Haig Partners LLC released its closely followed Q4 2022 Haig Report, which tracks trends in auto retail and their impact on dealership values.

Profits reached an estimated $6.5M per location for dealerships owned by public auto retailers, more than triple what they were before the pandemic.

Profits may have peaked, however, as new and used vehicle gross profits are coming down.

Fixed operations have been increasing due to more recalls and higher labor rates, slightly offsetting the impact of the decline in new and used vehicle gross profits.

Last year was another highly active year in the buy-sell market. There were 566 dealerships acquired, the second-highest number after 2021, when a record 707 dealerships were purchased. Private dealers purchased 526 dealerships, 7% more than the number they acquired in 2021. Public dealer groups acquired 40 stores in 2022, making it the 2^nd most active year for the public companies since 2015.

However, the public retailers didn’t keep pace with their record acquisition spree in 2021 as they were more focused on share buy-backs to drive their stock prices up. Most public companies will be looking for additional acquisitions in 2023 since their share prices have recovered in the early part of 2023.

Highlights from the Q4 2022 Haig Report include:

• Auto dealers enjoyed record earnings in 2022, but conditions are growing more challenging due to lower margins and higher expenses.
• M&A activity remains robust, with dealers acquiring 566 stores in 2022.
• Average estimated blue sky value has declined from its peak value in the middle of 2022 but is still more than double pre-pandemic levels.
• Public buyers still need hundreds of acquisitions to achieve stated revenue goals.
• Private dealers are increasingly focused on gaining scale to offer more products and services to customers, reduce expenses, and provide more opportunities to employees.

“Auto dealers continue to generate huge profits, but the market is starting to shift due to lower margins, increases in interest rates, and high inflation,” said Alan Haig, president of Haig Partners. “We’ve polled owners of hundreds of dealerships over the past few weeks, and most expect profits will decline 10-15% in 2023.

“From a buy-sell perspective, we would normally worry when profits decline. However, since dealers believe profits will likely remain more than twice the amounts they were in 2019, many dealers are seeking to grow. The public retailers have all announced their plans to acquire more dealerships that fit their expansion strategies. And private dealer groups remain incredibly active.”