While values declined slightly this year, 2023 is on pace to be the third most active year for the selling of U.S auto dealerships.
That is one of the main takeaways of the Haig Report for third quarter 2023 that stated at least 385 rooftops have traded hands so far this year–the third most active year for dealership buy-sells following 2021 and 2022. Despite the activity, Haig estimates the average blue-sky value per publicly owned dealership declined 12% compared to year-end 2022.
The report highlighted there are big deals still being done—Al Hendrickson, Jr. sold his Toyota dealership in South Florida for the highest price ever paid for a single franchise and two Mercedes-Benz dealerships were recently sold in Miami-Dade County for more than $700M, including real estate.
Besides Florida, other geographic locations the Fort Lauderdale-based company is seeing increased prices being paid for dealerships include Texas, the Southeast, Mid-Atlantic, Mountain states and the Southwest, where dealers want to grow.
The report states the average publicly owned dealership made $5.4 million in the 12-month period ended Q3 2023, a 17% drop from year-end 2022. Despite the decline, profits remain more than two-and-a-half times higher than pre-pandemic levels.
Alan Haig, President of Haig Partners, offered that the buy-sell market remains active due to strong profits and significant demand from dealers who want to grow their companies.
‘Declining profits continue to reduce blue sky values from the record highs we saw in 2022, but they remain 2.3 times above pre-pandemic levels,” said Haig in a press statement with the report’s release. “We believe blue sky values will remain elevated since buyers believe profits will also remain elevated. There is pent-up demand for new units and service drives remain full.
The report offers that valuations are becoming more complicated due to uncertainty about where future profits will settle, but desirable franchises and attractive markets continue to command premium prices.
Public company acquisition spending rose to nearly $2 billion YTD, bringing spending above levels observed in the same period last year. Haig notes that while YTD transaction volume lags 2022 numbers, the third quarter of 2023 saw 30% more stores trade hands compared to a typical, pre-pandemic third quarter.
Private vs. Public
Private groups continue to search for opportunities to further build their scale. On the public side, several auto retailers are preparing for Q4 2023 and Q1 2024 acquisitions.
“Higher interest rates impact dealership buyers, just as higher interest rates affect auto buyers,” said Haig. “Fortunately for dealership sellers, buyers have an immense amount of cash on their balance sheets thanks to three years of pandemic-boosted profits, so they can use their savings to finance a good portion of acquisitions.”
Public company acquisition spending tumbled the last quarter, plummeting 92% quarter-over-quarter to just $80 million in Q3. Overall, total acquisition spending from the publicly traded auto retail groups was down 78% on a quarterly basis, which is attributed to these groups investing significant time on evaluating large and/or international acquisition opportunities.
Looking ahead, Haig Partners forecasts a spike in domestic spending to buy car dealerships in either Q4 2023 or Q1 2024.
“We are seeing some dealership groups divest certain brands or stores in markets where they would like to exit, taking the capital from those sales and reinvesting in acquisitions elsewhere,” said Haig.
A reason for sell-offs is profits have been on the decline for the publicly traded auto retail groups over the past several quarters. By the end of 2023, the advising group predicts public groups will show a decline in profit per dealership in the 20-30% range.
This decline is not being seen equally by all franchises, however. The profits at the hottest brands are holding up better than those where days’ supply is highest—Toyota and Honda dealers are still feeling pretty good, while some Stellantis dealers are seeing profits retreat to where they were in 2019.
“The buy-sell market remains near record levels due to strong profits and significant demand from dealers who want to grow their companies,” said Haig.
The report cited several other factors supporting the current market—inflation is declining, GDP is growing faster than expected, employment is rising steadily, and a significant recession, which was predicted by many, if not most, economists, seems less likely with each month.
“Dealership buyers respond to these conditions with strong offers when the right dealerships come up for sale,” said Haig. “For dealership sellers with realistic expectations, we are confident they can expect strong values for the balance of 2023 and into 2024.”