According to the fourth-quarter 2022 Haig Report, which tracks trends in auto retail and their impact on dealership values, profits reached an estimated $6.5 million per location for dealerships owned by public auto retailers, more than triple the prepandemic level.
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, with 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 second most active year for the public companies since 2015. However, public retailers didn’t keep pace with their record acquisition spree in 2021, as they were more focused on share buybacks to drive up their stock prices.
Most public companies will be looking for additional acquisitions this year, since their share prices have recovered in the early part of 2023. At the AutoTeam America Buy-Sell Summit and Dealer/CEO/CFO Forum held at NADA in Dallas earlier this year, Alan Haig asked Bryan DeBoer, president and CEO of Lithia Driveway, what they require to achieve its 2025 revenue target. In response, eBoer said Lithia would need to acquire 100 to 150 more rooftops.
Based on the current pipeline of clients Haig Parnters is representing, along with the strong interest from public and private dealership groups, it believes 2023 will be another strong year for dealership buy-sells.
Highlights from the Haig Report include:
- Auto dealers enjoyed record earnings in 2022, but conditions are growing more challenging due to lower margins and higher expenses.
- Merger-and-acquisition activity remained robust, with dealers acquiring 566 stores in 2022.
- Average estimated blue sky value declined from its peak value in the middle of 2022 but is still more than double prepandemic 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.
Haig Partners President Alan Haig said, “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. We’ve polled owners of hundreds of dealerships over the past few weeks, and most expect profits will decline 10 to 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.
"The result of high profits and strong demand is that we have seen record-high prices being paid for dealerships in the last six months. We expect strong dealership values for the foreseeable future, although they may moderate slightly.”