Dealership Profits Trending Down, but Buy-Sell Activity Remains Active

Haig Partners LLC has released its Haig Report for the third quarter of 2023, tracking trends in auto retail and their impact on dealership values.

Overall demand for dealerships remains high thanks to earnings that remain well above historical levels. At least 385 rooftops have traded hands through the end of Q3 2023. At this pace, 2023 will be the third most active year for dealership buy-sells, following 2021 and 2022, officials announced.

“The buy-sell market remains near record levels due to strong profits and significant demand from dealers who want to grow their companies,” said Alan Haig, president of Haig Partners.

Due to lower profits, Haig Partners estimates that the average blue sky value per publicly owned dealership at the end of Q3 declined by 12% compared to year-end 2022, a little over 1% per month. However, these declines are not being felt evenly across all franchises or regions.

This year, Haig Partners advised Al Hendrickson, Jr. on selling his Toyota dealership in South Florida for the highest price ever paid for a single franchise. Demand for Toyota dealerships remains elevated. In November, Haig Partners received very desirable offers for several other Toyota stores it is representing, officials reported.

In addition to Toyota, Haig Partners is seeing strong demand for a number of other franchises and for dealerships of almost all kinds located in regions that are growing quickly and have pro-business climates.

Two Mercedes-Benz dealerships were recently sold in Miami-Dade County for more than $700 million, including real estate. Haig Partners knows of other pending sales in Florida that could set record-high values for the franchises involved, the company noted.

Other geographic locations also seeing impressive prices for dealerships include Texas, the Southeast, Mid-Atlantic, Mountain States and the Southwest, where dealers want to grow.

Highlights from the Q3 2023 Haig Report include:

• The average publicly owned dealership made $5.4 million in the 12-month period ended Q3 2023, a 17% drop from year-end 2022. Despite the decline, profits remain more than 2.5-times higher than pre-pandemic levels.
• The average estimated blue sky value per publicly owned dealership remained elevated in LTM Q3 2023, down just 12% from the record levels seen in 2022.
• Valuations are becoming more complicated due to uncertainty about where future profits will settle, but desirable franchises and attractive markets continue to command premium prices.
• Public company acquisition spending rose in Q3 2023, reaching nearly $2 billion year to date, bringing spending above levels observed in the same period last year.

“Declining profits continue to reduce blue sky values from the record highs we saw in 2022, but they remain 2.3-times above pre-pandemic levels,” said Haig. “We believe blue sky values will remain elevated since buyers believe profits will also remain elevated. There is pent-up demand for new units and service drives remain full.”