Dealership Buy/Sell Market Cools

By Staff Writer September 02, 2024

Haig Partners LLC released its Q2 2024 Haig Report, the longest-published quarterly report in auto retail tracking industry trends and their impact on dealership values. The auto retail marketplace is evolving from record profits, blue sky values, and dealership sales. Due to several factors, new-car dealership profits declined 32% in the first half of 2024 compared to the same period in 2023. The reduction in profits affects dealership values and the number of dealerships being sold, with smaller declines in both categories.

The Haig Report was first released in 2014.

In Q2, an estimated 84 rooftops traded hands, a 48% decline from the first quarter. While a steep drop, it is important to note that Q1 2024 was the busiest quarter on record for dealership buy-sells. Transaction volume for the first six months of the year is only down 14.5% from the same period in 2023. The market remains busy, with a sustained appetite for strong franchises in attractive markets. Haig predicts this year will rank as the fourth busiest year for U.S. dealership buy-sells in automotive history.

In Q2 2024, we estimate that the average dealership owned by public retailers made $1.0M in pre-tax income, a 35% decline from Q2 2023. Over the last twelve months, the average publicly owned dealership made $4.5M in pre-tax income, a 27% decrease from 2023 and a 33% drop from 2022, the peak year when the average dealership owned by the publics made an estimated $6.7M in pre-tax income. The Haig report said: If we take the first six months and annualize them (meaning we double them), dealerships made $4.0M in pre-tax income, a decline of 25.5%. Looking ahead, we believe that average store profits will continue to decline for the remainder of 2024, but at a slower pace.

According to Haig’s analysis, the estimated average blue sky value of a publicly owned dealership was $21.8M in Q2 2024. This value represents an 11% reduction from the blue sky value observed at the end of 2023, which Haig now perceive as the peak of the market. Haig stated, “we would have expected a bigger decline by now, but earnings for most brands remain well above pre-pandemic levels.”

Many dealership groups are now engaging Haig to assist them in divesting dealerships that no longer make sense for them. These divestitures include sales of stores that produce little income or are losing money, as well as dealerships located in outlying areas from the owners’ core markets. Larger dealers tell Haig they do best with higher volume stores in bigger markets where they have more people and infrastructure. These divestitures are providing an opportunity for smaller dealers to grow through acquisitions.

Key takeaways from the Q2 2024 Haig Report include:

  • The average publicly owned dealership made an estimated $1.0M in pre-tax income in Q2 2024, a 35% decline from Q2 2023.
  • An estimated 84 dealerships were bought or sold in Q2 2024. For the year, the market is on track to decline 11% from 2023.
  • Public company acquisition slowed, as they instead divested underperforming assets. Public auto retailer spending on domestic auto dealerships was down 94% from Q1 2024. Lithia was the only active buyer, spending $79M on U.S. franchised dealership acquisitions.
  • Average estimated blue sky values remained at elevated levels in LTM Q2 2024, down 11% as observed at the end of 2023, but still more than double pre-pandemic times.

Alan Haig, president of Haig Partners, stated, “We are leaving a period in auto retail where conditions were almost too good to be true. Profits at dealerships more than tripled from 2019 to 2022 thanks to high gross profits on new vehicles and low expenses. Today, gross profits on new vehicles are declining and expenses have risen. The good news? Average profits are still about double what they were before the pandemic.”

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Last modified on Saturday, 07 September 2024 14:00