Record Growth in Auto Dealership Transactions for 2024
The auto dealership buy/sell market is experiencing significant growth, showing a remarkable surge with 330 dealership transactions completed in the early months of 2024, resulting in 544 franchises sold. This growth, up 93% compared to 2019, showcases an increasingly active market where strong franchises capitalize on high blue sky values while weaker franchises are divested.
The Dynamics of the Buy/Sell Market
According to insights from leading advisors, the auto buy/sell market has remained resilient. The surge in transactions signals that larger buyers are leveraging robust financial positions to scale their operations further. With many sellers entering the market, driven by accumulated wealth and favorable selling conditions, 2024 is poised to be a peak year for dealership transactions.
Market Share Trends Among Dealership Groups
One noteworthy observation in the latest industry report is the increased market share of the Top 150 US Dealership Groups, now accounting for 30% of total industry revenue—an increase of 5% over the past five years. This trend indicates that by 2043, major groups are projected to dominate the market, reflecting their preference for high-volume dealerships.
As these groups continue to expand, their average dealership revenue has risen to over $83 million, a stark contrast to the industry average of $71 million, which has remained stagnant. Such shifts highlight a clear market preference for scale and efficiency in operations.
Motivations Behind Increased Seller Activity
Several factors are contributing to the increased buy/sell activity. The stabilization of pre-tax earnings to what is referred to as a ‘new normal’ has given both buyers and sellers greater confidence to engage competitively. Sellers, many of whom have amassed wealth during the pandemic, are increasingly motivated to sell, often to facilitate retirement plans.
Impact of Economic Conditions on Dealership Values
Between 2020 and 2024, it’s estimated that the industry has achieved three times the profits attained during the previous four years, amounting to an astonishing $278 billion. This financial backdrop has prompted many dealers, especially those without succession plans, to consider exiting their businesses, aware that stagnation is not a viable option amidst the evolving auto retail landscape.
While strong franchises like Toyota are entering the market to take advantage of premium valuations, others are offloading weaker franchises. So far this year, public dealerships have divested 36 franchises, a 24% increase from 2023.
Key Trends Shaping the Buy/Sell Landscape
Several trends are anticipated to have a substantial effect on the dealership buy/sell market as we move into 2025. High costs associated with upgrading dealership images, particularly for luxury franchises, are pushing more dealers towards sales.
Strength of Large Dealership Groups
Merging dealer groups continue to command greater market share, with the largest private consolidators raising their share to 32%- a remarkable jump of 66% since 2018. The liquidity from the pandemic earnings has allowed these groups to take calculated risks, supporting acquisitions that expand their reach.
Future Outlook and Strategic Considerations
In the past, buyers demonstrated a willingness to consider various markets, but the current economic landscape is prompting a shift towards focused acquisitions—enhancing local market efficiencies is now paramount. Dealers are identifying strategies to share expenses across broader organizations to maximize profitability.
Lexus and JLR on the Rise
For 2024, both Lexus and Jaguar Land Rover (JLR) have experienced valuation increases due to high buyer demand. Lexus is positioned with a multiple range of 8.0x to 9.5x, reflecting its ability to maintain low inventory and sustained profits. In a similar vein, demand for JLR franchises remains strong, particularly with significant year-to-date sales growth.
A Diverse Range of Opportunities
Kerrigan Advisors continues to recognize the strength of established franchises like Porsche, Toyota, Honda, and Subaru, reflecting their reliability as sources of profitability for dealers. These franchises maintain low inventory and have built substantial trust within the dealer community.
Frequently Asked Questions
What factors are driving the growth in dealership transactions?
Increased seller motivation, stable earnings, and strong buyer demand are key factors driving transaction growth.
How are market dynamics changing for dealership groups?
The top dealership groups are gaining market share by focusing on high-volume operations and leveraging their financial strength.
What percentage of industry revenue do the top 150 dealership groups represent?
They currently account for 30% of total industry revenue, which is expected to grow further in the coming years.
What role do luxury franchises play in the current market?
Luxury franchises are experiencing higher demand and valuations, particularly as they face rising operational costs.
What is the future outlook for the auto dealership market?
The outlook remains positive, with continued consolidation expected and strong profit potential for top franchises.
