Demand for Dealerships Remains High

Demand for dealerships remains high due to earnings well above historical levels, according to the third-quarter Haig Report.

It says that about 385 rooftops have traded hands this year through the end of the quarter. If the pace continues, 2023 will rank as the third busiest year for dealership buy-sells, after 2021 and 2022, the report from the buy-sell firm says.

The average earnings of publicly owned dealerships dropped by 17% to $5.4 million in the 12-month period ending in the quarter. Profits, although lower, are still more than 2.5 times higher than before the pandemic, the report noted.

Still, lower profits led to a 12% decrease in the average blue-sky value per publicly owned dealership by the end of the quarter, Haig said.

Despite the trend, the effects of the declines differ among franchises and regions, according to the report.

Al Hendrickson Jr.'s Toyota dealership in South Florida sold for the highest price ever paid for a single franchise through Haig Partners. The demand for Toyota dealerships also remains elevated. Several Toyota stores represented by Haig received highly desirable offers in November, the firm reported.

Alongside Toyota, Haig Partners also has seen strong demand for other franchises and dealerships in fast-growing regions with pro-business climates. According to the company, two Mercedes-Benz dealerships, along with their real estate, recently sold in Miami-Dade County for over $700 million. Haig reports other pending sales Florida will set record-high values for the franchises involved.

High dealership prices can also be found in Texas, the Southeast, Mid-Atlantic, Mountain states and the Southwest, where dealers are eager to expand, according to the report.

Uncertainty about future profits is making valuations more complex, but desirable franchises and attractive markets still fetch high prices, it said.

Company President Alan Haig said in a press release on the report that, “The buy-sell market remains near record levels because of strong profits and significant demand from dealers who want to grow their companies. 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.”

He listed several other factors supporting the buy-sell market today.

“We are past the UAW strike, which did not have a terrible effect on dealers. 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,” he said in a statement. “Dealership buyers respond to these conditions with strong offers when the right dealerships come up for sale. For dealership sellers with realistic expectations, we are confident they can expect strong values for the balance of 2023 and into 2024.”

Originally posted on Auto Dealer Today