The auto dealership buy/sell market has another record breaking year in 2024, rising 10 percent from the year before according to the recently released 2024 Annual Blue Sky Report by Kerrigan Advisors.
For the year, 697 franchises were sold, the highest number since 2021 and a 2.5 percent increase from 2023. The strength of the buy/sell market in 2024 was largely driven by growing industry confidence in the future of auto retail sales and profitability.
With more than a quarter of a trillion dollars in pre-tax dealership earnings accumulated since the pandemic—much of it sitting idle on balance sheets— Kerrigan Advisors expects the consolidation trend to persist in 2025.
“With interest rates lower, inflation moderating, and vehicle affordability improving, new vehicle sales saw a significant uptick throughout the year, further boosting buyer confidence,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “This confidence grew even stronger post-election, as dealers experienced a sharp rebound in new vehicle sales—clear evidence of pent-up consumer demand after years of constrained supply.”
Haves vs. the Have Nots
Franchise diversification was critical to a dealership group’s success in 2024 as the auto retail market is fast becoming a divide into the “have” and “have not” franchises. Strong franchises thrived on low inventories and sustained high gross profit margins. Weaker franchises struggled with rising inventories and floorplan costs, while facing falling gross profits.
This divergence created a marketplace of winners and losers, clearly reflected in days’ supply of vehicles. Lexus, Toyota, BMW and Honda who have amongst the highest valuations in the industry, maintained the lowest days’ supply—well below the industry average—whereas Lincoln, Nissan and the Stellantis U.S. brands, have amongst the highest days’ supply and lowest valuations.
“Valuations for underperforming/weaker franchises fell sharply in 2024 as dealer confidence in those OEMs declined,” stated Erin Kerrigan. “Some dealers with struggling franchises faced financial distress for the first time since the Great Recession, leading to an increase in distressed sales and deeply discounted valuations compared to their pandemic highs. With the average dealer owning fewer than three stores, the impact of a weak franchise became harder to absorb.”
Market Consolidation
The consolidation trend resulted in the largest private dealerships in the industry growing at the fastest rates. The Automotive News Top 150 accounted for more than 30 percent of industry revenue, representing 28 percent of the franchises acquired, the highest level on record. These companies continued to grow revenue per rooftop, which now exceeds the NADA average by 18 percent ($13.1 million).
The Southern U.S. continued to be a stand-out in the regional consolidation trend in 2024 as buyer demand for its high-growth, business-friendly markets surged to a new record with a buy/sell market share of 51 percent, a 20 percent year-over-year increase.
Although they averaged 19 percent below their 2022 peak, blue sky values remained high due to an active buy/sell market.
“Many dealers see 2024 as a valuation inflection point, with blue sky values expected to rebound in 2025, alongside a recovery in industry earnings, and the public markets reflect this outlook,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “With valuations poised to rise, we expect another robust year for dealership transactions. As dealers and their families plan for 2025 and beyond, the choice between growth and exit will be front and center—while inertia appears to be a less viable strategy in the evolving market.”
Three Impacts
In the report, Kerrigan Advisors identified three important trends that are expected to meaningfully impact the auto retail market in 2025: real estate values, OEMs right of first refusal (ROFR) and China’s growth. Kerrigan Advisors estimates dealership real estate values are currently $13.9 million on average.
“While blue sky values have declined…from their 2022 peak, rising real estate valuations have offset this drop, keeping total dealership enterprise values near record levels in 2024,” said Ryan Kerrigan. “This trend highlights the critical role of dealership real estate in a dealer’s decision to sell and their total after-tax proceeds.”
OEMs had a record number of ROFRs in 2024, continuing a trend that began in 2022 when blue sky values peaked. ROFR activity historically correlates with buy/sell volume—higher transaction levels boost OEM confidence in securing alternative buyers, prompting more frequent ROFR use. The 2024 Kerrigan Dealer Survey found that 25 percent of respondents reported “no trust” in their OEM, up 19 percent from 2023, while moderate and high trust levels declined.
China is redefining the global automotive landscape, surpassing the U.S. as the world’s largest auto market. Erin Kerrigan noted legacy OEMs are feeling the financial impact of losing market share in the world’s largest auto market as “Volkswagen, General Motors, Nissan, BMW, and Mercedes-Benz—once reliant on China for 20 percent to 40 percent of global sales—are facing accelerating declines in 2024, hitting earnings hard.”
With valuations poised to rise, Ryan Kerrigan, Managing Director of Kerrigan Advisors said “we expect another robust year for dealership transactions. As dealers and their families plan for 2025 and beyond, the choice between growth and exit will be front and center—while inertia appears to be a less viable strategy in the evolving market.”
