Due to several factors, dealership profits declined 32 percent in the first half of this year compared to the same period a year ago, according to the most recent 2024 Haig Partners Report.
The reduction in profits affects dealership values and the number of dealerships being sold. The report found an estimated 84 rooftops traded hands in the second quarter, a 48 percent decline from the first quarter. While a notable drop, Haig officials noted first three months of this year were the busiest quarter on record for dealership buy-sells.
In fact, transaction volume for the first six months of the year is only down 14.5 percent from the same period in 2023. The market remains busy, with a sustained appetite for strong franchises in attractive markets, leading Haig to predict this year will rank as the fourth busiest year for U.S. dealership buy-sells in automotive history.
A New Normal
“We are leaving a period in auto retail where conditions were almost too good to be true,” said Alan Haig, President of Haig Partners, in a press statement with the report. “Profits at dealerships more than tripled from 2019 to 2022 thanks to high gross profits on new vehicles and low expenses.”
In Q2 2024, Haig estimate that the average dealership owned by public retailers made $1.0 million in pre-tax income, a 35 percent decline from the same time in 2023. Over the last twelve months, the average publicly owned dealership made $4.5 million in pre-tax income, a 27 percent decrease from 2023 and a 33 percent drop from 2022, the peak year when the average dealership owned by the publics made an estimated $6.7 million in pre-tax income.
Looking ahead, Haig forecasts the average store profits will continue to decline for the remainder of 2024, but at a slower pace.
“Today, gross profits on new vehicles are declining and expenses have risen. The good news? Average profits are still about double what they were before the pandemic,” said Haig.
Dealership Value Down
The report estimates the average blue-sky value of a publicly owned dealership was $21.8 million in Q2 2024, an 11 percent reduction from the blue-sky value observed at the end of 2023. Haig officials offered they had expected a bigger decline by now, but earnings for most brands remain well above pre-pandemic levels.
And sellers have enjoyed exceptional times recently, as more than five large dealership groups traded hands for more than a billion dollars over the past few years.
“The last three-and-a-half years have been boom times,” said Haig. “We have seen well over 2,000 dealerships trade hands, about double the normal rate of buy-sells. The large public company acquisitions get a lot of headlines, but by far the biggest part of the market are family-owned groups that are handing over some of their savings to other family-owned groups that have chosen to exit the industry at record-high prices.”
Buyer’s Market?
But the market is now shifting, Haig officials wrote in their report, as many dealership groups are divesting dealerships that no longer make sense for them. These divestitures include sales of stores that produce little income or are losing money, as well as dealerships located in outlying areas from the owners’ core markets.
“Where our practice has dramatically expanded is on the divestiture side,” said Haig. “We have been engaged to sell over 30 dealerships owned by several groups, public and private. These are stores that are no longer a good fit for their owners. They may be losing money, weak brands, or no longer fit geographically.
“Dealerships that remain nicely profitable are selling for a little less today than they were at the end of 2023, a reflection of their reduced profitability.”
Haig: Time to Jump In
Haig offered that at the current rate of buy-sells, 2024 will be the fourth most active year in buy-sells with around 500 stores sold, which is still 49 percent higher than the average number of stores that sold from 2016-2019.
The types of transactions, and the values of dealerships, are evolving from the boom times. He is advising for those that have waited on the sidelines during this time, there are plenty of opportunities at the right price.
“We know that many dealers who wanted to grow were sitting on the sidelines over the past few years as they waited for prices to fall,” said Haig. “Now is the time to get up!”
