DEALERSHIP PROFITS DIP SLIGHTLY ALONG WITH BLUE SKY VALUES, BUT THE SELLER'S MARKET CONTINUES

FORT LAUDERDALE, Fla., Nov. 17, 2022 /PRNewswire/ -- Haig Partners LLC released its closely followed Q3 2022 Haig Report, which tracks trends in auto retail and their impact on dealership values. Dealership profits have peaked due to rising interest rates, inflation, and low consumer confidence, but they are still 2.4x higher than before the Pandemic.

Buy-sell activity in the first nine months of 2022 is at record-high levels, with a total of 369 dealerships being acquired, up 5% compared to the same period in 2021. Private buyers have acquired 337 stores, 24% more than in the same period last year.

Buyers believe the long-term outlook for auto retail remains bright despite risks on the horizon from electric vehicles, the agency model, direct-to-consumer sales, changing consumer habits and other factors that could erode the franchise model over time. Some dealers are taking advantage of these robust conditions to exit and are finding ready buyers so long as their expectations are realistic.

Highlights from the Q3 2022 Haig Report include:

• Due to pent-up demand and limited supply, dealer profits could remain high for some time
• Public buyers have reduced spending on dealership acquisitions
• Private buyers have become more active, spending record amounts
• Average estimated blue sky value has declined slightly but is still more than double pre-Pandemic levels

Alan Haig, President of Haig Partners, said, "The auto retail industry has entered a new phase. Higher rates will reduce purchasing power for consumers and drive up expenses for dealers. The good news is that there is still a significant amount of pent-up demand for new vehicles. We think it will take years for the factories to make up for all the lost sales and during that time dealers should continue to enjoy strong profits. Our belief is shared by many dealership buyers, as proven by the high demand for dealerships today. Buy-sell activity is ahead of last year through the third quarter, and our practice at Haig Partners expects to close on the sale of around 50 dealerships this year, all at very strong valuations. Times are still very good for sellers."

• Blue sky values have peaked and appear to have declined about 10%. Dealership values peaked in Q1 and Q2 2022. In the third quarter and so far in the fourth quarter, many buyers have become slightly more cautious due to higher interest rates. Consumer demand falls when rates increase, which will likely decrease dealership profits. Also, higher interest rates hurt dealership buyers since they reduce the amount of cash flow from acquisitions. Even with this reduction, blue sky values remain about 2.4x higher than before the Pandemic.

Despite a slight decline in value for most dealerships, we are seeing buyers being willing to pay significant premiums for the highest quality dealerships, namely high-volume luxury, and Toyota dealerships in prime markets.

• Ford and Lincoln EV programs may be eroding franchise value. Some dealers are excited that Ford is trying to be a leader in EVs, but many have become highly critical. This drama is leading some buyers to steer clear of the brand. The team at Haig has experience with three recent transactions involving Ford dealerships and has seen three different responses from buyers.
• Auto prices are growing faster than wages. J.D. Power reports that the average monthly finance payment for vehicles increased by 22% from January 2020 to October 2022. Cox Automotive estimates that the average buyer today must work for 42.2 weeks to afford a new vehicle compared to 34 weeks prior to the Pandemic, 24% higher.
• Pent-up consumer demand is still growing, so the outlook for future profits looks bright. J.D. Power estimates there will be a pent-up demand to purchase more than five million vehicles by the end of 2022. Haig Partners estimates pent-up demand is closer to eight million units. Based on how slowly the OEMs are recovering their production capacity, we estimate that the demand for new vehicles will exceed supply for at least the next three years. During this time, dealership profits should remain elevated as compared to before the Pandemic.
• GDP increases after two straight declining quarters. The greatest threat to dealers in the near future is a deep recession. After two straight quarters of declining GDP, it increased at an annual rate of 2.6% in Q3 2022. However, economists do not believe we are in the clear yet. Most of the growth was due to a narrowing trade deficit thanks to a stronger dollar that won't be repeated in future quarters.
• Buy-sell outlook for 2023 is positive. The conditions that drive a healthy buy-sell market are all still present. On the buy side, profits are high, dealers have plenty of cash, many want to grow, and credit remains plentiful. In addition, buyers are open to more franchises and more markets than before the Pandemic since almost all dealerships are making strong profits and are likely to do so for the foreseeable future. With plenty of buyers and sellers in the market right now, Haig Partners expects 2023 to be another busy year for transactions.
• Consolidation will continue. Auto dealerships continue to be excellent investments. Buyers and investors like the returns they can earn in auto retail. Several of the public companies plan to more than double in size over the next three years, mostly through acquisitions. Many private groups are also bulking up quickly. Larger groups believe they will be able to gain market share in the future by offering more inventory than their competitors and via a customer-friendly sales process. E-commerce is growing, and larger dealers may have better access to the technology and people necessary to compete online. For those dealers who have less than ten stores, there may be more pressure to get bigger to compete in the future.

We thank our clients for their trust in us to help them maximize the value of their businesses. If you are interested in learning what your business is worth, are seeking acquisitions, or would like to learn more about selling a majority or minority stake in your business, please get in touch with any member of the team at Haig Partners to have a confidential conversation.

The Haig Report, the leading industry quarterly report that tracks trends in auto retail and their impact on dealership values, includes data and analysis on the performance of auto dealerships, discusses noteworthy events impacting the automotive retail industry, identifies trends in the M&A market for dealerships, provides guidance on estimated value ranges for different franchises, and shares an outlook for the automotive retail buy-sell market. The Haig Report is based on data gathered from reputable public sources and interviews with leading dealer groups and dealers, bankers, lawyers, and accountants who specialize in auto retail.

Haig Partners LLC helps dealers maximize the value of their businesses when they are ready to sell. They have unmatched experience with executives from leading retail dealer groups and financial institutions. They have advised on the purchase or sale of more than 590 dealerships for over $9.3 billion, including 24 on the Top 150 Dealership Groups list published by Automotive News. The team at Haig Partners leverages expertise and relationships to lead clients through a confidential and customizable sales process, helping them to maximize the value of their dealerships. They author the Haig Report, the leading industry quarterly report that tracks trends in auto retail and their impact on dealership values, and are co-author of NADA's Guide, "Buying and Selling a Dealership." For more information, visit www.haigpartners.com.

Media Contact:
Aimee Allen
Director of Marketing and Business Development
Haig Partners
aimee@haigpartners.com
(603) 933-2194

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SOURCE Haig Partners