The auto dealership buy-sell market continues to soar at record pace.

Kerrigan Advisors’ 2024 Blue Sky Report showed 2024 was the busiest year ever, with 438 completed dealership transactions, up 10% from 2023’s record total of 397. Those transactions represented 697 franchises sold, the second-most ever and a 2.5% jump from 2023, an increase the report said was largely driven by growing industry confidence in the future of auto retail sales and profitability.

The report noted that perception was reinforced by strong fourth quarter new-vehicle sales, which it said signaled a market with substantial growth potential positioned to perhaps surpass the annual sales record of 17.55 million, set in 2016, assuming trade policies remain favorable.

Kerrigan Advisors said it expects the consolidation trend to continue in 2025, as more than a quarter of a trillion dollars in pre-tax dealership earnings have been accumulated since the pandemic and much of it is sitting idle on balance sheets.

“With interest rates lower, inflation moderating and vehicle affordability improving, new vehicle sales saw a significant uptick throughout the year, further boosting buyer confidence,” Kerrigan Advisors founder and managing director Erin Kerrigan said. “This confidence grew even stronger post-election, as dealers experienced a sharp rebound in new vehicle sales — clear evidence of pent-up consumer demand after years of constrained supply.”

Kerrigan said the buy-sell market should continue to grow, as many dealers see 2024’s lower earnings as the bottom of the market, even though it remained 78% higher than pre-pandemic levels, even when adjusted for inflation.

According to the report, if gross profit per new vehicle retailed stabilizes at 2024 averages and new-vehicle volumes return to historical rates, industry earnings are projected to normalize well above pre-pandemic levels, resulting in more than $40 billion of potential gross profit.

“Given this backdrop,” Kerrigan said, “buyers are factoring this growth potential into their dealership acquisitions, driving stronger motivation and greater conviction in blue sky valuations.”

Kerrigan Advisors managing director Ryan Kerrigan agreed with that assessment, noting that while blue sky values in 2024 averaged 19% below their 2022 peak, they remained historically high thanks to the active buy-sell market and are likely to stay that way — or even increase.

Indeed, the company’s 2024 dealer survey showed a 258% increase from 2022 in dealers seeking to sell a dealership, as well as a 16% rise in those looking to grow and a 12% decrease in dealers planning for no change.

“Many dealers see 2024 as a valuation inflection point, with blue sky values expected to rebound in 2025 alongside a recovery in industry earnings, and the public markets reflect that outlook,” Ryan Kerrigan said. “As we look ahead to 2025, strong buyer demand and an improving earnings environment suggest the buy-sell market will remain highly active.

“With valuations poised to rise, we expect another robust year for dealership transactions. As dealers and their families plan for 2025 and beyond, the choice between growth and exit will be front and center, while inertia appears to be a less viable strategy in the evolving market.”

The report found the auto retail market’s split into “have” and “have-not” brands made franchise diversification to be “critical” to dealership groups’ success in 2024.

Strong franchises thrived, with low inventories and sustained high gross profit margins, while weaker franchises struggled with ballooning inventories, rising floorplan costs and falling gross profits. That created a landscape of “winners” such as Lexus, Toyota, BMW and Honda, which posted the industry’s highest valuations and days’ supply far below the industry average, and “losers” like Lincoln, Nissan and Stellantis, which had the highest days’ supply and lowest valuations.

That market shift fueled record franchise divestitures, the report said, especially among underperforming brands like Chrysler-Dodge-Jeep-RAM, Nissan and Infiniti.

“Not surprisingly, valuations for underperforming/weaker franchises fell sharply in 2024 as dealer confidence in those OEMs declined,” Kerrigan said. “Some dealers with struggling franchises faced financial distress for the first time since the Great Recession, leading to an increase in distressed sales and deeply discounted valuations compared to their pandemic highs.

“With the average dealer owning fewer than three stores, the impact of a weak franchise became harder to absorb.”

Highlights from the report include:

  • The largest private dealership groups grew at the fastest rates in 2024, accounting for more than 30% of industry revenue and 28% of franchises acquired, the highest level on record. Their revenue per rooftop now exceeds the NADA average by 18% ($13.1 million). Meanwhile, U.S. public dealer groups remained net sellers of dealerships, divesting a record 47 franchises, 18 more than they acquired.
  • Multi-dealership deals fell from 32% of buy-sell activity in 2023 to 22% last year, the lowest percentage on record, but single-point transactions surged, dropping the average number of franchises sold per transaction to 1.59, down 7% year-over-year. Still, the 97 multi-dealership transactions completed was the third-most on record and a 67% increase over the pre-pandemic average of 58.
  • U.S. public dealer groups ended the year at a blue sky multiple 7.7x, below the top luxury average multiple of about 8.5x but above the top non-luxury average of about 6.5x.

 

  • 30% of U.S. public dealer groups’ total invested capital went to international and other acquisitions — the highest share recorded. Capital invested toward U.S. acquisitions fell to 22%, down from 37% in 2023.

 

  • Dealership real estate values are having a profound impact on the buy-sell landscape as strong retail sales and elevated construction costs keep dealership property valuations high as demand outpaces supply. Kerrigan Advisors estimates dealership real estate values have risen 51% since 2014 to $13.9 million on average, increasing its share of total transaction values.

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