The auto dealership buy/sell market set a new all-time record in the first half of 2024, with 204 completed transactions involving 381 franchises, according to the latest Second Quarter 2024 Blue Sky Report® by Kerrigan Advisors. This unprecedented activity is nearly double the pre-pandemic average and is on pace to reach over 760 franchises sold annually, marking a significant industry milestone. This surge is largely attributed to a rise in sellers looking to capitalize on historically high blue sky values, which remain elevated by 74% on average compared to pre-pandemic levels, as noted in The Kerrigan Blue Sky Index. The aftermath of the CDK cyberattack has further prompted dealers to consider selling, as they face evolving technology and data management challenges. The high velocity of transactions is driven by well-capitalized buyers.
“The 2024 buy/sell market remains strong, reaching new heights despite high interest rates, challenges with vehicle affordability, and sluggish EV sales,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “Consolidators, buoyed by pandemic-era earnings and robust cash flow, are closing deals with sellers eager to lock in today’s elevated values and mitigate the risk of future valuation declines.”
Kerrigan noted that while current blue sky prices are historically attractive, they have decreased by an average of 17% from their peak, mainly due to a persistent decline in industry earnings since 2022. For the trailing twelve months up to June 2024, public dealership earnings dropped by 35% from their 2022 peak, averaging $4.4 million. However, after adjusting for the CDK outage impact, dealership earnings are stabilizing at nearly double pre-pandemic levels.
Buyers Seeking Quality and Low Risk
Top consolidators, having accumulated record levels of liquidity during the pandemic, are focusing on high-quality, low-risk franchises, often paying a premium for those in high-demand markets. Conversely, weaker franchises with declining sales and high inventory levels are experiencing diminished buyer interest and capital allocation.
“The disparity in supply between top and bottom franchises is creating a split in the market,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Buyers are increasingly wary of OEMs’ aggressive EV strategies and are gravitating towards franchises like Toyota and Lexus, which have projected lower EV production.”
Second Quarter 2024 Buy/Sell Trends
Kerrigan Advisors identified four key trends expected to influence the buy/sell market into 2025:
- Publics are investing more capital internationally due to favorable pricing.
- OEMs are taking a more active role in managing their networks and buy/sell transactions.
- Acquisition financing is becoming more restrictive for weaker franchises.
- Technology challenges are prompting more dealers to consider selling.
OEMs are increasingly influencing buy/sell processes, sometimes attempting to override franchise laws to impose preferred buyers. This trend reflects a shift towards more centralized dealer networks, reminiscent of Tesla’s direct-to-consumer model.
Trends in Franchise Multiples
Kerrigan Advisors adjusted blue sky multiples for several franchises:
- Mazda’s high-end multiple increased to 3.75, reflecting improved market sentiment.
- CDJR’s multiples were reduced to 3.5 on the high-end and 2.5 on the low-end due to declining demand and high inventory costs.
- Nissan’s multiple was lowered to 2.5 on the low-end due to decreased profits and poor product performance.
Outlook for Franchise Multiples
Kerrigan Advisors upgraded Honda’s outlook to Positive and Ford’s to Steady. Conversely, the outlook for Mercedes-Benz and Hyundai was downgraded to Negative, influenced by high inventory levels and declining market share.
Key Report Highlights:
- 204 transactions were completed in the first half of 2024, setting a new record.
- The Kerrigan Blue Sky Index is 74% higher than 2019 but down 17% from 2023.
- Multi-dealership transactions comprised 27% of the market.
- Import luxury franchises gained market share, while domestic franchises declined.
- The average front-end gross margin for new vehicles remained steady.
- Private buyers dominated the market, acquiring 94% of franchises sold.
The Blue Sky Report® by Kerrigan Advisors provides an in-depth analysis of dealership M&A activity and franchise values, available to over 11,000 industry recipients globally. For more details or to preview the report, visit the Kerrigan Advisors website. The Kerrigan Index™ offers additional insights into dealership valuation trends and industry factors.
