If publicly traded dealer groups wanted to buy another rooftop, they had to open their checkbooks or dig deeper into their credit availability based on the figures shared in the Q3 2017 edition of the Haig Report released on Wednesday by Haig Partners.
For the year-to-date numbers ending Sept. 30, Haig Partners calculated publicly traded retailers had spent $935 million on dealerships in the U.S., an increase of 62 percent from the $578 million deployed during the same period in 2016.
The report pointed out that Lithia Motors was the most active of the publicly traded companies and continues to target underperforming large platforms in different parts of the U.S.
“Despite all the noise regarding the potential negative impact on auto dealerships from ride sharing, electrification, autonomous vehicles and changes to the franchise system, the "smart money" is still buying dealerships,” Haig Partners said.
The report also shared that the number of dealerships that sold in the U.S. through the first nine months of the year declined by 18 percent compared to the same period in 2016.
Haig Partners also computed profits at privately owned dealerships for the 12 months ending Sept. 30 were 3.8 percent lower than year end 2016 due to rising costs.
Values of privately owned dealerships fell 3.2 percent during this period, according to the Haig Report. Haig Partners' franchised blue sky multiples were mostly unchanged in Q3, with increased valuations for Subaru and Volkswagen only.
Continuing the trend from 2016, the report showed demand for dealerships shifted from luxury brands to domestic brands that are heavier in trucks and SUVs. Luxury dealerships accounted for 14 percent of acquisitions through Q3, down from 17 percent through Q3 of last year, and purchases of domestic stores increased to 50 percent through Q3 from 46 percent through Q3 2016.
Other key findings from the Q3 2017 Haig Report include:
—Macroeconomic indicators such as GDP, interest rates, employment, number of miles driven and consumer sentiment remain highly favorable for dealers.
—Other trends such as used-vehicle pricing, incentive spending by the OEMs, and rising inventories are growing less favorable to dealers.
—Fleet sales have fallen by 8.3 percent through October, although retail sales are almost flat from the same period in 2016.
—Declines in new and used gross profits per vehicle are being offset by gains in F&I and fixed operations.
—Sales and gross profits continue to increase at dealerships, but expenses are rising faster leading to earnings declines at many public and private dealers.
—The average dealership pre-tax profit during the last 12 months was $1.41 million
—Average estimated blue sky value per dealership dipped 3.2 percent from the end of 2016 to $6.8 million.
—Potential threats from autonomous cars, ride sharing, electrification and changes to franchise laws are so far having minimal to no impact on dealership values.
—Public auto retailers are spending more of their capital on acquiring auto dealerships in the U.S. than last year.
—Private equity firms and family offices continue to make substantial investments in auto retail.
“As we expected, the sharp drop in the first quarter of the year has been offset by strong second and third quarters and we are expecting robust conditions for the rest of the year,” Haig Partners president Alan Haig said. “There are many buyers and sellers in the market and deal financing remains readily available. These are good conditions for buy-sells, so long as sellers understand that their leverage is more limited than in the past.
“Buyers have many options and are increasingly concerned about future profits. They are less likely to chase deals or pay big premiums. If dealers want to sell their dealerships they will likely need to accept today’s offer since tomorrow’s offer could be lower,” Haig continued.
Haig Partners is seeing these conditions in its current engagements that include domestic, import and luxury dealerships that range from Florida to New York to California. The firm has closed dealership transactions with a value of more than $3.6 billion during the past 20 years.
The Haig Report is published each quarter and includes comprehensive data, analyses and opinions about the auto retail industry. Also included in each edition are Haig Partners' blue sky multiples that can serve as a gauge for franchise values.
To download the report,