Auto Dealers Remain Optimistic About Market Valuations Ahead

Positive Projections for Auto Dealer Valuations in the Near Future

A recent survey has surfaced insights into the optimistic outlook that auto dealers maintain for the valuation of their businesses over the upcoming year. As dealers assess economic conditions, their expectations hinge upon the normalization of profits following a volatile period. According to data gathered in the latest Kerrigan Dealer Survey, a significant number of participants, over 635 auto dealers, provided valuable input regarding franchise valuations and acquisition trends.

Survey Insights Revealed

The survey found that more than half of the dealers, precisely 51%, expect dealership valuations to remain at heightened levels as they transition into 2025. Furthermore, 17% foresee an increase in these valuations. Such sentiments reflect a sector that is cautiously optimistic, with stakeholders preparing for a landscape where profit margins may stabilize.

Stabilization of Earnings

A notable aspect highlighted in the survey was the stabilization of pre-tax earnings. A significant 43% of dealers view their current earnings as a reliable indicator of future performance. This confidence indicates that many franchises are witnessing a normalization of dealership profits, further enhancing their positive sentiment towards the valuations expected in 2025.

The Challenge of Electric Vehicles

However, the survey also revealed a dichotomy in outlooks among dealers. Approximately 43% expressed a more pessimistic forecast for profits than in prior years. The challenges posed by electric vehicle (EV) sales are at the forefront of these concerns, with a striking 77% of dealers believing that EVs will have a negative impact on profitability in 2025. In contrast, the anticipated stability surrounding hybrid vehicle sales and parts/service departments is expected to bolster earnings for 75% of the dealers surveyed.

Acquisition Activity on the Horizon

Amidst this backdrop, Erin Kerrigan, the Founder and Managing Director of Kerrigan Advisors, remarked on the vibrant acquisition landscape. Despite the profitability challenges, many auto dealers displayed a willingness to explore acquisition opportunities. The survey indicates that 49% of dealerships plan to add one or more dealerships in 2025—a slight increase from 47% in the previous year.

Trends in Franchise Valuations

Meanwhile, the perceptions toward specific vehicle franchises highlighted significant shifts. Most dealers expected either stability or gains in franchise values, yet certain franchises have noticeably declined in valuation expectations. Particularly, brands like Lexus, Toyota, Honda, Kia, and Subaru are projected to see upwards momentum, with over 30% of dealers anticipating an increase for these franchises.

Trust Levels among Franchises

In the context of trust, Toyota firmly retained its position as the most reliable brand among auto dealers, with an impressive 83% expressing high levels of trust in the franchise. This level of trust starkly contrasts with the results for brands like CDJR, where 72% of dealers articulated a lack of trust, reflective of the expected valuation declines.

Future Acquisitions

For the first time, Kerrigan Advisors sought opinions on which franchises dealers would consider adding to their portfolios in 2025. Results consistently favored Toyota and Lexus as top prospects that dealers are eager to invest in. Their strategic approach towards inventory management and electric vehicles resonates well with the dealers, prompting confidence in these franchises.

A Broader Industry Outlook

In conclusion, although sentiments vary across different franchises, the overall industry outlook appears positive. Despite facing challenges from shifting consumer preferences and the evolving dynamics of vehicle sales, dealers are positioning themselves to adapt. Kerrigan Advisors anticipates that 2025 will present ample opportunities for buy and sell activity, especially among trusted brands, while pushing forward with cautious yet optimistic strategies motivated by ongoing industry changes.

Frequently Asked Questions

What were the key findings of the Kerrigan Dealer Survey?

The survey highlighted that 51% of auto dealers expect valuations to remain elevated and 17% anticipate an increase in valuations by 2025.

How do electric vehicles impact dealership profitability?

Seventy-seven percent of dealers believe that electric vehicle sales will negatively affect their profitability moving into 2025.

What are the most trusted car franchises according to the survey?

Toyota and Lexus are perceived as the most trusted car franchises by the surveyed dealers.

How many dealers plan to expand their operations in 2025?

About 49% of dealers indicated plans to add one or more dealership in 2025, reflecting a willingness to grow despite challenges.

What is the significance of the trust level in dealership evaluations?

Trust levels greatly influence dealership valuations and acquisition strategies, with trusted brands likely to perform better in the marketplace.

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