Dealership Sales Activity Jumps 26% in Q3 According to the Latest Edition of The Haig Report

FT. LAUDERDALE, Fla., Dec. 11, 2018 /PRNewswire/ -- As published in the Q3 2018 edition of The Haig Report released today by Haig Partners, the number of private dealerships that sold in the US increased 26% in Q3 2018 compared to Q3 2017, from 84 to 106.¹  In one large transaction Ken Garff Automotive Group purchased full ownership of 28 dealerships from an affiliated entity that drove much of this increase.  Excluding this transaction, the number of dealerships sold in Q3 2018 decreased 7% compared to Q3 2017, and the number of dealerships sold Q1-Q3 2018 increased 24% from the same period in 2017.  Acquisition spending in the first three quarters of 2018 by publicly traded auto retailers decreased 33% compared to the same period in 2017. 

Profits at privately owned dealerships over the last twelve months through September 2018 were 2.6% lower than for the full year 2017, mostly due to rising costs.² Haig Partners lowered the estimated blue sky multiple ranges for twelve of the 22 franchises that it covers by 0.25x-0.5x to reflect lower offers from buyers.  The reduction in blue sky multiples is a result of several factors, including falling profits, an increase in the number of dealerships available for purchase, and the potential of rising interest rates which could reduce investment returns. 

When lower profits per dealership are combined with reduced blue sky multiples, Haig Partners estimates the value of a privately owned dealership fell 4.6% from year end 2017 to Q3 2018. 

The Haig Report tracks developments in auto retail and how they impact dealership values.  It includes data and analysis on the performance of auto dealerships, identifies noteworthy events to the industry, discusses trends in the M&A market for dealerships, gives guidance on estimated value ranges for different franchises, and provides an outlook for the M&A market in 2018.  The Haig Report is based on data gathered from many public sources, as well as interviews with leading dealer groups and bankers, lawyers and accountants who specialize in auto retail.

Other key findings from the Q3 2018 Haig Report include:

• Macroeconomic indicators such as GDP, employment, number of miles driven and consumer sentiment remain highly favorable for dealers.
• Other trends such as higher interest rates, higher average monthly car payments and declining dealership profits are hurting dealers.
• Private dealers are increasing their focus on used vehicles with volume up 4.4% Q1-Q3 2018, even as new vehicle sales are declining.
• Fleet sales are up 9.3% in Q1-Q3 2018, but retail sales were down 2.2%.
• Declines in new and used gross profits per vehicle are being offset by gains in F&I and fixed operations.
• Floorplan interest expense has swung from a credit of $119 per vehicle in 2015 to an expense of $58 so far in 2018.
• Total 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 for the twelve month period ended Q3 2018 was $1.36M, down 2.6% from year end 2017.³
• Average estimated blue sky value per dealership dipped 4.6% in Q3 2018 to $6.6M compared to $6.9M at year-end 2017.
• Potential threats from autonomous cars, ride sharing, and electrification have not yet had a measurable impact on dealership values, but dealers are increasingly thinking about these risks.
• More dealers are coming to the realization that scale will matter more in the future.  They are preparing to Get Big or Get Out.

Alan Haig, President of Haig Partners, said, "The third quarter buy-sell activity was healthy but leveled out from the huge uptick we saw in the second quarter.  Auto retail continues to deliver attractive returns for dealers, particularly after the new tax code went into effect.   Lenders are also bullish and we see them providing generous credit terms for most acquisitions.  That said, there are many businesses for sale right now, and buyers are increasingly focused on the risks of higher interest rates in the future.  As a result of having more choices and being more cautious, buyers are less aggressive than in prior years and they are reducing the multiple of earnings they are willing to pay for dealerships.  Sellers with realistic expectations can still exit the industry with healthy valuations, but those who seek premium prices will likely sit unless they are located in booming markets like Texas and Florida."

The Haig Report is published each quarter and is a valued source of information to many in the auto industry who look to it for its comprehensive data, analyses and opinions about the auto retail industry.  Included in each edition are Haig Partners' blue sky multiples that serve as a gauge for franchise values.  To download the report, please click here.

About Haig Partners

Haig Partners is the leading buy-sell advisory firm for owners of higher value dealerships and dealership groups.  Its team has been involved in the purchase or sale of 290 dealerships since 1996 for a total value of approximately $4.0 billion (excluding inventories), more than any other team in the industry.  Its team combines the expertise gained from its years in investment banking and senior positions at AutoNation, Asbury, Bank of America and Crowe to provide advice and lead sales processes that are carefully tailored to maximize price while satisfying other client objectives like maintaining confidentiality. 

Alan Haig, the founder, has been involved in auto retail since 1996 when he wrote the original business plan for the new car division at AutoNation and then went on to lead its acquisition department.  Alan and the team at Haig Partners are well recognized experts in auto retail and the buy-sell market and are frequent speakers at leading industry events such as NADA/ATD, Automotive News Retail Forum, American Institute of CPAs, National Association of Dealer Counsel, AutoTeam America Buy-Sell Summit, Bank of America Merrill Lynch Dealer Day, and many others.

Contact:
Alan Haig
954-646-8921
[email protected]

¹ Data from The Banks Report and Haig Partners.
² Data from NADA.
³ Data from NADA.

SOURCE Haig Partners