A quarterly report from Haig Partners LLC found that the first three months of 2024 sets a record for the highest number of dealerships bought or sold despite declining profits.
An estimated 151 dealerships were bought or sold in January, February and March, with private dealers making 131 dealerships. Publicly traded auto retailers acquired a total of 20 domestic auto dealerships in the same time period, 10 times more than the same period in 2023.
Haig Partners reports the estimated average blue sky value of a publicly owned dealership was $19.0 million in Q1 2024, a decline of 5 percent from 2023 and 18 percent from 2022.
Alan Haig Comments
Alan Haig, President of Haig Partners, observed that the demand for dealerships appears to be fueled by significant savings that buyers accumulated in recent years, and their confidence in the future of auto retail.
“Along with the strong demand, the supply of stores for sale has increased as dealers have decided they are willing to retire early thanks to the windfall of profits from the past four years,” said Haig, is a press statement with the report. “More demand and more supply is leading to more deals.”
According to the study, the average dealership owned by public retailers generated $1.0M in pre-tax income in Q1 2024, reflecting a 26% decline from Q1 2023. Over the last 12 months, the average publicly owned dealership made $5.0M in pre-tax income, a 6.2% decrease from YE 2023 and a 25.7% drop from YE 2022.
Franchise Trends
Haig believes that profits will continue to decline throughout the remainder of 2024. However, these averages can obscure trends occurring at the franchise level, where we are noticing a growing level of variation in dealership performance across different franchises.
“While average dealership profits have begun their expected decline, the overall health of the U.S. auto industry remains remarkably healthy,” said Haig. “The average dealership still makes more than twice as much profit as before the pandemic hit. Dealership performance varies significantly depending on franchise and location, though.”
Profits at Lexus, Toyota and Honda have remained high, thanks in part to tight days’ supply. On the other end of the scale, many Stellantis, Nissan and Infiniti dealers have seen their profits drop by more than 50 percent since last year.
2024 Forecast
The report does estimates that dealership blue sky values will continue to decline throughout 2024 at 1-2 percent per month, but remained closer to peak levels than those of 2019. The demand for dealerships, and therefore the prices buyers are willing to pay for dealerships, remains elevated.
Looking ahead, the report a busy 2024, with a level of activity that could rival—or even eclipse—the number of dealership buy-sells that occurred each of the past three years. With valuations for most dealerships still well above pre-pandemic levels, owners can sell their stores for high prices and move on to the next stages of their lives.
The preceding four years have significantly boosted the wealth of almost every auto dealer in the U.S., which accelerates the age at which they can retire comfortably and provide for their heirs and charitable interests.
Haig Examples
Haig officials noted their role in the sales of Vista BMW, South Honda, and Al Hendrickson Toyota dealerships over the past year that produced record-high values for each of these franchises. Additionally, they said they are closing on the sale of another dealership in Florida that may establish another record-high value for that franchise.
“In addition to the high volume of buy-sells, we are still seeing high values for many franchises,” said Haig.
“Unfortunately, these high values don’t exist for all franchises. We can’t recall a time when the gap in valuation between a Toyota dealership and a Nissan dealership has been so significant.”
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