Haig Partners released its first-quarter Haig Report, which tracks trends in auto retail and their impact on dealership values.
Pretax profits at dealerships owned by publicly traded auto retailers have begun to trend downward. The average adjusted pretax profit per dealership was $6.2 million in the 12-month period ended March 31, down 5% from the full year 2022. Average pretax profits in the first quarter fell 22% year-over-year, one of the best-performing quarters ever for the publicly traded groups. Despite the decline, the average estimated pretax profit per publicly owned dealership remained over three times higher than 2019 levels.
Buy-sell activity decreased 31% in the quarter year-over-year. An estimated 82 dealerships were acquired, down from 118. Despite a slow start to the year, we believe buy-sell activity will pick up for the remainder of 2023 based on both our pipeline of transactions and the lofty 2025 revenue goals set by the public retailers. Dealers have plenty of cash and are still making strong profits. Many groups are looking to reinvest profits by acquiring more dealerships, as they believe larger groups will have advantages over smaller ones in the future.
Blue-sky values for dealerships fell an estimated 3% from the end of 2022 to the end of the first quarter. Buyers have been expecting a decline in profits when formulating offers for dealerships. The decline we are seeing is in line with those expectations, so the decline in blue-sky values has been minimal since 2022.
Other highlights from the report include:
- Dealership profits in the quarter fell 22% from their peak a year earlier but are still 230% higher than in 2019.
- Estimated blue-sky values remain robust, down just 3% from the record levels seen at year-end 2022. Buyers have already been pricing in a decline in earnings.
- Private buyers are by far the most active because they're looking to reinvest record profits. They are paying record-high values for a number of franchises this year.
- Public companies remain acquisitive but have broadened their focus, spending more money on stock buybacks and international transactions while continuing their hunt for U.S. dealerships.
- Top 150 dealership groups hold 23% of total U.S. dealerships, a 21% increase since 2014.
Alan Haig, president of Haig Partners, said, “Although dealership buy-sell activity slowed in Q1, we are receiving many inbound requests from dealers looking to grow. Their balance sheets are loaded with cash and hold very little debt. They have confidence that the long-term outlook for automotive retail is positive. This confidence is showing up in record-high values being paid for stores.
"Last year, we had the honor of serving as the exclusive advisor on the sale of John Elway's Crown Toyota in California, which attracted the second-highest value ever paid for a Toyota dealership, to our knowledge. Earlier this year, we were proud to represent Jack and Robin Salzman in the sale of their CDJR stores, one of which sold for a record-high price for that franchise, according to Stellantis. We expect to set another record for a store that is on track to close soon for the highest price ever paid for a single dealership.”
Originally posted on Auto Dealer Today