Investment firms evidently like the prospects they see in dealerships as a pair of wealth-driven operations recently made acquisitions — with one transaction involving a member of the Top 100 Independent Dealers previously highlighted by Auto Remarketing.
Cerberus Capital Management, which currently possesses more than $42 billion in assets, recently acquired an 80% interest in Off Lease Only, a leading independent dealership group based in Florida.
And Haig Partners recently advised Apollo Global Management on the purchase of 34 automotive and motorcycle dealership properties across the U.S. That transaction value was approximately $585 million. The dealership properties are located in 15 states and the District of Columbia.
The deal helped Apollo Global Management to add to its assets under management of approximately $323 billion.
“Real estate is one of the biggest components of value in auto retail, and this purchase of dealership properties represents one of the largest transactions in our industry’s history. We were honored to assist Apollo on this transaction,” Haig Partners president Alan Haig said in a news release.
“The auto retail industry continues to perform well and we are seeing good returns to dealership owners and investors,” Haig continued.
That trend certainly appears to be the case for Off Lease Only. Under the terms of that transaction mentioned in a news release, Off Lease Only founders Mark and Eileen Fischer will maintain 20% ownership of the company and will continue to provide strategic direction and support.
With four Florida retail locations and a robust online platform, Off Lease Only is one of the largest independent dealers in the United States. The company offers an expansive selection of quality cars and has sold hundreds of thousands of vehicles worldwide.
“Off Lease Only’s tremendous success is a testament to its strong business model and the unmatched value proposition it offers customers,” said Scott Wille, co-head of private equity and senior managing director at Cerberus.
“We look forward to working with Mark, Eileen, and their talented team to expand the company’s footprint and further strengthen the business through strategic investments and the integration of operations and technology initiatives,” Wille continued.
According to data provided to Auto Remarketing from Cross-Sell Interactive, Off Lease Only retailed 43,151 units last year at its Florida locations in Orlando, Opa-Locka, Palm Springs and North Fort Lauderdale.
“From our humble beginnings, Off Lease Only has grown into a market-leading business thanks to the hard work and commitment of our outstanding tea,” Mark Fischer said. “Eileen and I are thrilled that Cerberus recognizes our talented employees, superior platform, and best-in-class customer service. Cerberus brings extensive financial, operating, and industry expertise and positions Off Lease Only better than ever for its next phase of growth.”
In conjunction with the transaction, Leland “Lee” Wilson will join Off Lease Only as chairman and chief executive officer. Mark Fischer will stay on as co-CEO to ensure a smooth transition, after which he will continue to be a member of the executive committee of the Board.
Wilson has more than 30 years of operational, financial and managerial experience, including most recently as executive chairman of Carrier & Technology Solutions, one of the largest insurance outsourcers based in Florida. Wilson was formerly vice chairman and chief financial officer of Chrysler Financial and, before that, was an operating executive for Cerberus Operations and Advisory Company.
“I am excited to join Off Lease Only and look forward to working with their exceptional team to execute on the many growth opportunities ahead,” Wilson said.
“Through this partnership with Cerberus and the Fischers, we will be able to position Off Lease Only for continued success while maintaining the customer-focused business model that has always been the foundation of the company," Wilson went on to say.
Ally Financial provided some insight on Monday in connection with potential buyers arriving at your dealership showroom or store website, especially individuals who already might be weary from new-vehicle sticker shock.
Ally pointed out used vehicles are increasingly popular with Americans as consumers turn to the used market for more affordable options, but a recent survey found many Americans still hold outdated notions about used vehicles.
According to an Ally Financial survey of more than 2,000 American adults conducted by The Harris Poll, U.S. consumers think used vehicles are older and less expensive than they really are.
On average, Americans think the average age of a used vehicle at the point of sale is 6.6 years, but data from a 2019 Edmunds Used Vehicle Report puts the average age at 4 years. Additionally, consumers in the Ally survey believed that the price of a used vehicle, on average, at the time of sale is $9,860 when it is more than twice that amount, $20,664, according to Edmunds.
Approximately one-third of Americans (31%) in Ally’s survey thought the average used vehicle was more than twice as old, 8 years or older, as the actual average age, and only one in 10 Americans correctly said the average purchase price of a used car is more than $20,000.
“Today’s used vehicles feature better quality and options than ever before. A 75,000-mile used vehicle is in an entirely different category than it was just a few years ago,” said Matt Arnold, senior regional vice president of auto finance at Ally Financial.
“Today’s used models have many of the same tech and safety features that new cars offer, but at a significantly lower price point. They’re a smart alternative for all budgets and lifestyles, particularly when you consider the average new-car price is approaching $38,000,” Arnold continued.
According to the Ally survey, consumer opinions on the average price of used vehicles depended on a range of factors:
• Homeowners said used vehicles cost almost $3,000 more than renters did ($10,604 versus $7,876).
• The higher the household income, the more expensive they estimated used vehicles were. On average, Americans with household income of:
—Under $50,000 said used vehicles cost $7,684
—$50,000-$74,999 said used vehicles cost $9,225
—$75,000-$99,999 said used vehicles cost $10,735
—More than $100,000 said used vehicles cost $11,938
• On average, millennials/Gen Z (ages 18-34) estimated the lowest average vehicle cost of any age group, while Americans ages 45-54 estimated the highest average vehicle cost, mirroring the progression of income across a career. On average, those ages:
—18-34 said used vehicles cost $8,513
—35-44 said used vehicles cost $9,567
—45-54 said used vehicles cost $10,907
—55-64 said used vehicles cost $10,806
—65 and older said used vehicles cost $10,385
“Even though many Americans are buying used cars, the survey shows too many people lump all used cars with old clunkers,” Arnold said. “It’s time to let go of old stereotypes. Adding used vehicles to your consideration list can be a smart move. You’ll either end up with a lot more car for your money, or a lot more money in your wallet.”
The survey was conducted online by The Harris Poll on behalf of Ally Financial from May 7-9 among 2,012 U.S. adults ages 18 and older.
Contained in the same report that highlighted used-vehicle retail sales, the midyear version of NADA Data 2019 released by the National Automobile Dealers Association (NADA) highlighting the average earnings of employees at franchised dealerships.
This year’s report shows that, as of the end of June, the country’s 16,741 franchised light-vehicle dealerships in the United States directly employed more than 1.1 million Americans with an annual payroll of $66.6 billion — up nearly 2% from 2017 — according to the most recent data available from the Bureau of Labor Statistics.
“In addition to strong direct dealership employment, dealerships are responsible for hundreds of thousands of supporting jobs in local communities across the country,” NADA senior economist Patrick Manzi said in a news release.
“Dealerships spend billions of dollars in their communities on contracting and other services, further enhancing the economic footprint of the retail automotive industry,” Manzi continued.
The average annual earnings for employees at franchised dealerships is $72,800 in 2018, up from $71,916 in 2017, a 1.3% increase.
“Dealers are committed to their employees and strengthening the U.S. and local economies. Hence, for the past several years, dealership employees have seen steady increases in their incomes as well as in their total compensation,” Manzi said.
“In fact, jobs at dealerships offer higher salaries relative to other retail sectors, and dealers continue to boast one of the highest average salaries of all industries,” Manzi went on to say.
But NADA acknowledged franchised dealerships are struggling to keep their workforces strong, especially in the service department. It’s why the association rolled out the next phase of its Workforce Initiative back in February.
A select group of franchised dealers are in the running for one of the industry’s most prestigious honors.
TIME and Ally Financial on Tuesday announced the nomination of 49 exceptional dealers for the TIME Dealer of the Year Award, recognizing them for their business success and dedication to giving back.
Chosen from nearly 17,000 franchised dealers nationwide, the dealers nominated for this significant award have demonstrated strong business acumen and a steadfast commitment to their communities. The honorees will be recognized by Ally and TIME at the 103rd annual National Automobile Dealers Association (NADA) Show in Las Vegas on Feb. 15 during a formal ceremony where the national winner will be announced.
“The award applauds the incredible effort each of these dealers puts into their businesses and their communities,” said Doug Timmerman, president of Auto Finance at Ally. “They are influential business leaders and admired ambassadors for worthy causes. It’s an honor for Ally to recognize their generosity and impact in cities and towns across America.”
In its ninth year as the exclusive sponsor, Ally will recognize the dealer nominees and their many community efforts by contributing $1,000 to each nominee’s 501(c)3 charity of choice. The finalists for the award will receive an additional $5,000 for their favorite charities and the winner will receive an additional $10,000 to give to charity.
Nominated by executives from state and metro dealer associations throughout the country, each nominee represents their respective association in the national competition. The awards are sponsored by TIME in partnership with Ally and in cooperation with NADA. A panel of faculty members from the Tauber Institute for Global Operations at the University of Michigan will select one finalist from each of the four NADA regions and one national Dealer of the Year.
A list of the dealers in the running for this award is available below. To learn more about each of the 49 nominees, go to AllyDealerHeroes.com.
TIME Dealer of the Year Nominees
Edward Babcock, Junction Auto Family, Chardon, Ohio
Tommy Baker, Baker Motor Co., Charleston, S.C.
Winstead Paine Bone, Wilson County Motors, Lebanon, Tenn.
Steven Brimhall, The Minnesota Motor Co., Fergus Falls, Minn.
Steve Brown, Frank Leta Acura, St. Louis
Jim Buzzetta, Mercedes-Benz of Huntington, Huntington, N.Y.
Donald Cavenaugh, Cavenaugh Ford Lincoln, Jonesboro, Ark.
Colleen Chapleski, Dean Arbour Ford of Tawas, Tawas City, Mich.
Raymond Ciccolo, Boston Volvo Cars, Boston
Jim Coleman, Jim Coleman Toyota, Bethesda, Md.
David Cuene, Broadway Automotive Green Bay, Green Bay, Wisc.
Terry D’Arcy, D’Arcy Buick GMC Truck, Joliet, Ill.
David Daunhauer, Byerly Ford, Louisville, Ky.
Jacqueline De Luz, Big Island Toyota, Hilo, Hawaii
George Doetsch III, Apple Ford Lincoln, Columbia, Md,
John Ernst, Ernst Toyota, Columbus, Neb.
William Farrell, Berglund Luxury Roanoke, Roanoke, Va.
Fletcher Flower, Flower Motor Co., Montrose, Colo.
Paul Gaudet, AutoServ Dealerships, Tilton, N.H.
Stacey Gillman, Gillman Subaru, Houston
Bill Golling, Golling Chrysler Dodge Jeep Ram, Bloomfield Hills, Mich.
Jeffrey Haraden, Mohawk Honda, Scotia, N.Y.
Eric Henricksen, Don Aadsen Ford, Ronan, Mont.
David Kelleher, David Dodge Chrysler Jeep Ram, Glen Mills, Pa.
Steve Klein, Klein Honda, Everett, Wash.
Doug Knust, Harry K Ford Store, Winner, S.D.
Christian Kostelecky, Sax Motor Co., Dickinson, N.D.
Lawrence Kull, Burns Honda, Marlton, N.J.
Ken Marks, Tallahassee Dodge Chrysler Jeep Ram, Tallahassee, Fla.
Walt Massey, Walt Massey Chevrolet Buick GMC, Lucedale, Miss.
Greg Maurer, Dale Willey Automotive, Lawrence, Kan.
Tom Miller, Tom O’Brien Chrysler Jeep Dodge Ram, Greenwood, Ind.
Susan Moffitt, Porsche Shreveport, Shreveport, La.
Steven Olliges, Team Ford Lincoln, Las Vegas
Diana Pfeiffer, Alaska Sales and Service – Anchorage, Anchorage, Alaska
Mark Porter, Mark Porter Chevrolet Buick GMC, Pomeroy, Ohio
Dan Roesch, Larry Roesch Chrysler Jeep Dodge Ram, Elmhurst, Ill.
Paul Rusnak, Mercedes Benz of Arcadia, Arcadia, Calif.
William Strickland, Bellamy-Strickland Chevrolet Buick GMC, McDonough, Ga.
Bradford Strong, Strong Volkswagen, Salt Lake City
Eric Stuteville, Stuteville Chevrolet of Durant, Durant, Okla.
Howard Tenenbaum, Keyes Toyota, Van Nuys, Calif.
Wally Thornhill, Thornhill GM Superstore, Chapmanville, W. Va.
Natalie Tindol, Tindol Ford Roush, Gastonia, N.C.
Brian Tyrrell, Tyrrell Chevrolet Co., Cheyenne, Wyo.
Santosh Viswanathan, Willis Ford, Smyrna, Del.
Ronnie Watkins, Ronnie Watkins Ford, Gadsden, Ala.
Richard Willis, Willis Lexus, Des Moines, Iowa
Greg Wills, Wills Toyota, Twin Falls, Idaho
The service and parts piece of the franchised auto-dealer business, along with other high-margin segments like used cars and F&I, is driving profitability for these stores. And that is helping push optimism among both dealers and investors in the future value of franchised dealerships.
That’s according to Kerrigan Advisors, a sell-side adviser to dealers that released its first-ever annual dealer survey on Monday.
Among the 650 franchised dealers surveyed, 86% said they project the value of their business to either climb or remain steady over the next year (60% expect steadiness, 26% expect increases).
Only 14% of dealers surveyed foresee a decrease in the value of their business.
“I think that the headlines that we read about in the news are kind of misplaced. The auto-retail industry actually saw a slight uptick in earnings in the first half of 2019,” Kerrigan Advisors founder and managing director Erin Kerrigan said in a phone interview.
“And that’s really driven by the higher-margin parts of our business model, which is used vehicles, and most importantly, service and parts,” she said. “And i think that just seems to miss the headlines, because everyone’s fixated on new-vehicle unit sales.”
Kerrigan points out that even though most of auto retail revenue is attributable to new-vehicle sales, most of the gross profits is thanks to service and parts.
“That side of the business is up 27% since 2015 and is doing incredibly well. And I think dealers see that in their businesses,” she said. “They’ve also found ways to augment front-end new-vehicle gross with F&I.”
And investors are paying attention, too.
The firm has seen a 41% year-to-date hike in its Kerrigan Index, which measures the seven publicly traded auto retail stocks, through three quarters of 2019. The S&P 500, the company points out, has climbed 19%.
Added managing director Ryan Kerrigan in a news release, “Dealer optimism about their franchise values isn’t a surprise, not when Wall Street analysts see automotive as a hedge against a possible recession.
“While the news headlines tend to focus on the decline in new-vehicle sales, investors are paying more attention to industry profitability, which is growing due to the higher margin parts of the auto retail business model, namely used vehicles and fixed operations,” he said. “Earnings growth is what drives valuations higher, and that is what we are seeing in the market today.”
Another headline-grabber these days is that of changing vehicle ownership, usage and mobility. The firm doesn’t see that having an impact on franchise dealership valuations yet, however.
“The fact of the matter is that there is absolutely no clarity as to when some of these disruptive business models may or may not affect our business model and therefore, they’re not priced into the valuations of dealerships today,” Erin Kerrigan said.
“We do not know at this juncture how changes in mobility will affect the auto-retail business model. And until we have clarity, we will not see that priced in.”
Volvo leads expected valuation increases
Breaking down the data further, the Kerrigan report also included survey data on expectations for specific franchises.
Forty-three percent of dealers expect the Subaru franchise to increase in value over the next 12 months, making it the franchised most expected to see a value increase. It was followed by Toyota (30%), Porsche (29%), Volkswagen (24%) and Mercedes-Benz (22%).
“That franchise has had the longest sales improvement streak of any franchise post-recession,” Erin Kerrigan said of Subaru. “I think that just its ability to continue to take market share in what’s becoming a much more challenging auto retail environment really speaks volumes about the strength of that franchise.
“I mean, it was one of the few franchises that actually saw sales increase even during the recession,” she said. “The auto retail community feels that that’s one of those franchises that even if we get into a recession in the next few years, will likely continue to see its market share grow.”
And strong customer loyalty to Subaru certainly plays into that.
“It’s more of a recurring business model than other brands, where you’re constantly having to conquest new consumers,” Erin Kerrigan said. “With Subaru, the Subaru buyers are buying yet another Subaru as soon as they’re ready to and then they’re servicing their vehicles with their Subaru dealerships.
She added: “What we always like to say (is), the valuation of dealerships and franchises is driven by the business model of the franchise. And some OEMs have created really franchise business models and others have created pretty challenging business models, and the valuations are reflective of that.”
Meanwhile, the top five franchises projected to keep their valuations steady were Honda (68%), Toyota (64%), BMW (64%), Lexus (63%) and Mercedes-Benz (62%), the data showed.
The top five franchises to projected to see a dip were Infiniti (65%), Nissan (65%), Cadillac (55%), Buick-GMC (53%) and Acura (48%).
Dealers appear to be hesitant to hit the buy button online or raise their hand in the lanes, and wholesale values are reflecting the behavior.
Analysts arrived at those conclusions and shared more in the latest Black Book Market Insights report that mentioned values softening at higher levels than seen during the previous four weeks.
“Values continued to slide at a faster rate last week with most vehicle segments experiencing larger drops. Higher no-sales were also reported at the auto auctions,” Black Book executive vice president of operations Anil Goyal said in the latest report.
Volume-weighted, analysts found that overall car segment values decreased by 0.51% last week. In comparison, Black Book noted the previous four-week average represented a decline of 0.39%.
Among cars, analysts discovered values of full-size cars declined the most, tumbling by 1.15% or $136.
Again volume-weighted, Black Book said overall truck segment values (including pickups, SUVs, and vans) dropped by 0.54% last week. The previous four-week average in the truck space came in at 0.35%.
In the truck arena, values of compact vans and small pickups declined the most, sliding by 1.01% and 0.89%, respectively.
Meanwhile, multiple Black Book representatives stationed at nearly 60 sales nationwide mentioned the growing trend of no-sales. Here is the rundown:
— From Tennessee: “Small trucks and SUVs seemed to be in demand, but we had lots of no-sales. The market is getting soft.”
— From Michigan: “We had a higher supply of vehicles this week. Retail is not good here so that, coupled with the increase in consignment, resulted in lower values.”
— From Wisconsin: “Lots on no-sales with sporadic bidding or no bids at all, creating downward pressure on prices.”
— From Nevada: “The trucks improved this week, but dealers remain hesitant to add inventory to their retail lots.”
The automotive industry is experiencing a used-car renaissance with consumers heavily favoring used inventory over new for their vehicle purchases. While many factors are in place, this shift could primarily be attributed to used vehicle quality being better than ever, while new car prices continue to skyrocket.
In fact, per Cox Automotive data, in August, the average price of a new car was $37,401. Additionally, interest rates have recently decreased a second time with the potential for further cuts made in the future. Millennials, a generation once assumed to prefer ridesharing over vehicle ownership, are also playing a role as they’ve increased their used inventory purchasing. All these conditions have created a pathway to success for independent dealers in 2019.
At NextGear Capital, we educate our independent dealer clients on the evolving used-car marketplace and help them better understand how floor planning their inventory drives maximum results. Here are the top trends we’ve seen effecting independent dealers in 2019.
Competition for used vehicles is rising
For independent dealers, these market conditions are primed for taking advantage of floor planning to boost sales cycles. Turnover for used inventory is already 10 days fewer than it was in 2018. However, franchise dealers have also taken notice of increased consumer demand for used inventory and are stocking their lots accordingly. As a result, independent dealers have more competition for used inventory and are under added pressure to land the right vehicles for their customers.
Consumer finance companies are bullish on independent dealers
A significant amount of consumer finance companies are now expressing interest in independent dealers, which until recently, were considered taboo for these lenders. However, consumer finance companies and banks have noticed that used cars are becoming a more attractive investment. This is thanks to the improved quality of inventory across the board and the uptick of millennial consumers interested in purchasing said vehicles.
Data driving results for independent dealers
For dealers to be successful, it’s important they understand both who their clients are and the vehicles they’re interested in – with data being the key to this equation. Data can unlock a treasure trove of buyer insights to help independent dealers strategically source the exact inventory their clients want. Ultimately, data enables dealers to make better decisions about which auction to attend and what inventory to purchase. Floor planning partners, such as NextGear Capital, can look at the historical data of a dealer’s business, reviewing information such as units sold per month, lot capacity, average turn time and holding costs. With that knowledge, a solid partner can then map out a plan for dealers to function more efficiently and increase profits.
Dealers are taking advantage of market conditions
With the many factors contributing to favorable market conditions, there was a fear many independent dealers would buy too quickly and suffer as a result. However, throughout 2019, most independent dealers have become more savvy than aggressive in their decision-making. They understand that their processes must align to succeed in this environment. This means having the right technology tools and the proper line of credit in place before acquiring new inventory.
Overall, NextGear Capital has seen an increase in flooring volume throughout 2019 which indicates to us that dealers are confident. To ensure they finish the year strong, independent dealers are encouraged to be mindful of the trends listed above, but also remain consistent and disciplined and the results will follow from there.
Lisa Mackie is the vice president of sales at NextGear Capital.
What typically happens within the confines of a dealership — retailing and servicing vehicles — isn’t solely influencing the values and transactions of stores nowadays. Rather, two firms that monitor dealership buy/sell activities mentioned other factors such as foreign-trade clashes as an element that could impact if activity picks up significant steam to close the year.
Haig Partners and Kerrigan Advisors each recently shared their second-quarter reports, discussing an array of economic factors that might play a role in what a single-point, family-owned store might fetch, as well as how dealer groups might expand their footprints.
“Auto dealers have managed to defy gravity and increase their profits compared to last year,” Haig Partners president Alan Haig said in a news release. “The buy-sell market has suffered this year due to uncertainties in buyers’ minds about tariffs and the overall direction of the economy.
“But the ongoing strength of the auto-retail industry is bringing buyers back to the table, and we believe that transaction activity will rebound to more normal levels in the second half of the year,” Haig continued. “Given the large number of dealerships available for purchase, we think the rest of 2019 and 2020 will present excellent opportunities for groups looking to add scale.”
Despite recession fears, Kerrigan Advisors also expects dealership buy/sell activity to remain strong for the remainder of 2019.
“The global trade war has clearly caused uncertainty in the investment community, leading to a flight to higher quality, less risky assets,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “Auto retail is emerging as one of those asset classes.
“High net worth individuals, family offices and Wall Street investors recognize the counter cyclical measures dealers can take to sustain profitability, even when new car sales turn south,” Kerrigan continued in a news release. “Auto retail’s nimble model makes the industry a highly attractive investment in a time of greater economic uncertainty.”
More details from Haig
As published in the Q2 2019 edition of The Haig Report, the number of dealerships bought and sold in the U.S. decreased by 60% in Q2, compared to an exceptionally busy Q2 2018. The number of dealerships that traded hands fell from 122 to 49.
Haig pointed out acquisition spending in the first two quarters of 2019 by publicly traded auto retailers is less than half of that spent in the same period of 2018. The firm explained this pause in public company investments may be attributed to waiting to see the outcome of trade wars, tariffs and Federal Reserve actions unfolding.
Thanks to a lift in dealership profits so far this year, Haig noted the estimated average blue-sky value per dealership held steady from 2018. At current multiples, dealerships offer a healthy return to buyers and strong prices to sellers.
“There are a large number of dealerships on the market for sale today due to aging owners, increasing complexity of operations, and a perception that smaller dealers will have greater difficulties competing with larger groups in the future,” the firm said.
Other key findings from the Q2 2019 Haig Report include:
• Macroeconomic indicators such as GDP, employment and household incomes, transaction size, low fuel prices and consumer sentiment remain highly favorable for dealers.
• Private dealers are increasing their focus on used vehicles, with volume up 4.1% compared to last year and several clients achieving greater than 2:1 used to new ratio.
• On a combined basis profits have trended upward as the gains in Parts & Service and Finance & Insurance have more than offset the declines in the new car business.
• Floorplan expense has driven almost all of the increase in cost, with a $275 swing in net floorplan cost over the last 3 ½ years. However, the Federal Reserve’s recent 25 basis point rate cut should lead to a $25 lower floorplan expense per vehicle retailed for the average dealer.
• The NADA average private dealership profits for the 12-month period ended Q2 2019 was $1.37M, up 0.6%, reversing three years of declines.
• Most investors now believe autonomous vehicles are unlikely to impact dealers for decades and electric vehicles will remain a niche market.
To download The Haig Report, go to this website.
Additional insights from Kerrigan
Kerrigan Advisors reported this year’s dealership buy/sell market stayed steady and on course for yet another year of more than 200 transactions with 103 completed transactions year-to-date.
According to the just-released Second Quarter 2019 Blue Sky Report by Kerrigan Advisors, a decline in new vehicle sales spurred dealers to turn to their higher margin business segments, resulting in an increase in gross profit and earnings.
“The buy/sell market moved at a slower pace during the second quarter,” Erin Kerrigan said. “Yet even with the second quarter’s decline, 2019 is tracking to be another 200+ transaction year — the sixth consecutive year at this elevated level. Kerrigan Advisors expects transaction activity to remain at today’s elevated pace through the remainder of 2019 and into 2020.”
Kerrigan noted that since 2014, an estimated 1,000 dealers have sold their businesses, representing 12% of the total dealer network. The firm said sellers continue to come to market at a high rate, while the buyer pool grows with new capital seeking investment in auto retail thanks to a diversified and high-margin business model that hedges against an uncertain economy.
This year’s earnings increase, forecasted in Kerrigan Advisors’ prior Blue Sky Reports, highlighted the strength and sustainability of the auto retail business model. Kerrigan mentioned the continued shift to higher margin profit centers such as used-vehicle sales, F&I, and fixed operations also reflects the reported record earnings in the second quarter by public dealer groups. In their quarterly earnings calls, the groups noted their continued success augmenting new vehicle gross profits with record F&I income per vehicle sold.
According to the report, in the first half of the year the number of multi-dealership transactions also declined. The rise in single dealership transactions may reflect “franchise pruning” that many organizations are currently undertaking.
“Both the public groups and large private dealership groups are capitalizing on their ability to jettison underperforming dealerships and redeploy their capital into higher ROI investments in today’s active buy/sell market,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “Among the franchises being acquired, domestics continue to grow their market share because buyers are attracted to their lower blue-sky multiples and higher expected ROI.”
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market through the remainder of 2019 and into 2020. They included:
— Improvement in dealership earnings steadies blue sky values
— Publics’ stock price appreciation portends future acquisitions
— Lower interest rates support an active buy/sell market
Other highlights from Kerrigan Advisors’ latest report included:
— The buy/sell market moved at a slower pace in the second quarter, with 49 transactions completed.
— The Kerrigan Index is up 37.1% through July. Wall Street investors increasingly believe an auto retail investment is a hedge against a potential recession.
— Average dealership earnings increased 1% over the trailing twelve months ending in June 2019, the first increase in dealership earnings since 2015.
— Despite a decline in new-vehicle sales, dealers grew their higher margin business segments, resulting in an increase in gross profit and earnings.
— Since 2014, fixed operations and used vehicle gross profits have increased 10.8% and 27.6%, respectively. By contrast, new-vehicle gross profits have declined 7.6%.
— Today, fixed operations and used vehicles represent 75.9% of the average dealer’s gross profit, while new vehicles represent just 24.1% of gross profits.
— Domestics continue to increase their share of the buy/sell market at the expense of import non-luxury and import luxury franchises, which both saw their buy/sell market share decline to 22% and 9% respectively in the first half of 2019, the lowest level in five years.
— Rising real estate prices are increasing the total enterprise value of dealerships and more than offsetting any decline in blue sky value.
Kerrigan Advisors also downgraded Nissan and Infiniti high-end multiples as the OEM prioritizes volume over dealer profitability and maintains punitive stair step programs that distort vehicle pricing, creating earnings volatility within the dealer network.
For more details and to preview Kerrigan Advisors report, go to this website.
Along with finalizing its lineup of keynote speakers for NADA Show 2020, the National Automobile Dealers Association is making its award-winning educational training programs more readily accessible to members and their staffs.
NADA said its training offers, such as the Professional Series classes and Academy seminars, are now available to all dealership employees through the new Education Subscription program.
“The subscription to NADA’s educational training programs is a powerful tool for providing continuous training and development to dealership employees at a low-cost monthly subscription,” said NADA chairman Charlie Gilchrist, a multi-franchise dealer in the Dallas-Fort Worth area of Texas.
The subscription can be secured here.
NADA and Reflection Software recently won a gold award from the Brandon Hall Group for excellence in the category of Best Use of Video for Learning.
The award-winning training video module, “Finding Meaning Behind the Words: How Video Scenarios Brought the DISC Model to Life for Dealerships,” is part of NADA’s Professional Series course in Leadership, which centered on teaching how to effectively utilize the DISC Behavioral Model when interacting with colleagues and customers.
Reflection Software, which offers custom-built training and career development products, created the video module to supplement NADA’s instructor-led training classes.
“We are developing industry-leading curriculum for our members, and it’s satisfying when it is recognized beyond the auto industry by an organization as established as the Brandon Hall Group,” NADA executive vice president and chief operating officer Mike Stanton said in a news release.
NADA and Reflection Software worked together to develop the video module, which included real-life video scenarios with interactive decision points to enhance the learning experience through observation and action. The video scenarios created for the module were designed to be authentic to the dealership setting.
Brandon Hall Group Excellence Awards Program has recognized leading organizations during the past 20 years for the latest trends in Human Capital Management, according to Rachel Cooke, Brandon Hall Group COO and leader of the HCM Excellence Awards Program.
“The initiatives that were honored are not only innovative but fit the unique needs of the business and create truly remarkable success stories,” Cooke said.
Brandon Hall Group is an HCM research and advisory services firm that provides insights on key performance areas, including learning and development, HR/workforce management, leadership development and more.
Award entries, which were evaluated by a panel of independent industry experts and Brandon Hall Group analysts and executives, were based on the following criteria:
— Fit the need
— Design of the program
— Functionality
— Innovation
— Overall measurable benefits
Lineup for NADA Show 2020
Each year, the NADA Show brings world-renowned speakers and industry experts to its four-day event to share insights on topics that will help drive dealerships into the future. The keynote speakers for NADA Show 2020 include David Cameron, former prime minister of the United Kingdom from 2010 to 2016, and Mary Barra, chairman and chief executive officer of General Motors.
Gilchrist, the 2019 NADA chairman, and Rhett Ricart, 2019 NADA vice chairman, will share their perspectives on the auto industry. Kathleen Madigan, voted best female stand-up at the American Comedy Awards, will offer comedic relief.
NADA’s annual show returns to Las Vegas for Valentine’s Day weekend from Feb. 14-17.
Attendee registration for the show is open here. The early-bird registration discount ends Sept. 13. NADA said the popular hotels are selling out.
The shortage of trained auto mechanics has been the subject of many news articles. Matrix Trade Institute’s 20-week accelerated auto mechanic training program is working to ease that shortage.
Noting the great demand for auto mechanics as many mechanics approach retirement and not enough prospective mechanics are looking to enter the profession, Matrix Trade Institute says it has trained more than 80 mechanics in northeast Ohio since it started out at the beginning of this year.
Matrix Trade Institute co-founder Dustin Peugeot says his company works toward “igniting careers.”
“If you want to learn the trade, we can get you there faster and more efficiently with interactive learning technology and hands-on skill and efficiency training,” Peugeot said in a news release.
The institute also trains local dealerships and auto repair shops in increasing their workforce’s efficiency. Matrix says its Upskill Efficiency Bootcamps helps dealerships and shops improve retention and recruiting efforts.
Matrix says it uses “upskilling” and efficiency training to help boost productivity, wages, and growth opportunities. The institute says it has helped “progressive organizations” such as Penske, Conrad’s, and Sunnyside.
Peugeot said shops that use “focused, off-site, hands-on education” to retain employees “never has a recruitment problem.”
“That’s what we're designed for,” Peugeot added. “We’re the lever businesses need to be better than the competition, produce more today, and prepare for tomorrow as the talent gap widens.”
