Experts say auto dealers’ ability to shift resources to higher-margin departments when new-vehicle sales slow contributes to a resilient business model.  
 -  Photo by  Korhan Erdol  via Pexels

Experts say auto dealers’ ability to shift resources to higher-margin departments when new-vehicle sales slow contributes to a resilient business model.

Photo by Korhan Erdol via Pexels

IRVINE, Calif. — The 2019 auto dealership buy/sell market stayed “steady and on course” for yet another 200-plus-transaction year in 2019, with 103 completed transactions year-to-date, according to the Second Quarter 2019 Blue Sky Report by Kerrigan Advisors.

The 49 transactions recorded in Q2 represent a 9.3% decline from the prior quarter.

Read: Kerrigan: Dealership Buy/Sell Activity Up 38% in Q1

“The buy/sell market moved at a slower pace during the second quarter,” said Erin Kerrigan, the firm’s founder and managing director. “Yet even with the second quarter’s decline, 2019 is tracking to be another 200-plus 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. 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.

“The global trade war has clearly caused uncertainty in the investment community, leading to a flight to higher-quality, less risky assets.”

Despite recession fears, Kerrigan 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 Kerrigan. “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. Auto retail’s nimble model makes the industry a highly attractive investment in a time of greater economic uncertainty.”

Analysts found a decline in new vehicle sales spurred dealers to turn to their higher-margin business segments, including used-vehicle sales, F&I, and fixed ops. The result was a marked increase in gross profit and earnings.

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Notably, the number of multidealership transactions declined in the first half. Kerrigan analysts said the rise in single-store 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 Managing Director Ryan Kerrigan. “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.”

Read: Slow Sales Aside, Auto Groups Outperform Market

Originally posted on Auto Dealer Today

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