Haig Report Says Private Dealers are Increasing Focus on Used Vehicles

Haig Report Says Private Dealers are Increasing Focus on Used Vehicles

The Haig Report tracks developments in auto retail and how they impact dealership values. It includes data and analysis on the performance of auto dealerships, identifies noteworthy events to the industry, discusses trends in the M&A market for dealerships, gives guidance on estimated value ranges for different franchises, and provides an outlook for the M&A market in 2019.

As published in the Q2 2019 edition of The Haig Report, released by Haig Partners, the number of dealerships bought/sold in the U.S. decreased by 60% in Q2 2019, compared to an exceptionally busy Q2 2018. The number of dealerships that traded hands fell from 122 to 49. 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.

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, 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 Haig Report tracks developments in auto retail and how they impact dealership values. It includes data and analysis on the performance of auto dealerships, identifies noteworthy events to the industry, discusses trends in the M&A market for dealerships, gives guidance on estimated value ranges for different franchises, and provides an outlook for the M&A market in 2019. The Haig Report is based on data gathered from many public sources, as well as interviews with leading dealer groups and bankers, lawyers and accountants who specialize in auto retail.
 
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 3-1/2 years. However, the Federal Reserve’s recent 25 BPS 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. 

Alan Haig, president of Haig Partners, said, “Auto dealers have managed to defy gravity and increase their profits compared to last year. 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. 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.”

The Haig Report is published each quarter and is a valued source of information to many in the auto industry who look to it for its comprehensive data, analyses and opinions about the auto retail industry. Included in each edition are Haig Partners’ blue sky multiples that serve as a gauge for franchise values.

Links:
Haig Partners
Haig Report

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