Q1 came from a record-setting 478 transactions completed through March.

On a trailing 12-month basis, Kerrigan Advisors indicated this is highest level ever recorded in a 12-month period, and 114% above the pre-pandemic five-year average.

Even as average dealership earnings softened year-over-year, the firm explained a resurgence in multi-dealership transactions and rising franchise valuations for the top brands bolstered the buy/sell market.

“As auto retail enters its sixth year of record-setting buy/sell activity, the accelerating pace of consolidation has become an industry staple,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “This quarter’s impressive performance illustrates a market operating on long-term conviction, rather than short-term earnings.

“Even with the quarter’s softer profitability performance, dealers and buyers alike see auto retail’s fundamentals as durable, and the most desirable franchises are commanding record prices,” Kerrigan continued in a news release. “That is bringing more owners of these sought-after franchises to market, and we expect that momentum to define 2026’s dealership buy/sell market.”

More notable M&A metrics

Other highlights from the Q1 report included:

—Multi-dealership transactions reached 108 on a trailing 12-month basis, rising 36% year-over-year during the quarter

—The publics’ average acquisition purchase price per dealership rose to nearly $200 million, a record, up 253% from the average recorded last year

—The Kerrigan Blue Sky Index rose to 178 in the first quarter, 78% above 2019 levels, with Toyota and Lexus achieving record blue sky values and driving the index up

—Average dealership earnings declined an estimated 15% to 20% year-over-year during the quarter, resulting in average public dealership trailing 12-month earnings of $3.9 million

—Public dealer groups allocated an estimated $790 million to US dealership acquisitions in the quarter, driving 12-month spending above $5 billion, the second highest on record

—Dealerships owned by Top 100 groups backed by outside capital rose 58% since 2021 to 510

The quarter’s record valuations are notable against the backdrop of lower earnings.

Kerrigan Advisors estimated that average dealership earnings fell 15% to 20% year-over-year, bringing the average public dealership’s trailing 12-month earnings to $3.9 million.

Industry performance in the quarter was materially impacted by severe weather that affected roughly 50% of the continental U.S. population, as well as difficult comparisons to the first quarter of 2025, when consumers accelerated purchases ahead of anticipated tariff-driven price increases.

Even with the decline, dealership sales and earnings are structurally above pre-pandemic levels. Among the key dynamics buyers cite for this are structurally higher new vehicle gross margins relative to pre-pandemic metrics, a decline in new vehicle days’ supply to 79 at the end of March, and a lift in used-vehicle sales to pre-pandemic levels due to the rising supply of off-lease vehicles.

Buyers also point to the strength of the U.S. economy in 2026, with new business formation up 16%, new job creation up 88% and unemployment modestly lower, along with improved vehicle affordability over the past year.

“The earnings decline this quarter relative to first quarter 2025 was largely a result of weather and tough comparisons to a year ago, not a deterioration in the underlying business,” said Ryan Kerrigan, managing director of Kerrigan Advisors.

“Buyers are focused on the structural strengths of auto retail — higher new vehicle gross margins, disciplined inventory, rising used vehicle supply and a resilient U.S. economy — and they remain confident that today’s earnings represent a sustainable floor, rather than a temporary peak,” Ryan Kerrigan continued.

Important trends to watch

In the report, Kerrigan Advisors identified three important trends expected to meaningfully impact the auto retail market in 2026 and beyond, including:

—Future cost savings from artificial intelligence are enhancing pro forma earnings projections

—OEM image investments prompt capital allocation assessments and more divestitures

—The make-up of the leading dealership groups is evolving

The firm noted dealership buyers increasingly expect AI to improve store earnings, and some of the industry’s largest consolidators are beginning to project AI’s future cost savings and revenue enhancements into their pro formas for their own businesses and their acquisition opportunities.

OEMs share a similar sentiment, as referenced in Kerrigan Advisors’ 2026 OEM Survey, where 59% of surveyed OEM executives expect AI to increase future dealership profitability.

Kerrigan Advisors indicated dealership acquirers will increasingly underwrite future earnings growth based on anticipated operational improvements from AI, which could support higher acquisition valuations over time as buyers place greater emphasis on future earnings, rather than relying solely on trailing performance.

Also in Kerrigan Advisors’ 2026 OEM Survey, 43% of OEMs indicated they expect to require a new image facility within the next five years. The increase in new OEM image programs is prompting more dealers to reevaluate whether these investments are the highest and best use for their capital.

Rather than commit capital to projects with uncertain earnings upside, both large and small dealer groups are increasingly choosing to divest franchises requiring substantial upgrades and redeploy that capital into acquisitions or other investments with stronger projected returns, according report.

“This trend is particularly evident among the publics who sold 22 franchises in the quarter for over $800 million and whose cash received from divestitures and asset sales has become an increasingly meaningful source of capital for investment,” Kerrigan Advisors said.

The firm went on to mention the composition of the industry’s largest dealership groups is evolving in two important ways.

First, Kerrigan Advisors said more outside capital is entering the industry. Since 2021, experts said the estimated number of dealerships owned by the Top 100 groups backed by outside capital rose 58% to 510.

Second, Kerrigan Advisors pointed out the leading groups are concentrating their ownership into higher-volume dealerships across fewer rooftops, growing revenue far faster than store count.

Over the last decade, the Top 150 added roughly 850 dealerships, a 25% increase, while their aggregate revenue grew by $164 billion, a 72% increase, according to firm tracking.

At this current revenue growth trajectory, Kerrigan Advisors projected these 150 dealers could capture more than 50% of total industry revenue by 2040, meaning roughly 3% of the dealer body would represent the majority of industry sales, and a minority of dealerships.

To get more details about blue sky multiples and additional outlooks from the entire report, go to this website.