Haig Report: Dealer Profits, Values, and Buy-Sell Activity Fall But Still Strong

As car dealership profits have fallen, demand for acquiring such businesses has weakened, according to new research from Haig Partners.

Business Haig Report for Q2 2024 found that dealer profits fell 32% in the first half of 2024 compared to the same period last year, and the average pre-tax income of public dealerships at $1 million fell 35% compared to the second quarter of 2023, leading to a decline in buying and selling activity and dealership values.

After a record number of transactions in the first quarter of this year, the report showed a 48% drop in the second quarter, with an estimated 84 roofs changing hands. Transaction volume in the first six months of 2024 was down 14.5% year-over-year, with the market heading for an 11% decline from 2023 for the full year.

Still, the report noted that volume was still strong despite the slower pace, thanks to “continued appetite for strong franchises in attractive markets.” Haig Partners CEO Alan Haig said 2024 is expected to be the fourth-busiest year on record for U.S. showroom buying and selling, with about 500 stores sold, which he said would be 49% higher than the average number from 2016 to 2019.

“We are coming out of a period in the automotive retail industry where conditions were almost too good to be true,” said Alan Haig. “Dealership profits more than tripled from 2019 to 2022, driven by strong new-vehicle gross profits and low expenses. Now, new-vehicle gross profits are falling, while expenses are up. The good news? Average profits are still about twice what they were before the pandemic.

“In terms of the buying and selling environment, the last 3½ years have been a good one. We’ve seen over 2,000 dealerships, which is about twice the normal buying and selling environment. … Similar to the gains in auto retail, we’re starting to see a slight slowdown in buying and selling.”

As with acquisitions, blue-sky values ​​fell this quarter, falling 11% from the end of 2023, which Haig Partners said was the market peak. But the report said the decline was smaller than expected, and the estimated second-quarter average of $21.8 million for publicly owned dealerships remained well above pre-pandemic levels for most brands.

In fact, the report pointed to several record-breaking transactions in Q2, including the sale of Hollywood Kia, which was reported to have sold for the highest price in the history of the Kia franchise. Ussery Motors (Mercedes-Benz of Coral Gables) was reportedly sold for over $300 million, which is believed to be the highest amount ever paid for a single dealership, according to Haig Partners.

The report also noted a shift in the market, with acquisitions of public companies down 94% from the first quarter as many large dealership groups looked to sell stores that no longer made sense for them, including stores that generate little or no revenue and those located far from the groups’ core markets. The most notable exception to this trend was Lithia and Driveway, which spent $79 million to acquire U.S. franchised dealerships, according to Haig Partners.

Alan Haig said the overall trend was to create an opportunity for smaller dealers to grow by taking over showrooms being sold by larger groups.

“Major takeovers of public companies often make headlines,” said Alan Haig, “but by far the largest part of the market is family groups passing on some of their savings to other family groups that have decided to exit the industry at record high prices.

“Dealers who are still quite profitable are selling 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 sitting on the sidelines for the last few years, waiting for prices to come down. Now is the time to get back on track.”

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