Haig Partners LLC has released its Q2 2024 Haig Report®, the longest-running quarterly publication in auto retail that tracks industry trends and their effects on dealership values. The report highlights significant changes in the auto retail marketplace, moving away from the record-setting profits, blue sky values, and dealership sales of recent years. In the first half of 2024, dealership profits fell by 32% compared to the same period in 2023, which has impacted dealership values and the frequency of dealership sales, albeit with more modest declines in both areas.
Auto dealership profits dropped by 32% during the first six months of 2024 compared to the same period in 2023, leading to a corresponding decline in dealership values and sales activity, though these declines have been relatively moderate.
Since its inception in 2014, The Haig Report® has consistently provided reliable, quarterly updates on dealership profits, trends within auto retail, and their impacts on dealership values. Over the past decade, the report has gained a significant following, but its mission remains the same: to assist dealership buyers and sellers in making more informed decisions.
Dealership buy-sell activity saw a slowdown in Q2 following a record-breaking Q1.
In Q2, approximately 84 dealership rooftops changed hands, a 48% decrease from the first quarter. Although this is a sharp decline, it is important to remember that Q1 2024 was the busiest quarter on record for dealership buy-sells. The total transaction volume for the first half of the year is only down 14.5% from the same period in 2023. Despite the decline, the market remains active, with continued strong demand for franchises in desirable markets. The current trend suggests that 2024 could rank as the fourth busiest year for U.S. dealership buy-sells in automotive history.
Dealership profits declined by 32% in the first six months of 2024.
In Q2 2024, the average dealership owned by public retailers earned an estimated $1.0 million in pre-tax income, marking a 35% decrease from Q2 2023. Over the last twelve months (LTM), the average publicly owned dealership generated $4.5 million in pre-tax income, down 27% from 2023 and 33% from 2022, when profits peaked at an estimated $6.7 million. Annualizing the first six months of 2024, dealerships are on track to earn $4.0 million in pre-tax income, reflecting a 25.5% decline. Looking ahead, it is anticipated that average store profits will continue to decrease throughout 2024, though at a slower rate.
Blue sky values continue to decline but remain high.
According to our analysis, the estimated average blue sky value of a publicly owned dealership was $21.8 million in Q2 2024, an 11% decrease from the peak value at the end of 2023. While a larger decline was expected, most brands’ earnings remain well above pre-pandemic levels.
Sellers have recently benefited from exceptional market conditions. Over the past few years, more than five large dealership groups were sold for over a billion dollars each, with many franchises fetching record-high prices. Haig Partners played a key role in many of these landmark transactions. Notable sales include Lake Norman CDJR, which set a record for the highest value ever paid for a Stellantis franchise, and Al Hendrickson Toyota, which set the record for the highest amount paid for a single dealership, regardless of franchise, at the time of the sale. In 2024, more records were set, including the sale of South Motors Honda and Vista Motors BMW in January and Hollywood Kia in June, which set a new benchmark for the highest amount ever paid for a Kia franchise. The purchase of Ussery Motors (Mercedes-Benz of Coral Gables) is believed to have commanded the highest blue sky value ever paid for a single dealership, reportedly over $300 million.
The market is now shifting. While we continue to sell many dealerships at strong prices, particularly for brands like Toyota, Honda, and German luxury marques, many dealership groups are now seeking our assistance in divesting stores that no longer align with their business strategies. These divestitures often involve dealerships that generate little income or are losing money, as well as those located in areas that are no longer central to the owners’ core markets. Larger dealers report that they perform best with higher-volume stores in major markets where they have more resources and infrastructure. These divestitures present opportunities for smaller dealers to grow through acquisitions.
Key insights from the Q2 2024 Haig Report®:
- The average publicly owned dealership earned an estimated $1.0 million in pre-tax income in Q2 2024, a 35% decline from Q2 2023.
- Approximately 84 dealerships were bought or sold in Q2 2024. The market is on track to decline by 11% from 2023.
- Public company acquisitions have slowed as they focus on divesting underperforming assets. Public auto retailer spending on domestic auto dealerships was down 94% from Q1 2024, with Lithia being the only active buyer, spending $79 million on U.S. franchised dealership acquisitions.
- Average estimated blue sky values remained high in LTM Q2 2024, down 11% from the end of 2023 but still more than double pre-pandemic levels.
Alan Haig, President of Haig Partners, noted, “We are transitioning from a period in auto retail where conditions were almost too good to be true. Dealership profits more than tripled from 2019 to 2022, driven by high gross profits on new vehicles and low expenses. Today, while gross profits on new vehicles are declining and expenses have risen, the good news is that average profits are still about double what they were before the pandemic.”
“In terms of the buy-sell environment, the last three-and-a-half years have been a boom time. We have seen well over 2,000 dealerships change hands, about double the normal rate of buy-sells. While large public company acquisitions receive a lot of attention, the majority of the market consists of family-owned groups exchanging ownership with other family-owned groups at record-high prices.”
“However, just like profits in auto retail, we are beginning to see a slight slowdown in buy-sell activity. At the current rate, 2024 will likely be the fourth most active year for buy-sells, with around 500 stores sold, which is still 49% higher than the average number of stores sold from 2016-2019. The types of transactions and dealership values are also evolving from the boom times.”
“We have been fortunate to be involved in setting record-high prices for franchises such as BMW, CDJR, Honda, Kia, and Toyota over the past two years. While we continue to see strong prices for these brands, they are coming to market in smaller numbers, possibly as prices decline slightly. Our practice has seen significant growth on the divestiture side, with engagements to sell over 30 dealerships owned by several groups, both public and private. These are stores that are no longer a good fit for their owners, whether they are losing money, weak brands, or no longer fit geographically. Dealerships that remain profitable are selling for slightly less today than they were at the end of 2023, reflecting their reduced profitability.”
“We know that many dealers who wanted to grow have been waiting on the sidelines for prices to fall. Now is the time to act!”
Q2 2024 Haig Report® Highlights:
- Franchise valuation ranges and takeaways: Haig Partners reports no changes to franchise multiples for Q2 2024.
- The Fed is expected to start reducing rates to maintain strong employment. In 2022, the Fed raised rates to combat rapid inflation during the pandemic, and while this strategy has reduced inflation, the elevated rates are now putting pressure on the labor market.
- Inventory levels reach critical levels for many franchises: The CDK outage disrupted auto sales, making it difficult for many dealers to process transactions. This situation largely resolved in July when dealers were able to finalize deals from June. By the end of July, the average days’ supply of new vehicle inventory was 68, a 43% decrease from June, according to Cox Automotive. Despite this improvement, inventory levels for many franchises remain dangerously high.
- Industry sales stagnated in Q2: New vehicle sales in Q2 2024 were 0.7% lower than in Q2 2023, with significant variations in sales performance across franchises. Franchises that faced recent production challenges saw the most significant sales increases, while those with readily available inventory saw the most significant declines. Volkswagen (+30.8%), JLR (+20.8%), and Lincoln (+18.9%) saw the greatest sales growth, while Stellantis (-20.5%), Acura (-16.3%), and Infiniti (-14.6%) experienced the most significant declines. Some of the Q2 sales figures are impacted by the CDK outage.
Our practice remains very active. We are excited to advise owners of strong-performing franchises like Honda and Toyota, whose dealership values have changed little since their peak in 2023. We are also pleased to assist large dealer groups divesting dealerships to focus on their core assets. The remainder of 2024 should see a robust market for dealers of all sizes looking to grow.
About The Haig Report®
The Haig Report®, the longest-published quarterly report tracking trends in auto retail and their impact on dealership values, provides data and analysis on the performance of auto dealerships, discusses notable events affecting the automotive retail industry, identifies trends in the M&A market for dealerships, offers guidance on estimated value ranges for different franchises, and shares an outlook for the automotive retail buy-sell market. The Haig Report® is based on data collected from reputable public sources and interviews with leading dealer groups, dealers, bankers, lawyers,
