The auto dealership buy/sell market is off to a powerful start in the first quarter of 2022, significantly outpacing the first quarter of 2021, according to the just-released Blue Sky Report by Kerrigan Advisors. The 72 dealership buy/sell transactions reported in the first quarter resulted in a record 389 transactions, representing 829 franchises, for the 12 months ending March 2022. During the quarter, average dealership blue sky values increased to a new record of $11.5 million, an improvement of 4.6% over the end of 2021, mostly driven by a continued rise in quarterly dealership profits, which surpassed the first quarter of 2021 by an estimated 27%.

Despite potential economic headwinds, Kerrigan Advisors expects that 2022 will be another very active year for the buy/sell market with high valuations, constrained only by the supply of dealerships available for sale and supported by a highly profitable auto retail market.

“It was another extraordinary quarter for the buy/sell market, even in the face of turmoil in the financial markets,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “If this transaction pace continues, nearly every dealership in the US would trade hands in the next 20 years, leading to fewer single point dealers and a much higher concentration of vehicle sales amongst the leading consolidators.”

Regarding today’s inflationary environment, The Blue Sky Report expects that auto retail may benefit as the price of consumers’ trade-in vehicles appreciates, providing higher levels of vehicle equity. In addition, the industry’s high variable cost structure means inflationary costs will not immediately impact the operational expenses of a dealership.

Kerrigan Advisors has identified the following three trends expected to meaningfully impact the buy/sell market for the remainder of 2022:

• Buyer demand for Toyota and Lexus franchises far surpasses other franchises.
• Rising interest rates expected to temper blue sky and real estate appreciation.
• Industry fragmentation provides acquisition opportunities for groups seeking market leadership.