Before the holidays arrived and political strife caused another federal government shutdown, Kerrigan Advisors released its third quarter report that highlighted dealership buy/sell transactions increased 20 percent year-over-year.
The Blue Sky Report generated by the firm also pointed out that 2018 will be the fifth consecutive year of more than 200 buy/sells transactions and among the most — if not the most — active years for buy/sells on record.
Kerrigan Advisors explained that the underlying catalyst for the robust buy/sell market is the growing U.S. economy. The firm mentioned the average dealership has achieved record sales during the last 12 months.
But Kerrigan Advisors also acknowledged potential future challenges to the economy and auto retail are also impacting the market, driving sellers who are concerned that today’s high valuations may not last into the next year.
The firm then stated these factors, combined with increasing consolidation that promises stiffer competition for smaller players, an increase in generational transfers, and a growing pool of investors, has set the stage for today’s robust buy/sell market.
The firm noted another force contributing to an active buy/sell market is the generational shift occurring within the dealer body.
Kerrigan Advisors indicated much of auto retail is family-owned with most dealers being second generation or greater. The report noted that an estimated 50 percent of dealers are currently in the process of transitioning generations — something many will find challenging, particularly since the odds are stacked against them. The firm believes only 12 percent of family businesses make it to the third generation and only 3 percent to the fourth.
The report also determined that the domestics’ share of the buy/sell market increased in Q3 and will dominate the buy/sell market in 2019 due to their low blue sky multiples.
In addition, Kerrigan Advisors went on to mention high real estate values are, and will continue to be, a value driver of most buy/sell transactions. Millennials also have a key role to play in future valuations: according to the report, franchises with meaningful millennial market share are well positioned for future higher valuations.
The report’s bullish view of the market, however, is tempered by some concerns over the potential impact of higher interest rates and proposed tariffs.
— 179 dealership buy/sell transactions were completed in the first nine months of 2018, according to Kerrigan Advisors’ research and The Banks Report. This compares to 149 transactions in the first nine months of 2017.
— Year to date, domestics’ share of the buy/sell market increased to 52 percent, up 68 percent from 2015.
— The publics acquisition spending, year-to-date, declined 24 percent compared to 2017, although they are on track to spend $802 million on US dealership acquisitions, which would be the third highest year since the recession.
— While the number of smaller dealership groups shrinks, the number of larger dealership groups (greater than nine dealerships) has grown 50 percent since 2012.
— Private dealership groups continue to represent the largest share of dealership acquirers and are expected to do so for the foreseeable future. Of the estimated 296 franchises which changed hands in the first nine months of the year, 271 were acquired by existing private dealers and new private capital entrants to the market.
— Non-luxury and luxury import franchises saw their market share decline.
— Transaction pricing when including real estate remained at record levels through the third quarter of 2018, though average blue sky is down an estimated 10.3 percent from its 2015 peak. This decline in blue sky value is offset by the increase in real estate value.
— Generational transfers increase the number of sellers coming to market.
— A growing pool of financial investors support consolidation and innovation.
— To achieve pricing goals, sellers increasingly accept structured transactions.
The Haig Report is published each quarter. Included in each edition are Haig Partners' blue sky multiples that can serve as a gauge for franchise values. To download the report, go to this website.
The AutoSource group of branded title vehicle dealerships announced its new chief executive officer late last week.
The company’s board of directors named former Santander Consumer, QCSA Direct and ADESA Impact executive Bradley Walsh to the CEO post, a move that was effective Oct. 15.
“It has been a tremendous honor to serve as founder and CEO of AutoSource. I am incredibly proud of everything our team has accomplished in the past 13 years,” AutoSource founder Luke Kjar said in a news release. “We have made substantial progress toward our company’s top initiatives.
Kjar will remain on AutoSource’s board and work with the company on strategic initiatives and market development.
As for Walsh, he was previously Santander Consumer’s senior vice president of asset remarketing. His experience also includes time as executive vice president and chief marketing officer for QCSA Direct, VP of business development at Cross Country Automotive Services and ADESA Impact’s VP of sales and marketing.
“I first want to thank Luke and the board for their confidence in me to manage this company. What Luke and the team have created is amazing, and their preparation for future success is incredible,” Walsh said.
AutoSource began with one dealership in Woods Cross, Utah. Since its 2005 launch, the company has expanded to include eight locations throughout Utah, Idaho, Colorado and Nevada.
Last time Sonic Automotive expanded its line of EchoPark Automotive used-car stores, it added a location in the dealer group’s hometown of Charlotte, N.C.
This time, Sonic added an EchoPark location in the hometown of its president.
“I am excited to open the next EchoPark Automotive store in my hometown of Houston. We have spent considerable time and effort developing a pre-owned vehicle experience that delivers on our brand promise of value, honesty and transparency,” said Jeff Dyke, president of Sonic and EchoPark, in a news release.
“Since 2014, EchoPark has seen triple-digit growth, a great testament to the model and not only meeting, but exceeding customer expectations,” Dyke said.
This is the eighth location for the EchoPark standalone used-car store program. There are also stores in the Denver area; Charlotte, N.C.; Dallas and San Antonio.
“Our goal has always been to provide a guest experience that breaks the stereotype of the used car dealership. We are doing this with our outstanding associates and our state-of-the-art retail facilities,” Sonic chief executive officer David Smith said in a news release.
“Respect for our guests, a comfortable environment and vehicle inventories that meet our guest's needs are the foundation of EchoPark Automotive,” Smith said.
The EchoPark program has also focused making an impact in the individual communities where its stores are located, the company said. The team at the newest store, for instance, worked with the Houston Food Bank to deliver 1,000 meals for families in need heading into Thanksgiving.
Group 1 Automotive's store footprint is growing in both the U.S. and Brazil.
This week, Group 1 announced three new dealerships have been awarded to the company as open points by American Honda Motor Co., Porsche Cars North America and Toyota do Brasil.
In Texas, the company opened Sterling McCall Acura Sugar Land, an add point within this rapidly growing community, located in the greater metropolitan area of Houston.
The company also announced plans to commence business in December at Porsche of El Paso, the first Porsche dealership to operate in that market.
In Sao Paulo, Brazil, Group 1 opened Toyota Aricanduva, an add point that came with the company’s acquisition of Toyota Alpha Trevo Automoveis Ltda earlier this year. The dealership is located in a large auto mall complex in Northeast Sao Paulo that houses some of the highest volume import brand dealerships in Brazil.
Group 1 indicated these dealerships are expected to initially generate approximately $90 million in aggregate annual revenues.
“We are delighted to strengthen our relationship with these three great auto manufacturers, while expanding our operating footprint within growing markets. We see great potential for these new businesses,” said Earl Hesterberg, Group 1's president and chief executive officer.
Not since the high-flying days of Michael Irvin, Troy Aikman and Emmitt Smith has Dallas … hosted the National Automobile Dealer Association convention.
After a 28-year absence, Dallas will be the site of NADA Show in 2023, the association said Monday in a blog post.
NADA held its annual convention there in 1995 and 1992.
“NADA’s board of directors has decided to add Dallas back to the list of cities that host the NADA Show,” said Steve Pitt, NADA senior vice president of conventions and expositions, in the post.
The convention will return to San Francisco this coming winter for NADA Show 2019, which is slated for Jan. 24-27 at the Moscone Center.
“We’re encouraging more dealership managers to attend the upcoming show, which offers numerous career development opportunities, such as the educational workshops and training sessions, including the new NADA Professional Series training program designed specifically for new and high-potential dealership managers,” NADA Show committee chair Annette DiLorenzo Thayer said.
NADA last hosted the convention in San Francisco in 2015.
Rick Ricart is now the president of Ricart Automotive Group.
He was previously the vice president and director of sales and marketing at the Columbus, Ohio dealer group.
Ricart will be among the speakers at Used Car Week next week in Scottsdale, Ariz.
That session will be moderated by Auto Remarketing group publisher Bill Zadeits and is sponsored by Ally.
Record earnings, the role of diversification in achieving those earnings and the prominence of used vehicles as part of that diversification were among the main themes of the Penske Automotive Group third quarter 2018 earnings results.
PAG and its chairman and CEO Roger Penske reported during the results call on Oct. 25 that the record quarter was driven by diversification, and the company’s standalone used-vehicle supercenters helped lead the way in that diversity, along with Penske heavy-duty truck dealerships and truck leasing investments.
Roger Penske expanded on the strength of used vehicles during the question-and-answer period at the end of the results call, noting that consolidated reconditioning locations and double discounting played a role in the company’s record earnings.
PAG’s earnings results were mostly positive all around. For the three months ended Sept. 30, 2018, income from continuing operations attributable to common shareholders increased 38.0 percent to a record $130.1 million, and related record earnings per share increased 39.1 percent to $1.53 when compared to the same period last year.
Total revenue of $5.7 billion represented an increase of 2.4 percent, while same-store retail revenue increased 0.2 percent.
Roger Penske elaborated on the benefits of diversification in a quote from the press release that accompanied the earnings report, noting that the strong earnings in the quarter were due to increases in new-vehicle, used-vehicle and finance and insurance gross profit per retail unit sold, along with a 70-basis-point increase in service and parts gross margin.
He also gave attention to the strength of the company’s standalone used-vehicle supercenter operations in the U.K., stating that the supercenters, along with Penske’s premium brand mix, helped contribute to another record quarter for the company’s U.K. business.
Further emphasizing the importance of the company’s used-vehicle supercenters during the earnings call, Roger Penske noted that the company expects to retail nearly 70,000 vehicles through the supercenters in 2018, and they will generate about $1.2 billion in revenue.
He added that the five supercenters in the U.S. and nine in the U.K. use a one-price, no-haggle approach. Year-to-date, the standalone used dealerships retailed 56,000 units and generated $1 billion in revenue and a return on sales of approximately 3.9 percent. Penske noted during the earnings call that the average transaction price is $15,000, and the variable gross profit per unit is almost $2,200, for a variable gross margin of 14.5 percent.
The revenue mix for these stores is 84 percent used vehicles, 9 percent wholesale, 6 percent F&I, and 1 percent service and parts. Gross profit contribution is 42 percent used, 2 percent wholesale, 39 percent F&I, and 17 percent service and parts.
He discussed how his company sourced used vehicles in response to a question from an earnings call participant. Penske noted that trade-ins were “the first level of acquisition of used,” followed by auctions. Internet purchases were another sourcing method.
Technology was another main theme of the earnings call. Roger Penske went on to discuss the technology in use at the used-car supercenters in the U.S. and U.K., and a presentation accompanying the earnings report noted that certain U.K. standalone used-vehicle supercenters allow customers to reserve a vehicle online. That technology has allowed the company to use the fundamentals of determining what it buys at what price and for what location.
“I think with the technology they developed, and this is in-house, it’s given us the ability to buy the right vehicle to give us the turn on our inventory,” Penske said.