Although automakers saw profits slide in the first quarter of 2022 as sales have been down each month due to low inventories and high prices, the companies actually selling the vehicles are enjoying record profits.
Not only are dealers enjoying record profits in 2022, the value of their businesses appear to be hitting new heights in the process, according to the Q1 2022 Haig Report. Helping to increase the value of their businesses is the fact since dealerships are profitable, more and more people want to buy them, helping stoke the competitive nature of the marketplace.
Buy-sell activity is off to a strong start in Q1 2022 with many private and public dealers looking to expand their networks, said Haig Partners, which tracks trends in auto retail and the impact on dealers. Retailers have not been hurt by recent economic headwinds such as higher interest rates, higher gas prices, higher inflation and declining GDP, demonstrating the strength of the auto retail business model.
Value is high so sell high
“The first quarter of 2022 may bring auto dealers their highest profits ever. This is a uniquely good time to be an auto dealer,” said Alan Haig, president of Haig Partners. “It raises the question as to how much longer these conditions can last.
“Our math indicates that the level of pent-up demand is so high that it will take three or more years before consumers will be satisfied and we would return to a situation where supply and demand would be in balance again.
“During that time, dealers should enjoy profits that are elevated above the years before the Pandemic and Chipdemic. Even so, there are risks on the horizon for dealers that include continued consolidation by the public retailers and ‘The Agency Model’ being pushed from the OEMs,” he continued.
Don’t buy a car, buy a car dealership
While not always the case, dealers appear to be immune to the current issues affecting the rest of the industry. This seeming invincibility has stimulated interest in the segment. The fact that the average publicly owned dealership recorded $7.1 million in LTM in the first quarter — a 10% jump compared to the year-end of 2021 — only adds fuel to the fire.
Making more money makes a dealership more valuable, and Haig said public equity valuations on dealers are up 100% compared to prior to the pandemic. Average blue sky values rose an estimated 117% from the end of 2019 and are at record-high levels
Public company spending on U.S. auto acquisitions was $588 million in Q1 2022 —35% higher than Q1 2021, it noted.
