Automotive Buy-Sell Market — As Hot as EVER! By Jayson Crouch, Managing Director, Haig Partners As an LA native and managing director at Haig Partners, I am thrilled to contribute to this edition of the Greater Los Angeles New Car Dealer Association (GLANCDA) newsletter. Haig Partners has facilitated the purchase or sale of over 580 dealerships, including 60 in California and 28 that qualify for the Automotive News Top 150 list, with an industry transaction value exceeding $11 billion. We recently set records for the highest values ever received on an individual brand basis with the sale of Toyota of North Charlotte, South Vista BMW, South Vista Honda and Lake Norman Chrysler Jeep Dodge. Additionally, we achieved the highest value ever for any individual store with the sale of Hendrickson Toyota in Coconut Beach, Florida. The LA market has the potential to set records, too! The Buy-Sell Market is Wide Open! An estimated 151 dealerships traded hands in Q1 2024, marking the highest volume for a Q1 on record. Private dealer groups conducted more than 87% of these transactions. Haig Partners represented almost 20% of the industry’s transactions, and based on our pipeline, we expect this hectic pace to continue. Dealerships deliver outsized return on investment for skilled operators, and the industry remains flush with cash from pandemic profits. This elevated capital and low leverage across our industry drive great demand for assets matched with the right market. Although profits have declined from the peak of 2022, it’s important to recognize that 2022 was more of an anomaly than the percentage declines we see today, and average dealer profits remain significantly elevated over the pre-pandemic period. Financial and Franchise Performance The average store owned by a public dealer group saw a 26% decline in pre-tax income year-over-year during the first quarter. Over the past 12 months, the average public dealership generated $5 million in pre-tax income, reflecting a 6.2% decrease from year-end 2023 and a 25.7% decrease from year-end 2022. We believe profits will continue to decline throughout the remainder of 2024. However, these averages can obscure trends occurring at the franchise level, where we are noticing growing variation in dealership performance. Lexus, Toyota and Honda profits have remained high, partly thanks to tight days’ supply. Conversely, owners of Stellantis, Nissan and Infiniti dealerships have seen profits drop by more than 50% year-over-year. It’s important to note that all franchises go through phases, and an underperforming brand today could present a valuable opportunity tomorrow. The key is matching the right brand to the right market and aligning it with your strategy. We estimate that the average blue-sky value of a publicly owned new car dealership was $19 million in Q1 2024, representing a decline of 5% from year-end 2023 and 18% from 2022. Blue sky values may continue to decrease throughout 2024 at a rate of 1-2% per month. Despite this decline, the implied blue-sky values for stores owned by public companies remain closer to peak today than in 2019 because buyers expect dealership earnings to stay elevated for the foreseeable future. Additionally, the high demand for dealerships — and consequently, their prices — remains robust due to the significant incremental cash flow dealers have generated over the past few years, leaving them with ample funds to invest. The right brand in the right market will still capture peak valuations. 24
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