Kerrigan Advisors made three blue sky multiple adjustments, increasing the blue sky multiple for Mazda and decreasing the multiples for Chrysler, Dodge, Jeep, Ram (CDJR) and Nissan in their most recent report.
For the second quarter of 2024, Kerrigan increased Mazda’s high-end blue sky multiple to 3.75 from 3.5 due to improved buyer sentiment of the brand. Mazda continues to gain market share with well-designed products and the support of its ongoing captive relationship with Toyota Financial Services.
While its current days’ supply of inventory is above market, Mazda is focused on supporting its dealers to increase sales and subsequently reduce days’ supply. The brand’s sales target for 2024 was revised up to 450,000, an impressive 24 percent increase from its 2023 sales of 363,000. Most importantly, sales per franchise have risen steadily since 2019 and hit a record level through the trailing twelve months as of June 2024.
Continued Problems at Stellantis
In the case of Stellantis brands, Kerrigan Advisors reduced the franchises’ blue sky multiples for CDJR on the high-end to 3.5 and on the low-end to 2.5. Some lenders are currently unwilling to finance CDJR acquisitions and dealers are beginning to terminate the franchise, in part due to the exploding inventory carrying cost.
As further evidence of CDJR’s declining blue sky value, Asbury Automotive Group has taken impairment charges against many of its CDJR franchises in 2024.
The change for Nissan’s blue sky multiple this quarter was adjusted on the low-end to 2.5. Demand for the Nissan franchise continues to decline due to steeply-reduced profits, poor product offerings and over-dealered with a declining sales per dealership. According to Automotive News, Nissan dealers’ return on sales has declined to 1 percent from 2.3 percent last year and net profit has declined 70 percent.
Mercedes-Benz, Hyundai Downgraded
Kerrigan Advisors also lowered its outlook for both Mercedes-Benz and Hyundai to Negative from Steady. Mercedes’ EV products are struggling in the marketplace, resulting in high inventory levels and low margins. Amongst the top luxury franchises, Mercedes has the highest overall days’ supply of vehicles (33 percent higher than BMW and 159 percent higher than Lexus). Mercedes’ declining luxury market share is creating a wider lead for Lexus and BMW.
In addition, Mercedes-Benz’s decision to take a more aggressive approach to structuring its dealer network, including identifying select preferred buyers and exercising its ROFR is beginning to limit the franchise’s buyer pool and could reduce its blue sky value in the future.
As for Hyundai, its aggressive position regarding buy/sell approvals, particularly the OEM’s desire to hand-select preferred dealers in each region, coupled with the franchise’s expensive facility requirements and Hyundai’s higher than average days’ supply, are resulting in lower buyer demand for Hyundai franchises.
Upgrades for Honda and Ford
The Nevada-based company upgraded its outlook for Honda from Steady to Positive and Ford’s outlook to Steady from Negative. Demand for Honda franchises is on the rise as sales per franchise rebounds and inventory production remains disciplined. Also, fewer buyers are concerned about Honda’s EV partnership with Sony given weak EV market demand.
In the case of Ford, the OEM has acknowledged its overly optimistic projections on EV sales and rolled back the Model E dealer requirements. Ford sales are outperforming the other domestic franchises in 2024, and buyers are showing more interest in the franchise, which could result in an increased blue sky multiple, particularly if inventory days’ supply improves from its currently high levels.
The Blue Sky Report, published by Kerrigan Advisors, is published quarterly on dealership M&A activity, as well as franchise values. The first six months of the year, Kerrigan found the auto dealership buy/sell market experienced an all-time record in the first half of 2024, with 204 completed dealership transactions representing 381 franchises sold.
The activity was largely driven by an increase in sellers coming to market seeking to capture historically strong blue sky values, which remain above pre-pandemic levels for most franchises, up on average 74 percent according to The Kerrigan Blue Sky Index. Transaction activity is on pace to nearly double pre-pandemic levels and annualizing at 760+ franchises sold, a new industry milestone.