The auto dealership buy/sell market set new records again in 2021 as the continuing, and transformative, impact of the pandemic drove change across the auto dealership business model, according to the just-released Blue Sky Report by Kerrigan Advisors. Unprecedented dealership earnings and blue sky valuations in 2021, says the report, helped fuel a historic 383 completed transactions in 2021, a 32.5% increase from 2020’s prior record and a 71.7% increase over the 2015-2019 pre-pandemic average. Of note in this pivotal year for the auto industry, the public auto retailers were especially acquisitive, adding 246 dealerships, compared to just 29 in 2020, a shift that, according to the report, indicates a quickening of industry consolidation in the coming years.
Dealership buy/sell activity accelerated throughout 2021, with 158 transactions completed in Q4 alone, more than three times the pre-pandemic fourth quarter average. The transactions completed in 2021 represented 830 franchises, more than in any prior period, with 33% of the transactions representing multiple franchises.
“Auto retail experienced a ‘black swan’ moment in 2020, the results of which continued to transform the industry throughout 2021,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “The pandemic was a catalyst as shrinking new vehicle inventories and rising consumer demand resulted in one of the most extreme supply/demand imbalances in auto retail history. Dealers leveraged their new pricing power while also reducing expenses and enhancing employee productivity, resulting in record dealership profits and dramatically increased operational efficiency. All of which led to the high velocity of dealership transaction activity in 2021.”
According to, The Blue Sky Report by Kerrigan Advisors, auto retail’s systemic transition from a local to a national marketplace, super-charged by the digitization brought on by COVID-19, accelerated consolidation by dealerships looking to expand and scale their businesses. In addition, the move to electrification and Tesla’s proven success with its virtual sales model fast-forwarded auto retail’s shift to a digital sales model, one less reliant on human capital and less dominated by technology.
“The once ‘impossible’ online vehicle sale became the “possible” as a result of the pandemic,” continued Kerrigan. “This accelerated auto retail’s systemic transition from a local to a national marketplace, the consequences of which will be long-lasting, particularly for private, family-run dealerships. Kerrigan Advisors expects digital retailing, along with OEMs attempts to go direct-to-consumer, will stimulate further industry consolidation into 2022.”
According to the report, although private buyers dominated the buy/sell market, with a 71% share, the most notable move in the 2021 buyer pool was the acquisition activity by the public consolidators who grew their buy/sell market share to 29%, spending a record $9.56 billion in 2021, over 7 times their pre-pandemic average between 2014 and 2019.
The success of the publics’ acquisition strategy is further reinforced by The Kerrigan Index of the largest publicly traded auto retailers which traded above 1,000 for 201of 252 trading days last year, with each public hitting an all-time record high stock price during the year. The report notes that with the publics’ stock prices at these elevated levels, more acquisitions are accretive to earnings and thus they increased their capital allocation to acquisitions.
“The activity by the publics in 2021 represented a dramatic about-face and a new record for these companies,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “The pandemic made clear that scale and a national platform will be clear differentiators for auto retailers in the future, particularly with their digital platforms. As a result, these companies shifted their focus from incremental “tuck-in” investments to major group expansion that meaningfully enhanced their geographic reach and added billions in revenue to their topline.”
Another significant buy/sell market change was the reduction in the domestic’s buy/sell market share to 46%, relative to their franchise market share of 66%. By contrast, import franchises saw their buy/sell market share soar to 54%, with Toyota hitting a new high of 7.7%, the highest level ever recorded by an import franchise. Kerrigan Advisors attributes Toyota’s rise to buyer confidence in the OEM’s partnership business model with its dealers, relative to the strained dealer relations with domestic OEMs, such as Ford and GM.
“We are seeing more buyer skepticism about Ford’s and GM’s plans to go direct-to-consumer which may lead to a decline in buyer demand for these franchises in the future. By contrast, the demand for Toyota franchises is as high as we have ever seen it,” continued Ryan Kerrigan. “Buyers believe an investment in a Toyota franchise will last the test of time because Toyota partners with its dealer network. Whatever the future holds, buyers feel very confident it will be a “win/win” for Toyota and its dealers.”
2022 Buy/Sell Trends
Kerrigan Advisors has identified the following three important trends which it expects to meaningfully impact the market in 2022.
- Buyers base blue sky on projected future earnings, rather than historical norms.
- OEM electrification plans not factored into 2022 dealership valuations.
- Expected changes to the legacy auto retail business model drive more sellers to market.
Blue Sky Multiple & Outlook Adjustments
Given the tremendous transformation in auto retail in 2021, and expectations for future changes with electrification and digital retailing, Kerrigan Advisors made several adjustments to its blue sky multiples and multiple outlooks.
“Uncertainty generally creates greater volatility in a business’ valuation and the more uncertain buyers are regarding a franchise’s future earnings, the lower the blue sky multiple they are willing to pay. With this in mind, Kerrigan Advisors downgraded our outlooks on the Chevrolet, Ford, and Buick GMC franchises to negative from steady,” said Erin Kerrigan. “These domestics are flirting with new business models for their vast dealer networks and the unknowns associated with these changes is adding a level of risk to their proforma earnings, which may reduce their multiples in the future.”
In addition to the changes in the outlook for Ford and General Motors, Kerrigan Advisors made the following changes to the fourth quarter 2021 blue sky multiples.
- Reduced Chevrolet’s low-end multiple from 3.75 to 3.5, in line with its domestic competitors.
- Increased Hyundai’s and Kia’s low-end multiples from 3.5 to 3.75 and high-end multiples from 4.5 to 4.75.
- Increased Nissan’s low-end multiple from 2.5 to 3 and high-end multiple from 3.5 to 4.
- Increased Porsche’s low-end multiple from 7.5 to 8.
- Increased Lexus’ low-end multiple from 7 to 7.5.
- Decreased Audi’s low-end multiple from 7.0 to 6.75 and high-end multiple from 8.0 to 7.5.
Highlights from the Q4 2021 Blue Sky Report® by Kerrigan Advisors include:
- 158 dealership buy/sell transactions were completed in the fourth quarter.
- 383 transactions were completed overall in 2021, a 32.5% increase from 2020’s prior record and a 71.7% increase over the 2014-2019 pre-pandemic average.
- A record 126 multi-dealership transactions were completed in 2021, representing 33% of the total market, almost double 2020’s 73 multi-dealership transactions.
- Import non-luxury franchises increased their buy/sell market share to 36% in 2021, primarily at the expense of the domestics.
- Domestics reduced their buy/sell market share to 46%, substantially below their franchise market share of 66%.
- Ford had the highest buy/sell market share of the domestics in 2021 at 11.4%; however, Kerrigan Advisors expects demand for Ford franchises to decrease in 2022.
- Toyota continued to have the highest import non-luxury buy/sell market share at 7.7%, the most ever recorded for an import franchise.
- Lexus’ buy/sell market share declined from 3.8% in 2020 to 1.3%, potentially a result of limitations Lexus places on franchise ownership.
- The largest public dealership groups grew their buy/sell market share to 29% in 2021, increasing their dealership count by 246 in 2021 from 29 in 2020, a dramatic increase from prior years.
- The publics spent a record $9.56 billion on dealership acquisitions in 2021, 758% more than their pre-pandemic average.
- Lithia and Asbury acquired 80 and 67 dealerships, respectively in 2021, more than their competing publics.
- The Kerrigan Index™ surpassed the 1,000 mark in March 2021 and continued in record territory throughout last year. Since March 2020, the Kerrigan Index has outperformed the S&P 500 by nearly 155%.
- Private buyers continue to dominate the buy/sell market taking 71% market share.
- 2021 was another record earnings year for dealers with average revenue of $70.4 million, and pre-tax profits almost doubling from $2.1 million in 2020 to an impressive $4.1 million in 2021.
- Average dealership revenue per employee rose to $1.1 million in 2021 compared to $879K in 2019.
- The publics’ average SG&A as a percentage of gross profit dropped to 61% in 2021, driving record public profitability.
- Average dealership blue sky and real estate values increased to $22.9 million in 2021, from $19.2 million in 2020.
The Blue Sky Report, published by Kerrigan Advisors, is the auto retail industry’s most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. The quarterly report, received by nearly 10,000 industry recipients in 35 countries, includes analysis of all dealership transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. For more details and to preview the report, click here. To sign up to receive the quarterly report, click here.
Kerrigan Advisors also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index™, click here.