Auto retailers have largely maintained confidence in their dealership valuations for the 2023 buy-sell market. But according to the latest Kerrigan Dealer Survey by buy-sell firm Kerrigan Advisors, the number who feel this way is falling.

Based on the survey, 52% of dealers expect no change in their businesses' value in the next year, while 21% predict an increase. Yet, 27% of retailers expect a decrease in dealership valuations in 2024, the highest percentage of dealers feeling this way in the survey's four-year history.

According to Kerrigan Advisors, the decline in sentiment is directly tied to a decrease in retailer profitability forecasts.

Out of the 650 participants surveyed, 38% expected their earnings to decrease, while only 15% expect an increase in profits. Value projections for dealerships are dependent on their financial histories, meaning revenue pressures can influence valuations, the report noted.

However, it also revealed that 47% of respondents expect earnings to remain the same, a six-percentage point increase from last year. That's “an indication that current earnings, which remain far above prepandemic levels, are starting to normalize according to more dealers,” the report noted.

Industry headwinds are leading to the change in attitude. Despite the pandemic's impact on profit margins, prices have weakened this year as inventory levels recovered, Kerrigan reported. The low affordability of vehicles because of high inflation and soaring interest rates also may impact profits. 

There was a significant difference in the projected valuations of various dealership franchises. Retailers predict the biggest increase in storefront values for Kia, Hyundai, Lexus, Toyota and Porsche, according to the report. Conversely, it forecasts that values of Lincoln, Infiniti, Chrysler-Dodge-Jeep-Ram, Ford, Buick GMC and Nissan storefronts will decline next year.

According to the report, Ford is predicted to experience the largest decline in profits because of changes in its retailing model. Consistent with the negative sentiment, Ford is the nonluxury franchise least expected to see a rise in valuation in the next 12 months.

“These results reflect dealers’ lack of trust in the OEM with Ford ranking as the least trusted franchise—48% of dealers surveyed reported that they had no trust in Ford, the highest percentage of any franchise.”