The auto dealership buy/sell market hit an all-time high in the first half of 2024, with transactions almost doubling compared to pre-pandemic figures, as sellers capitalize on robust blue sky values to make strategic exits.
"The 2024 buy/sell market remains robust, hitting new records as industry consolidation continues unfazed by high interest rates," said Erin Kerrigan, founder and managing director of Kerrigan Advisors. According to Kerrigan Advisors' latest Blue Sky Report, the market saw 204 dealership transactions, representing 381 franchises in just six months, annualizing at an unprecedented 760+ franchises.
This heightened activity is largely driven by an increase in sellers coming to market to capitalize on historically strong blue sky values, which remain significantly above pre-pandemic levels. For most franchises, blue sky values are up on average 74%, despite a 17% drop from their peak.
"Dealership sellers recognize current blue sky prices as highly attractive on a historical basis," Kerrigan added.
However, the industry faces challenges such as lower vehicle affordability and tepid EV sales, which have impacted market dynamics. Moreover, recent technology and data management challenges, especially following the CDK cyberattack, have pushed more dealers toward considering sales sooner than anticipated.
The market's robustness is underpinned by well-capitalized buyers, including publics that have amassed $7.4 billion in available capital, up $370 million from Q1 2024. These buyers are particularly selective, gravitating towards high-quality, low-risk franchises.
"The more than 100 days’ supply chasm between the top and bottom franchises is separating the buy/sell market into the haves and have-nots," noted Ryan Kerrigan, managing director of Kerrigan Advisors. This selectivity has led to significant premiums for top franchises in high-demand markets, while weaker franchises face dwindling buyer interest.
Additionally, the shifting OEM strategies, especially around EV production, are influencing buyer decisions. Brands like Toyota and Lexus, projecting the lowest level of EV production, remain highly sought after due to perceived lower risk and better market alignment.
Kerrigan Advisors also observed a significant influence of OEMs in the dealership network configuration, sometimes challenging state franchise laws to shape the network to their advantage.
"We’ve seen some OEMs brazenly attempt, unsuccessfully, to employ a Right of First Refusal (ROFR) in states where the tactic is explicitly disallowed by franchise law," Erin Kerrigan reported. Such maneuvers by OEMs are setting precedents that could redefine dealership ownership and market dynamics moving forward.
In many regards, this shift in OEM mentality is a byproduct of Tesla’s initial retail success with the direct-to-consumer model and their exclusive ownership of the customer relationship and data. In the Kerrigan Advisors 2024 OEM Survey, 19% of OEMs surveyed plan to exclusively own the customer relationship and data in five years, a 16% increase from 2023, while just 14% expect dealers to retain sole ownership, a dramatic shift from historical precedent, when the dealers owned the customer facing relationship.
